Legend has it that during the Battle of Waterloo in June, 1815, a courier was reporting on the events to Nathan Rothschild. Thanks to a Europe-wide network of messengers and carrier pigeon stations, the banker and financier was getting updates on the battle before anyone else.
Learning that Napoleon was being beaten, Rotschild immediately informed the British government, who did not believe him. Rotschild then immediately began to sell all of his stock on the English Stock Market. Believing that Wellington was losing the battle, everyone followed suit and began panic selling their own stocks, causing the stock value to plummet to practically nothing.
Yet Rotschild had a trick up his sleeve. At the last minute, his agents secretly began to buy up the stocks at rock-bottom prices. After the eight-hour battle, Wellington and Britain emerged victorious – yet overnight, Britain had lost most of its economy to Rotschild and had to set up a new Bank of England, which Rotschild controlled.
Of course, since then, carrier pigeons have flown away. And yet, the Rotschild story goes to show how technology, even in its most rudimentary of forms, and its function in carrying information, knowledge and money has always played a pivotal role in finance. And today, more than ever before, technology is changing the way we borrow and save, pay for things, change and send money.
As in all other sectors, information in finance is power. Using technology to communicate in real time is vital to finance. In fact, what distinguishes a successful business from a less successful one is its ability to receive information, interpret it and turn it, quicker than every other business, into results.
But that’s easy, you might reason, seeing that information and the means to gather it have proliferated. In part, that’s true – we no longer rely on carrier pigeons to gather the latest and most accurate information. A quick online search will give us any information that we want. Moreover, this abundance of information is no longer restricted to the few – it is freely available to experienced and ordinary investors alike.
And that is precisely what constitutes the poisoned chalice of the situation. There is so much information out there, and so various are the means available to us to gather such information, that sourcing the right data can become a Herculean task.
That means that, to use information efficiently and effectively, you must first build a reliable network of sources, including websites that provide a range, depth and frequency of analysis that can help, rather than hinder you, in growing your portfolio.
Technology also allows us to better anticipate, predict and plan our investments. Just consider that, for instance, only a few years ago, clients buying stocks and shares had to rely on a paper statement to see how their investments were performing. Fast forward to today and investors can access websites and see a breakdown of profit and loss across their portfolios in real time. This gives us valuable insight and allows us to see what element is contributing to our portfolio’s loss or gain.
Technology is also empowerment. Whereas once finance and trading were in the hands of the few, nowadays, the internet has given rise to a new generation of sole traders. And not only – technology has allowed small start-ups to play with the big boys and challenge existing business models. Using technology, they are delivering smart and sophisticated investment solutions to their clients, in the process enriching their profit margin.
Take Xoom, for instance. Based in San Francisco, the company allows clients to send small amounts across borders. The money is collected online and, by using technology to minimise the potential for fraud, Xoom can undercut the fees charged by larger and more traditional money-senders. This has allowed Xoom to double its stock – the company, which last year reported revenues of €60m, is now valued at more than €700m.
Technology also allows us to better anticipate, predict and plan our investments
Moreover, such start-ups are nimble and, thanks to cloud computing, they can scale up or down according to their business needs. Other services, such as Infrastructure as a Service, go hand in hand with cloud computing and allow start-ups and boutique finance firms to limit their risks and investment. In the bigger picture, active start-ups also enrich an economy’s entrepreneurial infrastructure.
Of course, not all start-ups and boutique firms use technology in the best of ways. Some even operate in what can be best described as a grey area. A young British firm called Wonga specialises in making short-term loans at such high interest rates that some commentators have described it as an online loan shark. Even the Archbishop of Canterbury has been reported as saying that he wants to use Church credit unions to compete Wonga out of existence. And yet, Wonga, by using clever algorithms and slick technology, is registering strong growth.
Larger firms are also harnessing technology to achieve a bigger reach and deliver faster services. Mobile and internet technology, for instance, is also playing an important role in finance. Banks are increasingly adapting to their clients’ lifestyles by offering mobile and online services that are safe and secure. Mobile phones are also increasingly being used for making and receiving payments.
The future will bring finance closer to our desktop and mobile devices, especially when clients gain more trust in the marriage between technology and finance. And that is only natural, within a modern context where it’s only the loose change that comes in coins and notes – the rest exists as bits and bytes.