The Financial Services industry is one of the most competitive industries in the world and it has seen a lot of changes over the past few decades – from changing regulations to innovative new entrants, to shifting consumer preferences. But the impact of technology on the core business models of Banks, Insurers and other Financial Services companies is one of the most drastic changes.
With the added pressures of high customer expectations and a stringent regulatory environment, financial institutions must keep pace with technological advancements to stay ahead of competitors – especially technologically savvy new Fintech entrants.
With many Financial Services companies looking at new technologies to improve their business processes and increase efficiency, we explore some of the top tech developments affecting the industry.
The Financial Services industry is rapidly changing, and new technologies have changed how people invest, borrow and save money. One of the technologies driving change is Artificial Intelligence (AI).
As described by IBM, “Artificial intelligence leverages computers and machines to mimic the problem-solving and decision-making capabilities of the human mind.” AI has become imperative to many industries worldwide, including Financial Services. AI can help financial institutions to make better decisions by analyzing data more efficiently than humans can.
“In banking and investment services, application of generative adversarial networks (GANs) and natural language generation (NLG) can be found in most scenarios for fraud detection, trading prediction, synthetic data generation, and risk factor modeling.”
AI, and its cousin, Robotic Process Automation (RPA), are also being used to automate some of the more mundane tasks required in finance, like data entry and customer service calls. AI technology can advance current practices and streamline a better customer experience for financial institutions.
Chatbots and digital assistants
Think about the last time you were trying to find an answer from a website and used chatbots. It was probably 10 minutes ago. As Banks and other Financial Services organizations increase the percentage of customer interactions that take place online, the use of chatbots and digital assistants has risen. “As of early 2020, 13% of Banks and Credit Unions had a chatbot and another 16% were planning to introduce one in 2021,” according to Cornerstone Advisors. They are already being used by some of the world’s largest banks, such as HSBC and Barclays.
Some of these chatbots and digital assistants have been created to help customers with their banking needs. For example, HSBC has a chatbot to answer customer queries about their account balances, transactions, and other banking-related queries. Other chatbots are designed to help customers with their investments or insurance needs.
Chatbots and digital assistants will continue to grow in popularity in the finance industry because they offer a more personalized experience for customers who want to do more independently, without speaking with a human representative. And they are financially beneficial. According to a 2022 study, Banking chatbots are on track to save banks 826 million hours and $7.3 billion by 2023. (source)
Blockchain is a digital finance technology that was first introduced in 2008 and has been gaining momentum ever since. “Blockchain is a shared, immutable ledger that facilitates the process of recording transactions and tracking assets in a business network” (IBM). It is a distributed ledger that records transactions between two parties without needing a third-party intermediary and in a verifiable and permanent way.
Blockchains have the benefit of being distributed and encrypted for added security and have been used to create cryptocurrencies, such as Bitcoin, Ethereum, and Litecoin. It also has many other use cases in the Financial Services industry. For example, it can be used to track financial transactions, create smart contracts or drive faster and more automated compliance.
Blockchain technology has the potential to disrupt many industries and the financial sector has been one of the first to adopt this new technology to reduce costs and increase efficiency. A shocking 91% of Banks had invested in blockchain solutions by 2018. (source) and use cases will continue to become more widespread and more sophisticated.
The changing shape of Financial Services
The rise in these tech trends has transformed the way customers interact with Banks, Insurance providers, and Investment Firms. As consumer preferences continue to trend toward the need to manage their finances from anywhere at any time and enjoy a fast, secure and effortless banking experience, we can only expect the role of these and other emerging technologies to continue to play a significant role in Financial Services.