The Internet of Finance

20 years ago, you had very limited choices when it came to knowing, analyzing or buying financial products. You went to a bank for a fixed deposit and nothing else. A stock broker would sell you stocks. To get information about companies, you would either buy a (hopefully unbiased) magazine, or go through the cumbersome process of requesting physical annual reports for analysis. You wouldn't know about competitive products or better rates unless you were willing to toil and wait forever.

Everything has changed today. Fixed income no longer means just a fixed deposit; it could mean a fixed income mutual fund, a bond traded on a stock exchange, a government security bought at an auction. Banks and stock brokers and nearly every financial advisor will sell you all these products, mostly at the same time. Stock exchanges and the regulator (SEBI) have tightened disclosure requirements, making it mandatory for listed companies to provide information to everyone on a regular basis. We have gone from too little information to too much.
The internet has helped substantially helped investing and finance in general.
Discovery has become easier. How do you know where to invest? For stock market investments, exchanges provide a wealth of information, including stock prices, historical charts, and financial results. Mutual funds provide a daily unit price, information about products and even portfolio details regularly. Bond markets help corporate investors by providing details of every single trade.
Transactions are now less expensive and more spread. If you had to find a "Bombay Broker" earlier, today you can execute a stock market trade through a terminal located in the remotest corner of India. Or on the internet, or on your mobile phone. Trading costs have come down from the average 1% per trade we were used to earlier, to less than 0.20% today. Technology has rapidly scaled risk management, where brokers will square off your trade automatically if you lose more than your "margin", instead of the earlier method of hoping you will somehow find the money to cover your losses.
Management and Tracking is better — as prices change every day, what you own changes in value; many online web sites now allow you to track your portfolio.
Disclosure and regulation have improved. You can take your contract note and verify it against the stock exchange — earlier, there was no way you could verify your trades happened at the price your broker said it did. Regulators now specify that any shares bought or sold by an "insider" or even a "substantial acquisition" must be revealed to investors — this is revealed on exchange web sites.
But still things need to change.
Abuse has increased. With electronic transactions, unscrupulous agents have been able to route investor money into their own accounts and rapidly trade it, creating losses. With way too many products, financial intermediaries have been able to confuse investors and prod them into products that provide higher commissions, to the investor's disadvantage. Technology helps in obfuscation, because if you get a complicated page consisting of numbers that end up with your owning Rs. 1 crore in 30 years, you're likely to rejoice instead of doing the actual calculation that the return is approximately 4% a year, less than you can get in your bank today. And then, the dark side of the internet consists of people who manipulate stocks by posting biased comments on stocks they own, promising dream returns while selling their inventory.
You still can't easily buy financial products online. Onerous requirements of KYC (Know Your Customer) make it difficult for any new user to buy products, but the bar isn't high enough to weed out the dirty people the KYC system was created for. A fixed deposit still needs physical signatures. To create a brokerage account or to buy a mutual fund, the regulators need further proof that you really exist, in the form of an 'in-person verification'.
There is hardly any investment in investor education. People get carried away with the fast pace of trading shown on TV channels and lose money — regulators, instead of creating more awareness, have decided that people with less money shouldn't even be allowed to trade products like derivatives, with the crude barrier of providing an "income proof". Too many products and too little education mean people will get suckered every single time.
Regulations are inadequate. Companies aren't required to provide balance sheet and cash flow statements every quarter, though they must provide profit statements; this isn't enough for investors to really gauge a business. Real estate investments have very little regulation or protection for investors. Traders create complicated methods of stock manipulation through robot-controlled trading, and regulatory fraud detection technology has lagged behind.
But there's no rolling back the use of technology in the field of money. It's enormously powerful in its simplicity — I can learn, I can buy, I can manage and I can sell with nothing but a connection to the web. But with great freedom, comes great responsibility — to attract the next round of investors, our systems need to address abuse, education and regulation.