Five Digital Trends in Financial Services
Digital transformation is leading change in every industry and financial services is no exception. Here are five digital trends that will start or expand in this economic sector.
Mobile Banking/Mobile Pay
Mobile banking and mobile pay are not new concepts but these technologies will continue to expand as consumers demand more mobile services from their banks. Consumers are now aware of what can be done with technology due to the integration of smart connected services in other parts of their lives. At the same time, banks and card issuers are realizing that an initial investment in digital technology will pay long term dividends in the form of lower overhead. Finally, we will see the continued expansion of mobile pay due to the higher security of these platforms.
When people hear blockchain, they think “Bitcoin” or at least “cryptocurrency.” However, cryptocurrency is only one application of blockchain technology. The technology allows for instantaneous, verified, transactions to occur with no overhead or third-party clearing service. In the case of cryptocurrency, this means no credit card company, processor, or bank is between the buyer and the seller. It is the equivalent of handing cash to someone for a purchase. This same technology can revolutionize everything from real estate escrow to securities clearing and risk management.
For example, stock transactions currently settle T+2. This means that between the time you execute a trade (T) the stock isn’t actually in the buyer’s account for two days. This is done to allow time for the funds to clear and then for the stock to actually be transferred. To the lay buyer, this doesn’t seem like a big deal. However, when dividends are distributed or short stock positions are being covered, those two days can be a big deal. Utilizing blockchain, these transactions could occur as instantaneously as buying a soda from a vending machine.
AI Powered Portfolio/Wealth Management
Advances in artificial intelligence (AI) have allowed more investors to have access to a managed portfolio without the additional cost and risk of putting their money in the hands of fund managers. These AI portfolios will be a middle ground between the boring but semi-predictable passive funds which track an index and actively managed funds which employ fund managers to actively trade a portfolio.
Data breaches, congressional investigations, and highly targeted online advertisements are making people more aware of the sheer volume of data companies have on their day to day activities. As a result, consumers are beginning to demand more and more transparency into exactly what data is being collected and for what purpose is it being used. This trend is likely to expand into financial companies including banks, credit card issuers, and credit reporting firms. Developing systems to allow consumers to securely view data collected should be on the front burner of any financial services company.
Back Office Systems
While we have outlined some trends going forward, it should be noted that all sectors of the financial services industry have made giant leaps forward in terms of digital accessibility over the past two decades. There is, however, growing evidence that many of these flashy user-facing front ends are facades over aging back office technologies. When you call your bank, what you see as a consumer on the mobile app is most likely ten years newer than what the agent on the other side of the phone is looking at. Financial services firms will need to continue to upgrade these systems, not only to be able to more comprehensively administer the newer front ends, but also to keep their employees from becoming frustrated and disengaged in their day to day work lives.
For more information on the drivers behind all digital transformation, including the transformation occurring in financial services, check out The Frictionless Enterprise and What is Digital Transformation.