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The year 2020 marks the beginning of a significant phase in the financial services industry, founded on a slew of disruptive innovations of the previous decade. A majority of industry players are continuing to digitize and automate their processes, leverage data and analytics to steer strategic business decisions and develop new service delivery cultures to tune up their customer experiences. Thus, the financial services industry is opening up to the idea of ecosystems and partnerships between challengers and traditional banks.
For financial service providers and other connected businesses, staying primed about the road ahead will be instrumental in pivoting their next moves. Here’s a quick roundup of the most popular emerging trends on the financial services horizon:
Emergence of the sharing economy
Peer-to-peer payment platforms such as PayPal, Venmo, and Zelle have inspired consumers to route for money without approaching traditional institutions. The popularity of these platforms has encouraged not only big legacy banks to develop their own versions of a similar offering, but also drive non-traditional players such as Google, Amazon, and Facebook to improve their e-wallet offerings.
Fintech start-ups often need resources geared with specific domain and technical skill sets. Thanks to the sharing economy they can access on-demand professionals that match their eligibility criteria, ready to take up ad-hoc engagements at a relatively affordable budget. Thus, the sharing economy has made procuring ideal resources cheaper and more efficient, compared to hiring part-time or permanent employees.
Role of blockchain in innovation and cross-border payments
Blockchain is undoing outdated business models. According to Accenture and Spain’s Santander, this technology is expected to save as much as USD 20 billion in annual operating costs for the Banking and Financial Services (BFS) industry.
Adoption of blockchain technologies will become critical for SMEs globally, as it will enable improved liquidity and reduce operational costs, freeing up valuable resources for reinvestment. Apart from this, blockchain has been instrumental in driving safe and effortless cross border payments.
In 2017, SWIFT GPI was launched by the Society of Worldwide Interbank Financial Telecommunication. It strives to develop existing messaging and processing systems that connect over 10,000 banks. Recently, JPMorgan Chase had announced its individual cryptocurrency, JPMCoin, meant to undertake issues faced by the bank conglomerates in the cross-border payment arena.
Role of cognitive intelligence in the financial services industry
Artificial Intelligence (AI) and robotics are going beyond customer service and are expected to broaden their industry prospects. Risk assessments, analytics, logistics, investments, and supply chain management can all be automated using these technologies to provide a steadier and more dynamic process.
These technologies will help to realize the benefits of optimizing costs while enhancing operations. For instance, Canada based TD Bank set up an Innovation Centre of Excellence (CoE). It provides a platform for bank-wide experimentation to diminish operational complexity and enrich consumer experience.
Other latest innovations in the industry built on AI include robo advisors like Pepper, Nao, and Lakshmi, biometric-based authentications, and voice commerce.
Rise in dependence on cloud providers to reduce IT costs
Financial institutions use Software-as-a-service (SaaS) cloud services for data storage, consumer relationship management (CRM) platforms, and human resources. But 2020 will see an evolution in its usage to cover billings, loan management, and cross border exchanges offering a smoother end-user experience. However, financial services providers should also stay geared to deal with its impending cybersecurity threats.
Banks are adopting new standards of cloud solutions like 10X and Thought Machine, and more players will follow in 2020 and ahead. For instance, Deutsche Bank Luxembourg adopted the Avaloq Banking Suite, which enabled them to provide their customers their entire suite of services through a single cash ledger while reducing complexity, risks, and expenses especially related to wealth management.
Demand for in-app, real-time micropayments and digital wallet payments
Previously, micropayments had been restricted to messaging applications like Telegram, but big technology firms are introducing payment services of their own. 2020 might witness a rush of developers crowding to blockchain and digital assets to develop solutions to satisfy the swelling demand for in-app, real-time micropayments.
There is a rising consumer demographic trend towards a preference for digital wallets. This had led some top banks to offer comprehensive mobile banking applications. While a handful of banks have grown into the digital wallet domain, this vertical is seeing a slow but steady adoption growth.
Cybersecurity will be the topmost priority
The convenience of digital banking is advantageous; however, it also can be misused by hackers leading to cyber thefts. In fact, 70% of breaches take advantage of the end-user as opposed to the bank’s gap in cybersecurity.
Centralization of the data collected through cloud computing and decentralizing its access may help to build more data security layers. Localizing data and avoiding third-party intermediaries will ensure that financial organizations have greater authority over how the data is reported and distributed.
2018 saw cryptocurrencies like bitcoin and ethereum convert from a margin interest to mainstream investment. It was noticed that in a year, the rate of a single bitcoin went from under USD 1,000 to approximately USD 18,000. Some analysts believed that cryptocurrency would substitute the global financial system soon. However, in 2019, the biggest crypto hack occurred when Japanese crypto exchange Coincheck got exhausted of NEM coins worth about USD 534 million.
Software providers will attempt to offer flexible cybersecurity solutions by integrating advanced technologies such as AI and cloud computing, to facilitate swift and reliable threat exposure and alleviation.
The financial services realm is witnessing a sustained and aggressive focus on digitization and the adoption of new and emerging technologies to bring in operational effectiveness, improve speed-to-market, and achieve superior customer experiences. As the growth in fintech companies continues to stimulate, it will be very exciting to see how the competition shapes the industry in the coming years.
For an in-depth perspective on the latest trends and technologies impacting the financial services sector, contact us at info@netscribes.com
