Get Ready for The 10 Technology Trends That Will Change the Landscape of The Financial Services Industry

  • On July 16, 2018

 

Unless you have been on another planet for the past 10 years you will have certainly noticed that the financial services industry is experiencing some dramatic technology-driven changes over the past few years and the trend is going to accelerate. This forces many managers to change their IT departments, to optimize their business models by making them more flexible, efficient and innovative.

On the other hand and to make things even more exciting, customers are becoming more and more aware and demanding, comparing and searching to get value for money. Regulators are not making it easier either and require way more from the financial industry. Authorities themselves began to adopt new technologies that revolutionize their ability to collect and analyze information. Now is the time to wake up and smell the coffee – the pace of change does not show any signs of slowing down. Consider yourself warned.

 

1. FinTech will drive the new business model

Everything we know about the world of finance is rapidly changing in front of us. Innovation is the new normal, despite the protests of the traditional financial industry. Collaboration between traditional bank institutions and Fintech startups is becoming inevitable. According to a new PwC global report, the majority of global financial services companies plan to increase FinTech partnerships as 88% express concern they will lose revenue.

Fintech startups have become the Cinderella tale of the financial industry disrupting areas such as mobile payments, foreign exchange and insurance. The demand for fintech-related services will continue to grow despite the obstacles such as lack of funding and talent, regulations etc.

This will open up new opportunities for incumbents and disruptors alike, driving new business models in the process.

 

2. The sharing economy will infiltrate every part of the financial system

When it comes to supply and cost-effectiveness, Airbnb brought many changes to the hotel sector, just as Uber brought many changes to the transportation industry.

The growing collaborative consumption movement has evolved significantly in the age of Web 2.0. The digitally driven sharing economy holds a real potential in the financial services industry. According to PwC, the sharing economy will be one of the most disruptive forces this sector will encounter, from 2020 and beyond.

“How our work and business bring value to ourselves and to others, the benefits of being part of connected communities and the ability to pursue our passions so we can live the life we want will become ever more important as the sharing economy takes hold in 2018 and continues to transform our lives and our future.” Suistanable Brands reports.

Ultimately, a shared economy for financial services goes beyond banks. It is about choices, customer experiences, and how we connect with each other. Technology is greatly improving these processes, and a decentralization of the financial services industry is in equal parts possible and promising.

 

3. Blockchain will shake things up

The potential of the blockchain technology initially has been explored by the Financial Services sector but its impact goes beyond and now is adopted by all sectors, including energy, telecoms, and pharma.

The technology is moving from hype to reality and we will likely see business use becoming more common. This process is still underway, but as more companies are realising the business use of blockchain, funding for the technology is increasing. In fact, according to data in PwC’s DeNovo platform, funding in blockchain companies increased 79% year-over-year in 2016 to US$450 mn

Blockchain is an important fintech innovation – it will allow companies and individuals to agree and settle contracts and transactions very quickly and efficiently, and removes the need for intermediaries or central counterparties. The Technology is still facing regulatory and trust issues but its future is bright. The current surge in funding and innovation will likely continue, especially as blockchain’s public-ledger technology moves from a retail focus to form part of the operational infrastructure of institutions.

 

4. Digital will become mainstream

Over the next three to five years, digital will become the new normal for financial services, particularly in areas such as digital wallets and robo-investing (automated investment advice). Digital solutions will stop being novel, becoming instead ‘just how we do things’. Throughout this process, financial institutions will need to balance the need for separate digital transformation teams with the inevitability that digital will ultimately become the final platform.

 

5. Customer intelligence will drive revenue growth and profitability

Formerly confined to small sample (and unreliable) focus groups and surveys, technology advances have transformed customer intelligence. Services such as data analytics – powered by ever wider sources such as smart devices and the internet of things – will equip businesses with exponentially more information about what users say, do, and want. Those that use this data to build personalised products or keener pricing structures, for example, will be at an advantage.

 

6. Robotics and AI mean services will return on-shore

Financial institutions are already using robotics and AI to reduce costs and mitigate risks. These machines will continue to advance, performing a wider range of increasingly complex tasks. While only modest and evolutionary gains should be expected in the short term, rapid growth will occur when new generations of robotics are increasingly powerful, modular, and have the ability to learn. Taking an even broader view, the improved capabilities and labor cost reductions of robotic automation may spur a movement that sees previously outsourced service sectors brought back on-shore.

 

7. Core activity will move to the cloud

Until now, cloud solutions have mostly been confined to non-core or ‘point solution’ services, such as CRM, human resources or accounting. But as data storage costs continue to plummet and software offerings improve, the technology is rapidly becoming integrated into core activity. By 2020, many of finance’s core service infrastructures – such as consumer payments, credit scoring, and asset management account functions – will likely become cloud-based utilities.

 

8. Cyber-security will remain a top priority

Cybersecurity continues to be a primary risk focus for financial institutions of all sizes.

As guardians of value, financial institutions are already depressingly familiar with the spectre of cyber threats. Unfortunately, this is not likely to change for the better in the coming years, due to forces such as third-party vendors, cross-border data exchanges and the vulnerability of internet-of-things devices. There is a silver lining, however: the same capabilities that make networks more vulnerable can also strengthen defence. Data analytics may be deployed to monitor covert threats, while miniaturisation of hardware means biometric security options (such as thumb prints or voice recognition) are becoming more accessible.

 

9. Asia will emerge as a key innovation center

The Asian middle class swelled from 525 million in 2009 and the prognosis is to reach 3.2 billion by 2030, constituting 66% of the global middle class population and 59% of middle class consumption. On the other side, over the next 30 years, 1.8 billion people will move into cities located mostly in Asia and Africa.

These trends combined constitute new opportunities for financial institutions.

Asia has now become the global leader in research and development across all industries, accounting for about a third of corporate R&D spending. For the first time Asia had overtaken Europe in its number of innovation centres built and operated, with the region now host to nearly a third (29%) of all such centres globally. So strong is Asia’s growth that it could soon overtake the US as the biggest hub of innovation centers, if it continues to grow at the same rate.

At fintech, it comes second to the US in investor interest. During the next few years it is expected that many Western financial institutions will catalyze technology innovations by establishing Asian hubs.

 

10. Regulators will turn to technology, too

Finally, regulators are rapidly adopting data-gathering and analytical tools to improve intelligence and predict future problems instead of ‘regulating after the fact’. They will likely seek direct access (whether ongoing or during reviews) to the technology tools of many institutions. As a result, firms should prioritize transparency beyond the current regulation framework, working with authorities quickly, easily and accurately.