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How Tech is shaping the Future of Finance

Throughout history, banks and insurance companies have followed highly profitable, relatively static business models. Today, however, they find themselves in a battle with innovators attempting to disrupt their corporations on every side. Moreover, the diversity and high valuations of these “fintech” innovators seem limitless-crowdfunding, peer-to-peer lending, mobile payments, bitcoin, and robo-advisors.

Nevertheless, some might be familiar with this tune. A similar phenomenon captured the interest of journalists and investors in the 90s and digital cash, but both failed to make an impact. Scale, trust, and regulatory know-how have traditionally been important factors in the financial services industry’s resistance to past innovations.

Nonetheless, past performance cannot predict future success in investing, and the same may be true of banks’ and insurers’ records of beating innovators.

These technologies can significantly impact the financial sector. Chatbots and automation reduce man-hours in the financial services industry, improve customer relationships, and increase profitability. Depending on the function, you can adapt and greatly benefit from many new technologies in financial services.

Due to the use of new technologies, processes today are simpler, faster, more accurate, more accessible, and change consumer perception of and interaction with money. However, the revolution in finance technology is ongoing, and the following are some of the most pivotal trends that are likely to shape the future of finance. Due to this reason, nowadays, most companies and even banks prefer to hire candidates possessing an MBA degree in Applied Finance

With that being said, let’s look at some ways in which technology is reshaping the financial sector. 

Blockchain

We still have a relatively low adoption rate for blockchain, which is an emerging technology trend transforming the world of financial services. Blockchain technology, the technology behind Bitcoin, is being adopted by large banks, including JP Morgan Chase, which is a big deal in the financial sector. By converting their clearing and settlement processes to the blockchain, investment banks could save $10 billion, according to Accenture.

Although blockchain is one of the most exciting new technologies in the financial services industry, it is not yet widely available. Most banks that are implementing blockchain solutions (including checking, cash management, trade finance, etc.) do so independently. Smaller financial institutions may face this significant obstacle without developing a solution. Despite its short existence of only a few years, blockchain has quickly become a mainstream solution for payments, fraud detection, loans, autonomous contracts, and more.

Access to Open Banking

Traditionally, the financial industry has guarded its customer data jealously to secure its market advantage. Typically, banks have done this by denying potential competitors access, but they have sometimes denied their customers full control over their data. Due to the emergence of data privacy laws, open banking has experienced a resurgence today, increasing collaboration between fintech firms and traditional banks.

By 2026, open banking is expected to generate $43.15 billion, generating $7.29 billion in 2018. The advent of open banking allows fintech companies to leverage big data to provide better services that help people lower their debts, increase their income, and make more profitable investments.

Massive Value Creation Driven by Artificial Intelligence

As machines identify factors driving outperformance, financial models will be honed by automatic factor discovery across the sector. Knowledge graphs and graph computing will also play a greater role as AI conceptual representations. By leveraging a wide range of disparate data sources, they will be able to help identify patterns within complex financial networks. This will have wide-ranging implications for years to come.

Last but not least, analytics that incorporates enhanced privacy protections will encourage the minimal use of data to develop financial models or the use of only relevant, necessary, and appropriately sanitized information. Among them is federated learning, a method of distributed machine learning designed to address the problems associated with centralized datasets by bringing computational power to the data instead of vice versa. In addition, consumer protection will be enhanced by advanced encryption, secure multi-party computing, zero-knowledge proofs, and other privacy-aware data analysis tools.

Artificial intelligence will be used across the entire financial industry, from the front offices to the back offices. Customers’ personalized applications include:

  • Products and personalized user experiences.
  • Intelligent service robots.
  • Automated transactions.
  • Robo-advisors.
  • Alternative credit ratings based on non-financial data.

Whereas applications in the middle- and back-office include:

  • Smart processes
  • Advanced knowledge models (epitomized by knowledge graphs).
  • Natural language processing for fraud detection.

The “AI-first” institution can achieve higher efficiency by automating manual tasks to the point of zero (a “No-Ops” mentality) and using advanced diagnostics to replace or augment human decisions. In addition, a broad application of traditional and cutting-edge AI technologies, such as machine learning and facial recognition, to analyze large and complex sets of customer data in near real-time will improve performance.

Future “AI-first” banks will also benefit from the speed and flexibility of “native digital” companies. In days and weeks instead of months and years, they will release new features at a rapid pace. Moreover, banks will work closely with non-bank partners to develop new value propositions that integrate journeys, technology platforms, and data sets.

The Way Forward

All in all, businesses can gain a lot from incorporating these new technological innovations in their day-to-day operations. It is impossible to predict whether a technology will be successful, but many of them will. The key is to explore the options for your financial organization, adopt what works for you, and continue to grow and expand those options.

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