Businesses constantly face the challenge of transforming into innovative and agile organizations while gaining competitive advantage in their respective industries. The aim is to strike the right balance: How do you innovate yet keep effective traditional processes at the same time? This question impacts all types of enterprises, and the financial industry is no exception.
Technology has moved to center stage in financial services. Processes are being automated left and right, digital transactions are the norm, and cryptocurrencies are fast becoming mainstream. Are you and your company doing enough to keep up with the competition? What are these new technologies that are transforming the industry? Below are the top five innovations disrupting the financial sector:
1. Blockchain technology
Blockchain (the technology behind the digital currency, Bitcoin) will do to the financial system what the internet did to media. Through a distributed database of computers, it acts like a digital ledger that records and manages not just financial transactions but virtually everything of value. Its technology is designed to be decentralized with "layers." Each layer is defined by an interoperable open protocol where companies and individuals can build products and services.
Like the internet, blockchain technology is strongest when everyone is using the same network. In a lot of areas, it seems like it will replace the current centralized business model of the financial services industry and could open up the financial system to people who are currently excluded—lowering barriers to entry and enabling greater competition.
2. Artificial intelligence (AI)
Financial institutions are already finding success with AI. If we define AI as the ability of machines to interact and learn to do tasks previously done by humans, then the history of AI goes back to the 1950s in the banking industry. Through machine interaction and learning, natural language can be processed and decisions are made increasingly faster and more accurate. AI can improve customer personalization, identify patterns and connections that humans cannot, and answer questions about banking issues in real-time. There are even case studies claiming that AI will surpass human intelligence by 2019.
3. Cloud computing
By embracing cloud computing services, companies in the financial sector can maximize efficiency in their operations. As long as risks are managed, many benefits can be achieved. Cloud services can help companies enter new markets, create new opportunities, and improve business processes simply due to the mobility it provides users. With it, financial firms can reduce the set-up and operational costs related to installing new hardware and software or can easily acquire storage in a data center by making the necessary infrastructure resources readily available.
4. Big data
The financial services sector has been traditionally data-intensive, and mining big data with machine learning technology allows a bank to harvest insights from data in ways that were previously thought of as impossible. This data can help solve complex process problems, analyze customer behavior, and allow banks to provide personalized service to its clientele. The age of big data has opened up a new landscape for emerging businesses based on cutting-edge technologies: equity platforms based on crowdfunding; new platforms that match lenders with borrowers in innovative ways; data visualization tools to follow companies, suppliers, and clients; and a whole range of new payment systems based on mobile and cloud technologies. These transformative players include early innovators as well as established financial firms who provide big data-related services that are shaking up the traditional financial markets.
5. Cognitive and analytical technologies
Cognitive and analytical technologies are set to bring about widespread change, not just when it comes to "defensive" functions such as risk and compliance, but also in "progressive" activities that drive marketing and revenue growth. These technologies include applications and infrastructure for risk management, fraud prevention, regulatory, and anti-money laundering (AML) compliance. While many risk and regulatory compliance processes may involve routine processes, there is often substantial human interpretation and judgment involved that leaves opportunities for cognitive and automation technologies to play an important role.
Massive disruption. Massive opportunities.
The financial services sector is going through a dramatic transformation—creating opportunities for those who are open to challenge long-held conventions and move quickly to embrace innovation. It is important to remember that the pace of change in employing these technologies will be driven not only by traditional banking players but also by financial technology (fintech) start-ups and technology vendors.
The challenge faced by regulators is to strike the right balance: to strive for the highest standards of consumer protection without eliminating the beneficial effects of responsible innovation. Regulators could revolutionize the financial system by rethinking ways to achieve policy goals without diluting and lowering their standards. The ultimate goal should be a financial system in which innovation leads to higher levels of economic welfare for people and communities of all income levels.
Is your financial institution ready to embrace innovation?