There’s general agreement within financial institutions that digitization is transforming their industries in fundamental ways, but many have yet to grasp the scale and depth of these changes. Today’s emerging technologies will not merely speed up transactions and reduce their cost through automation. They will also drive a significant restructuring of the entire financial sector, alter the balance of power between established players and newcomers, and change the way ordinary people manage and spend their money.
Three technologies will play particularly influential roles in this transformation.
Artificial intelligence advances
The revolution brought by AI will enable financial services organizations to better predict their customer needs and offer unprecedented levels of personalization. Most sectors, including financial services, have recognized that AI-ready business applications are becoming mainstream, and that they help accelerate digital transformation initiatives.
AI’s capability to predict outcomes with a high degree of accuracy opens up new possibilities in many areas. In the lending space, for example, business applications with data-driven intelligence platforms powered by advanced machine learning are helping organizations reduce delinquency rates, boost recoveries and improve operational efficiencies. Fortune 500 banks have saved millions of dollars by intelligently automating the reconciliation of fraudulent transactions using data-processing bots and conversational AI technology.
As AI evolves, the potential to open new paths to economic development is immense. Traditionally, consumers looking for a loan are evaluated on their previous credit history, captured by companies such as Equifax, Experian, TransUnion and others. With AI algorithms, the capability to predict credit worthiness through alternative credit scoring can potentially expand the marketplace to cover over45 million peoplein the US alone who have no credit score. Globally, the unmet financing needs of small businesses with no credit data is estimated at$5.2 trillion.
Blockchain has emerged as a potential alternative mode for payments, clearance and settlement transactions and numerous other financial functions. The details of blockchain technology are somewhat complex, but the benefits for financial markets are very clear:
•Disintermediation– There is no middleman in a blockchain network, and the elimination of middlemen poses a real challenge to many established businesses.
•Transparency– Every participant in a blockchain network has real-time visibility into to every transaction, which means parties who don’t necessarily trust one another can feel safe doing business.
•Security– Every transaction is cryptographically protected.
•Unhackability– While there is no system that cannot be hacked, blockchain comes very close.
•Automation– Blockchain has another important feature called smart contracts. Smart contracts essentially take action when certain conditions are met. This feature can be used to automate processes such as insurance claims processing, digital order fulfillment and much, much more.
Though blockchain is a promising technology, widespread commercial acceptance is still 3-5 years away. Nonetheless, some early adopters are already having success with it. For example,Infosys Finaclehas formed a blockchain-based trade network,India Trade Connect, that is being used by a group of banks to run a blockchain-based trade finance-processing solution. It will enable increased automation and transparency, while helping efficiently manage risks in trade and supply chain financing operations.
Cloud computing spreads
As cloud technology evolves and becomes more sophisticated, its role in the financial sector also evolves, from a cost cutter for peripheral systems like HR, procurement and receivables to a business enabler that can bring flexibility and innovation to traditionally on-premise systems. DBS Bank, the largest bank in South-East Asia, is a case in point. The bank has moved almost 50% of its compute workload to the cloud.
The migration of core systems to the cloud is in part driven by technology giants such as Google, Amazon, Facebook and Alibaba. All of these companies (and many others) have developed proprietary cloud assets, with database, infrastructure and application offerings that are available on an “as-a-service” basis. Performance and availability service level agreements for these cloud-based offerings now rival those available from on-premise solutions, while security – which is essential in building and maintaining consumer trust – is equivalent or even better.
Another factor boosting the viability of cloud computing for financial institutions is a friendlier regulatory environment. Many cloud service providers are working with regulatory bodies worldwide to help increase cloud adoption among their members. For example, Amazon Web Services has more than 70 data centres that are now compliant with regulations in 18 geographic regions.
All of these cloud-related developments taken together will mean that consumers will have faster access to new, convenient ways of managing their money.
As we enter a global dialogue on shaping our financial and monetary systems for sustainable growth and long-term societal well-being at theWorld Economic Forum’s 49th Annual Meeting, it’s important we consider these technologies and understand how they might change our conventional thinking about the way our systems can work.