Technology has taken over the financial services industry by storm. The industry that once used to revolve around the latest regulations now focuses on the latest technological advancements that have the potential to disrupt the industry. Financial services industry has been slower to respond to technology. However, today, it is becoming more customer-centric, keeping customer’s convenience and preferences is mind. As the marriage between technology and the financial industry becomes more obvious, it is important than ever for the professionals to stay abreast of it.
Financial Services Professional
Here are the top five things that every financial services professional should know:
1. FinTech will rule
FinTech have changed the entire playing field and are becoming ubiquitous with time. The PwC global financial report says that FinTech will determine the new business model. In the survey, 80% of the participants said that their business is at risk as more consumers are expected to adopt non-traditional financial providers. Hence, financial institutions should keep these changes in mind and adapt if theywant toretain their customers.
The global FinTech funding hit $31 billion in 2017. The proliferation of FinTech can also be seen from the success of Ant Financial, the digital payments arm of Alibaba. The company attracted 100 million customers in 2016, which took its total customer count to 500 million— almost ten times of the biggest banks in the world. According to JalilAlAali, Partner and Head of Financial Services at KPMG“In the digital era we live in, technology is no longer an added-value but a necessity shaping the customers experience. Corporates and financial institutions, which are looking to expand and grow.”
The introduction of FinTech and consequently automation will eliminate a lot of jobs in the sector. According to Citigroup’s prediction 1.7 million jobs will be lost due to this.
Blockchain is basically a digitized ledger that stores all the information about all the digital transactions that happen. It was originally developed as an accounting method for Bitcoin. However, it has made a huge splash in the financial services industry. A recent PwC survey shows that 77% of the companies plan on adopting the technology. Banks are especially quite interested and are working on strategies to integrate blockchain. The reason why blockchain is gaining traction is due to its transparency, which has become essential especially after the 2007-08 recession. Also, its decentralized architecture makes it impossible to hack.
The industry is still exploring the potential of this technology. A lot of startups are working on it. According to a report, blockchain projects are expected to hit $7.68 billion in 2022. A recent startup Ripple has successfully exploited the technology is being used by major financial institutions, particularly the ones related to payment and insurance. The company recently managed to raise $93.6 million in venture capital fund raising rounds. Ripple is also expected to replace SWIFT as international payments platform. A financial professional should hence study the Ripple along with blockchain technology.
3. Robots and AI
Robots and AI have already infiltrated the financial services sector. In 2017, many financial firms introduced AI in their processes; some used them to cutdown crime, while others used it for tax planning. Retail and investment banks are exploring the opportunities that AI could provide. According to a UBS survey of 86 banks, AI can increase revenue up to 3.4% and reduce costs by 3.9% over the next three years. As per UBS, $11 billion have been poured into AI research since 2010 and it is expected to increase to $47 billion by 2020. “I think the future of financial services is AI,” Barnaby Hussey-Yeo told Business Insider. Barnaby is the CEO of Cleo, a chatbot app that gives people advice on where and how they should invest.
AI can be particularly used for the processes that are complex and repetitive. JP Morgan Chase recently implemented Contract Intelligence (COiN) platform to analyze legal documents and extract any useful information. Usually, analyzing 12,000 documents require around 360,000 hours. However, with the AI platform, the documents were reviewed within seconds.
4. LIBOR replacement
LIBOR replacement is one of the biggest changes in the financial services industry. LIBOR is basically the average interest rate that banks charge when lending each other. It is a primary benchmark for short-term interest rates and has been fixed and published every day since 1986. Authorities are now planning to replace this benchmark with three new reference rates that will be released by the second quarter of 2018. However, loans, derivates,and financial products worth $160 trillion are pegged to LIBOR and hence it will be continued until the end of 2021.
The decision to replace LIBOR is being taken due to the accuracy of the rate. After the financial crisis, strict regulation reduced the number of transactions to base the rate on. Hence, banks started relying on expert judgment for this. However, this led to LIBOR fixing scandals as some banks started inflating and deflating it.
5. Big Data
Big data is the buzzword these days as most of the companies are purchasing big data solutions. As per the IDC report, worldwide revenue for big data will reach up to $203 billion in 2020. The big data wave has now hit the financial industry as well. Financial services are using big data to increase customer loyalty and reduce customer churn by making personalized offers. With the help of big data, banks can analyze their customer behavior in real time. It allows the institutions to segment their customers and then target them accordingly. Apart from that, big data can also improve the risk models and increase their coverage. Systems with big data can predict fraudulent behavior beforehand.
Changes are inevitable with the advent of technology and globalization. The financial services industry has not readily accepted the technological advancements as other industries and hence it has a long way to go before it realizes the full potential that it can reap. One thing is for sure though; technology will help the industry serve and protect its customers in a better way.
AlyciaGordan is a freelance writer who loves to read and write articles on healthcare technology, fitness and lifestyle. She is a tech junkie and divides her time between travel and writing. You can find her on Twitter: @Business Insider