How Fintech has been instrumental in changing the customer behavior

Do you know what the word Fintech implies?

Fintech is a combination of two words namely finance and technology. It is the culmination of these two fields that have made consumers the real kings that they are!

Information on the fingertips!

Today, information, thanks to the internet is at everyone’s fingertips. There were days not too long when people had to read books and try to understand or derive application based knowledge but today, smartphones and connectivity has brought the whole wide world of information to only a click away. Now, any chore is only a press of a button away; including making decisions as to what to buy, where to purchase, the comparison of prices and even making payments online all in a flash of a second without actually traveling anywhere – that’s Fintech for you!

Business startups have the best of times:

Startups and expansions now may look like cake walk when people can only post their ideas on the internet for the whole world to view and maybe someone who is on the other side of the globe may think that it is a brilliant idea and stake a big sum of money into the new business without even knowing from whom the idea originated. That is what is this crowdsourcing is all about?

Traditional startups had to run from pillar to the post to be able to get loans from the banks and to woo the investors to put some money into the business. But thankfully, those are the days gone by!

Checking balance in the bank account is so easy!

Since the internet has cast its net on the people and the people have become smartphone savvy banks have experienced a steep spike in the number of account holders. The fact that net banking and mobile banking is so convenient has prompted people to open bank accounts even with nominal savings because they want to keep their money stashed safely. Also, with a bank account, using the money to transfer online albeit even for smaller expenses like at the grocers, shopping malls, and even cabs is so easy. One can literally travel cashless but still be able to carry as much in their account as they can.

The other day, I saw a granny checking her account balance on the phone and I smiled and thought to myself, this is amazing. In normal circumstances, she would be checking it on the ATM or at the teller in a bank but Fintech gave her this awesome power to check anywhere even if she is waiting in a queue at the bus stop!

Arbitrage- Making Financial Market Efficient

When there is purchasing and selling of any asset which is done simultaneously so that if there is any variation in the price, it won’t affect them and there will be complete profit.

Definition of Arbitrage

The profits are got on such type of trading by taking the advantage of the difference in the price of the financial instruments that are either alike or similar which will be available on the different marketplace or sometimes present in another form. Arbitrage came into existence because there was inefficiency in the financial market. If the financial market was efficient the arbitrage would not have existed.

Arbitrage in Depth

When a trader wants a profit that is risk-free what he can do is buy a security from one marketplace and as he is doing so, simultaneously negotiate to sell it on the other marketplace for a significantly high price, this is where arbitrage takes place. There is a mechanism that is provided by arbitrage that will make sure that the price of the security does not diverge substantially from the price at which the security is sold and agreed upon for a longer time.

The errors on the pricing of the securities in a marketplace has become more and more as the technology has advanced over time leading to difficulty in gaining profits. There are traders who have started depending on systems developed for trading that are computerized which are programmed to supervise if there are any fluctuations in the financial instruments that are alike. If there are any pricing that is set and is not efficient there is an action that takes place on it immediately which will lead to the elimination of this opportunity just within a couple of seconds. Making use of arbitrage has become necessary in the financial market.

Example to Understand Arbitrage

Let’s consider an example that is very simple to explain arbitrage: Suppose there are stocks that are traded by a company A. This company trades its stock on 2 exchanges that are New York Stock Exchange and London Stock Exchange. Suppose at New York Stock Exchange the stock is traded at $30 and simultaneously the same stock is traded on London Stock Exchange at $30.05. Noticing this the trader will be buying the shares on New York Stock Exchange and sell it instantly on London Stock Exchange making of profit of 5 cents on each share. The company might continue exploiting this arbitrage till the time the New York Stock Exchange runs out of any inventories of the company or both the stock exchanges adjusts this price to remove this opportunity.

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