The Impact of Technologies on Financial Industry
With the current emerging technological landscape, traditional banking is on the verge of becoming obsolete. The most patent flaws in the traditional financial model were exposed in the pandemic, and the industry needed to adapt.
Hence, with ecosystems completely relocating to digital or online environments, the financial industry also got in on the shift.
As a result, now customers expect seamless financial services and assistance behind the push of a smartphone button. In fact, according to a recent survey, 46% of people have wholistically shifted to digital channels for all their immediate financial needs.
So, how is the financial industry planning on coping with these expectations? What new changes are being brought around in the financial industry currently, and how will they impact it? Read on to find out!
Emerging technology trends and their impact on the financial industry
Some of the upcoming and most anticipated technological trends emerging from the financial industry and their respective impacts are as follows.
Artificial Intelligence (AI) and Machine Learning (ML)
After seeing the successful adoption and implementation of AI and ML in various other industries, the financial industry was keen on jumping on the bandwagon. These key pieces of technology are pushing the ongoing digital transformation of the financial industry.
But how? Chatbots are some of the most common implementations of AI in current banking websites and platforms. These bots can study patterns while conversing with the customer, learning with every interaction. They can then successfully automate the initial customer service interaction and solve primary issues.
But apart from this, AI and ML have a plethora of technological applications in the current financial industry landscape.
With data-driven technologies at the center of their approach, AI and ML are leveraged by fintech startups, tech giants (e.g., Google), etc., to render the conventional banking system obsolete.
Also, they bring Robotic Process Automation to the table, which is responsible for streamlining recurring and mundane operations and allowing financial institutions to focus their human resources elsewhere.
Last but least, AI and ML also have their roots sunk deep into risk mitigation and cyber-security.AI integrated into the financial systems of organizations is tasked with real-time threat monitoring and analytics.
This allows for faster response by the organizations if a breach is imminent. Once the system flags a threat, an alert is triggered.
The backbone of the sharing economy, blockchain is essentially a decentralized ledger. Blockchain is the primary technology behind bitcoin, and it is extremely reliable and secure because of three main characteristics:
- There are countless copies of the public ledger, and they are distributed amongst all the current users without handing control to a single person.
- With cryptographic keys in place, encrypting blockchains for maximum security and taking away the ability to change or alter them.
- Blockchain is decentralized and governed collectively. Changes will only be brought about if everyone associated with the decision is in on it.
Blockchains are well on their way to making the financial ecosystem much more efficient, providing increased transparency, heightening security, and hastening core processes.
This entire model is now posing a significant threat to the conventional financial model, governed centrally by bank owners and regulators. But with blockchain primarily associating with cashless currency, it will soon be a mandate for most small banks and financial institutions.
To make a point, let’s consider some past instances where banks and financial institutions have leveraged blockchain for faster and more secure transactions. They are:
- HSBC and Wells Fargo use blockchain technology for settling foreign exchange trade rates.
- PayPal and Mastercard allow payment via blockchain currencies.
- JP Morgan has gone ahead and created its cryptocurrency (Onyx).
Automation is now making its way into every small facet of every industry. With the ability to completely automate repetitive tasks, financial institutions can now leverage automation to cut down costs by 25-30%.
All this falls on the shoulders of one of the most commonly used automation tools in the financial industry, i.e., Robotic Process Automation (RPA). As discussed earlier, RPA has many applications in the financial services industry.
By pre-programmed rules in place to sift through structured and unstructured data, RPA can handle complex processes such as approvals, digitization, risk-flagging, etc.
RPAs can also contribute by logging data, generating reports, and, most importantly, automating recurring tasks. As a result, the scope for human error reduces drastically, and processing speed experiences a significant boost.
Let’s consider the application of RPA in the current financial industry landscape. Certain financial institutions have given RPA power over the instant payment module. RPA can be programmed to check if all underlying conditions are met, and if they are, the transaction can be pushed through.
Last but not least, RPA poses another great opportunity due to its automatic document and report generation. As a result, it helps financial institutions by simplifying auditing and compliance.
As mentioned earlier, people existing in a technologically evolved landscape often demand seamless financial services on their smartphones. This is where cloud computing is the missing piece of the puzzle.
Cloud computing is the only way financial institutions can keep up with the needs of a digitally-inclined customer. By providing instantaneous access to data and the availability of extensive resources without human intervention, the financial industry is all set to scale new heights.
Packed with new technology applications like AI, ML, Blockchain, and so on, financial institutions are now heavily relying on fintech.
These fintech applications are now essential for the functioning of all prominent financial institutions in the world, including a massive chunk of the smaller ones.
Therefore, if you are a part of the current financial industry, make a note of these innovations and how they can benefit your business. Leverage this wave of fintech to help your organization scale new heights.