We’ve already seen digital transformation across vast swathes of the economy but the finance industry could be next. Key technologies will disrupt business models and change the way that the average person conducts their financial affairs to the point where it is unrecognizable.
In this post, we take a closer look at what’s coming down the pike. Here are our predictions.
Artificial Intelligence Will Drive Value
Artificial intelligence will change the way the financial system works by increasing the ability of firms to crunch data at scale. Innovations will improve security across the entire financial industry, spotting potentially fraudulent transactions and making banking a more seamless process. We’re likely to see the rise of genuinely helpful robot advisers, service robots online and in bank branches, and improved market tracking funds that consistently outperform the market as a whole.
Currently, institutions use AI sporadically. However, in the future, that will change. The combination of machine learning and facial recognition will lead to the development of AI-first banks that are “digitally native” disrupting older institutions.
Blockchain Will Bypass Traditional Financial Protocols
Banks exist because they are trusted gatekeepers in financial transactions. Their primary role is to reliably and truthfully debit one account when crediting another.
However, blockchain undermines that function. Customers no longer require a trusted intermediary to perform crediting and debiting operations on their behalf. Instead, the system for doing that is built into the fabric of the technology itself.
Distributed ledger technology is a mortal threat to the traditional banking industry. If it is successful and widely implemented, it will replace traditional banking systems entirely, putting power back in the hands of consumers and potentially eliminating legacy banking as we know it.
Blockchain, though, will go beyond just being a facilitator of cryptocurrency exchanges. It will also be a tool for lending, fundraising, borrowing, contract creation, and complex financial arrangements. International financial barriers will dissolve rapidly.
Cloud Computing Will Improve The Situation For Financial Services Firms
Financial services firms currently operate at high costs. However, cloud innovations may change the situation before 2030. Most of these benefits will be felt at the backend. For instance, McKinsey estimates that better use of the cloud will lead to:
- A 29 percent improvement in infrastructure cost efficiency
- A 38 percent increase in the efficiency of migrated application development and maintenance
- A 57 percent reduction in migrated application downtime
- A 26 percent reduction in costs associated with technical violations
Combined, these factors should lead to a significant reduction in the total cost of the enterprise, allowing fintech firms to offer their customers lower prices.
We’re also likely to see the emergence of greater international harmonization of the financial system. Banks and other institutions will become immediately identifiable via their LEI management portal, allowing stakeholders to quickly trace transactions and find out where they are coming from. Banks will also work more effectively across borders. International currencies may cease to be the dominant form of exchange, with new digital currencies taking over and providing greater stability.
Building trust in the financial sector is challenging. While IoT is currently languishing in the hype cycle, it is actually coming of age and finding more uses across the economy. The ramifications for security and trust are enormous.
For instance, we’re finally seeing the emergency of blockchain-enabled RFID tagging. This approach is making supply chains more robust.
However, technology has the potential to go well beyond this. IoT implementations, for instance, could dramatically improve insurance risk assessments. Insurers could fit devices into equipment or vehicles and then use that data to determine what premiums should be. In the past, auto insurers relied on indirect indicators of a person’s risk. Now, though, they may be able to add direct measures to the mix and, perhaps, eliminate indirect indicators altogether.
IoT will also make it possible for financial firms to interact with customers more often, The tech is enabling insurers to establish more intensive and targeted customer feedback. IoT devices increase the number of touchpoints available for interactions, boosting overall brand awareness and trust.
Low Code Application Development
In the past, financial firms had to hire coding talent in-house or pay other firms to outsource it. But now, things are changing. No-coding or low-coding development platforms are becoming commonplace, allowing developers to create apps using graphical interfaces (similar to website builders). These make application construction more intuitive and allow companies to develop apps faster.
Financial firms will likely use no-code development applications for cloud-based applications. They will also seek to automate many of these processes, improving compliance while reducing labor costs.
What previously took years for financial companies to achieve can now be done in months. No-code and low-code projects could potentially liberate thousands of technicians to work on other projects or in fintech startups looking to offer new types of services.
Much of the financial system is already automated. However, hyper-automation will take this to the next level. For instance, process automation could spill over into the realm of decision-making, reducing the burden on managers and executives.
For instance, automation software could set out logical workflows and timelines in the future. Robots could allocate workflow to reps or handle the information to distribute tasks among team members more efficiently. Clear logic and high repeatability will become the aim of the game.
We’re already seeing this type of technology at work in back office operations. Hyper-automation is being used for automating accounts receivable and payable, and end-of-period accounting. Thus, replacing additional manual work will likely be easy, letting financial firms respond more fluidly to changes in demand for their services.
Lastly, we’re likely to see the proliferation of open-source, software-as-a-service applications. These are low-cost and let firms free up time for both themselves and their customers.
Serverless architecture means that banks and insurers won’t have to invest in systems in which they have no expertise. It also means that they can pay third parties to update systems for them, instead of having to do all the work themselves.