Does Financial Innovation Benefit the Society?
We live in a world which idolizes innovation. We tend to idolize companies which have produced some products which can be considered to be innovative. The underlying belief in the capitalistic system is that innovation is beneficial. It is innovation which creates more value, and since the capitalistic system allows the creator of innovation to reap the most benefits, it encourages innovation. However, when the word financial is put in front of innovation, the opinions tend to change very fast. This is because the general public believes that financial innovation isnt really beneficial to them. Maybe it helps a few investment bankers earn bigger bonuses. However, the lives of common people arent really better off because of financial innovation. In this article, we will have a look at some of the examples of financial innovation. Then we will try and analyze whether this innovation has been beneficial to society as a whole.
Examples of Financial Innovation
Financial innovation can be divided into multiple categories. There are innovations related to personal banking, corporate banking as well as capital markets. Some examples are as follows:
If the above list of innovations is scrutinized carefully, all innovations in the financial world can be broadly divided into two categories viz. technical and non-technical. These technological innovations definitely make the world a better place. For instance, because of e-banking, people spend lesser time in the banks. As a result, they can use this time to either earn more money or for leisure activities.
On the other hand, non-technical innovations need to be scrutinized more. Some of these innovations do benefit society. However, many of them arent as beneficial.
Some of the common metrics that can be used to classify financial innovations have been given in this article.
What Is A Good Financial Innovation?
To sum it up, it is important to note the difference between financial innovation and general innovation. Inventing credit default swaps is not the same as inventing the internet. This is because there is a possibility that credit default swaps will be misused. It is for this reason that financial regulators need to stand their ground. Sometimes, it may be alleged that these regulators stifle financial innovation. However, as we have seen in this article, not all financial innovation makes life better for the people using it.
Authorship/Referencing - About the Author(s)
The article is Written By Prachi Juneja and Reviewed By Management Study Guide Content Team. MSG Content Team comprises experienced Faculty Member, Professionals and Subject Matter Experts. We are a ISO 2001:2015 Certified Education Provider. To Know more, click on About Us. The use of this material is free for learning and education purpose. Please reference authorship of content used, including link(s) to ManagementStudyGuide.com and the content page url.