Top financial innovations in the 21st century
In this article, Nithisha CHALLA (ESSEC Business School, Grande Ecole Program – Master in Management (MiM), 2021-2024) presents top financial innovations of 21st century that have brought significant changes in people’s life.
Introduction
The 21st century has seen remarkable financial innovations that have transformed the way people interact with financial services. Innovations like blockchain, quantum computing, artificial neural networks, digital transactions, crowdfunding, and Apple Pay have not only increased convenience and accessibility but also enhanced security and efficiency in financial markets. Understanding these innovations’ history, impact, and statistics highlights their significance in shaping the future of finance. The 20th and 21st centuries, in particular, have seen rapid advancements due to technology, leading to groundbreaking changes in financial services.
Top Financial Innovations that Changed People’s Life in the 21st century
Our selection of financial innovations is based on their wide adoption by firms and individuals (usage in many countries around the world).
- Mobile Banking: Services like Apple Pay and Google Wallet have allowed consumers to make payments using their smartphones, enhancing convenience and security.
- Blockchain Technology: Beyond cryptocurrencies, blockchain offers secure, transparent record-keeping for various financial transactions and contracts.
- Quantum computing: Quantum computing leverages the principles of quantum mechanics to perform complex computations at unprecedented speeds, promising to revolutionize fields such as cryptography, financial modeling, and optimization.
- Artificial Neural Networks: Artificial neural networks, inspired by the human brain, are a subset of machine learning that excel in pattern recognition, data classification, and predictive analytics.
- Digital Transactions: Digital transactions refer to the electronic transfer of money or assets between parties, facilitated by technologies such as online banking, mobile payments, and digital wallets.
- Crowdfunding: Platforms like Kickstarter and GoFundMe allow individuals to raise funds for projects, businesses, or personal causes from a large number of people.
- Apple Pay: Apple Pay, introduced by Apple Inc. in 2014, is a mobile payment and digital wallet service that allows users to make secure, contactless payments using their Apple devices.
We explain below how these financial innovations impacted people’s lives and companies. We also give some statistics to measure the impact.
Mobile Banking
The first mobile banking services were introduced in Europe and Asia in the early 2000s. Banks like Wells Fargo and Bank of America first introduced it. And M-Pesa, a mobile phone-based money transfer and micro-financing service was launched by Vodafone in Kenya in 2007. Later on, PayPal expanded into mobile banking with its app in the early 2010s.
This innovation has allowed customers to conduct banking transactions anytime, anywhere using their mobile devices. This significantly increased financial inclusion, especially in developing countries where traditional banking infrastructure is lacking. Mobile banking enables real-time transactions and instant access to financial services.
According to an article posted on Business Wire, the global mobile banking market was valued at $715.3 million in 2018 and is expected to reach $1,824.7 million by 2026, registering a CAGR of 12.2% from 2019-2026. As of 2020, over 1.75 billion people worldwide were using mobile banking services. In 2020, mobile banking transactions accounted for 42% of all online banking transactions.
Blockchain Technology
In 2008, Satoshi Nakamoto (pseudonym) introduced blockchain technology with the creation of Bitcoin. IBM implemented blockchain solutions for supply chain management for the first time and Ripple used blockchain for cross-border payments and remittances.
Blockchain Technology provided consumers with increased transparency and security in financial transactions. It allowed for the development of reduced costs and time for cross-border payments. Which also helped customers with enhanced privacy and control over personal financial data.
To speak on how much these innovations affected people, the source cited is Yahoo Finance, as of 2021, the global blockchain market was valued at $4.93 billion and is projected to reach $227.99 billion by 2028. And over 46 million Americans owned Bitcoin as of 2021.
Block Chain technology ecosystem
Source: Analytics Vidhya
Evolution of number of Block Chain wallet users
Source: Demand Stage
Quantum Computing
Various contributors, including IBM, Google, and D-Wave Systems, have significantly advanced quantum computing. Its first development idea commenced in the early 2000s (concept development), with significant advancements in the 2010s. JP Morgan Chase initially explored quantum computing for financial modeling and risk analysis. Later on, Goldman Sachs researched quantum algorithms for trading and portfolio optimization.
This technology, developed by companies like IBM and Google, offers potential breakthroughs in solving problems that are currently intractable for classical computers.
Quantum computing provided customers with enhanced computational power that led to more accurate financial predictions and better investment strategies. It showed the potential to revolutionize financial modeling, risk assessment, and encryption.
To speak on how much these innovations affected people, Quantum computing could potentially break current encryption methods, necessitating new security protocols. According to NASDAQ, the global quantum computing market size was valued at $472 million in 2021 and is projected to reach $1.76 billion by 2026.
Global Quantum computing market revenue
Source: Market.us scoop
Artificial Neural Networks
Initially conceptualized by Warren McCulloch and Walter Pitts, modern advancements were made by researchers and companies like Google and IBM. The approximate date of innovation was in the early 1940s (initial concept), with significant advancements in the 21st century. Blackrock uses neural networks for asset management and financial forecasting. Whereas JPMorgan Chase employs neural networks for fraud detection and algorithmic trading.
These networks, utilized by companies such as Google and BlackRock, have significantly advanced capabilities in areas like fraud detection, financial forecasting, and personalized financial services. This innovation enhanced fraud detection and prevention, leading to greater financial security. Provided personalized financial services and products based on user behavior analysis.
To speak on how much these innovations affected people, neural networks have significantly improved fraud detection rates, reducing financial losses for institutions and customers. According to Allied Market Research, The global neural network market was valued at $14.35 billion in 2020 and is projected to reach $152.61 billion by 2030
Digital Transactions
PayPal (founded by Elon Musk, Peter Thiel, and Max Levchin) popularized digital transactions in the early 2000s. PayPal with digital transactions revolutionized online payments and money transfers. Square, another company provided digital payment solutions for small businesses and individuals in the early 2000s.
This innovation has provided enhanced accessibility to financial services for unbanked populations. It reduced the dependency on physical cash and increased the convenience and speed of financial transactions.
To speak on how much these innovations affected people, according to Forbes, 53% Of Americans Use Digital Wallets More Than Traditional Payment Methods. The global digital payment market size was valued at $58.30 billion in 2020 and is projected to reach $180.23 billion by 2026.
How does Digital transaction work?
Source: Forbes
Crowdfunding
In the mid-2000s, platforms like Indiegogo (2008) and Kickstarter (2009) popularized crowdfunding. Kickstarter facilitated funding for creative projects and startups. Indiegogo enabled a wide range of campaigns from personal causes to tech innovations.
This innovation has provided entrepreneurs and creators with access to capital without traditional funding sources especially in developing countries where traditional banking infrastructure is lacking. Enabled community participation and support for innovative projects, lowering entry barriers for new businesses and ideas.
To speak on how much these innovations affected people, over $5.7 billion has been pledged to Kickstarter projects since its launch. According to Aimlon CPA, the global crowdfunding market was valued at $12.27 billion in 2020 and is expected to reach $25.80 billion by 2027.
Apple Pay
Apple Inc., led by CEO Tim Cook, introduced Apple Pay in 2014. Initially, ApplePay integrated with Visa and Mastercard for contactless payments. Later retailers like Walmart and Target adapted to accept Apple Pay for customer convenience.
This innovation has transformed the payment landscape, offering enhanced convenience and security for consumers and businesses alike. This significantly promoted the adoption of contactless payment methods and reduced the need to carry physical wallets.
To speak on how much these innovations affected people, mobile payments use Apple Pay and similar services accounted for 25% of global point-of-sale transactions in 2020. According to Apple, as of 2021, Apple Pay had over 507 million users worldwide.
Conclusion
Financial innovations have profoundly transformed the way individuals and businesses interact with money. From the widespread adoption of crowdfunding to digital transactions and Apple Pay, these innovations have made financial services more accessible, efficient, and secure. As technology continues to advance, the financial landscape will undoubtedly see further changes, continuing to shape and improve people’s lives worldwide.
Why should I be interested in this post?
Management students, as future leaders and decision-makers, should understand financial innovations for several compelling reasons. These innovations not only influence the financial landscape but also have significant implications for strategic decision-making, operational efficiency, and competitive advantage.
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Useful resources
Wikipedia Financial Innovations
McCulloch, W. S., Pitts, W., A Logical Calculus of the Ideas Immanent in Nervous Activity, Bulletin of Mathematical Biophysics, (5) 115-133, 1943.
Retail technology innovation hub How Apple Pay has revolutionised payment processing
Allied market research Mobile Payment Market Expected to Reach $12.06 Trillion by 2027
GoFundMe What is Crowdfunding?The Clear and Simple Answer
Go Cardless Digital transactions: what are they?
Aspire Systems Financial Applications of Neural Networks
About the author
The article was written in September 2024 by Nithisha CHALLA (ESSEC Business School, Grande Ecole Program – Master in Management (MiM), 2021-2024).
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