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Digital Disruption In Finance Sector: The Trends And Technologies Shaping The Industry

The impact of the rapidly evolving digital landscape, with more and more new technologies making their way, can be seen in almost every aspect of our lives. One of the industries that have been impacted the most by such digital disruption is banking and finance.

It is quite interesting to see how the highly regulated banking & financial sector is also witnessing the constant metamorphosis of its once full-proof business models to stay ahead of the competition in such digitally disruptive times.

Today, digital disruptors are transforming the way the financial sector works, like payment solutions, lending, credit settlements, and more. In response to these, banks and other financial institutions are forced to either partner with FinTech companies or develop their own solutions.

Keeping in mind these industry-wide changes, here, we are discussing some of the most important tech trends and developments that are shaping the industry.

1. FinTech - Driving the New Business Model 

FinTech is essentially the convergence of technology with finance, that results in the emergence of various innovative tech startups. The biggest technological impact on the banking industry is, in fact, coming from these fintechs, which are driving financial institutions to create better consumer experiences by-

  • Offering the convenience of real-time transactions
  • Making mobile banking a reality for simple transactions without the need to visit a branch physically
  • Providing innovative solutions to give meaningful financial advice to meet consumer demands

The primary advantage held by FinTechs over traditional banks & financial companies is the fact that they can use state-of-the-art technology and unilaterally focus on those business segments with higher returns.

2. Digital Banking

Digital platforms, including mobile banking, wallets, and payment apps, are now a crucial mechanism for engaging with customers in the financial industry.

Whether it is marketing, sales, customer service, or communication, digital & social networks have become an essential tool, which facilitates global operations of banks and financial institutions through automation systems and cutting-edge software solutions.

Digital banking has, in fact, become a key pillar of the strategic evolution of the finance industry in today’s extremely competitive environment.

3. Blockchain

Cryptocurrencies have taken the entire banking world by storm by providing consumers with faster (and cheaper) ways to do financial transactions. The distributed ledger system of blockchain technology allows financial institutions to leverage stringent controls enabling auditable data and smart contracts.

If the experts are to be believed, blockchain is going to have a transformational impact on the banking and financial services industry.

Historically, bankers have always been sceptical of blockchain technology mainly because of security concerns and how it will fit in a regulated atmosphere. However, there has been a mindset shift taking place with banks employing structured efforts on how they can implement blockchain in their respective business processes. The primary reason for the financial service industry adopting blockchain technology is to improve efficiency, security, as well as for cost-effectiveness.

A recent study suggests that blockchain technology can help financial institutions generate savings as high as $27 billion in settlement transactions by the year 2030.

This is huge! And precisely the reason why a number of financial institutions have already started exploring various possibilities of blockchain, such as fraud detection, inter-bank transfers, prevention of money laundering, loan processing, and more.

4. AI and Machine Learning

A large number of banks and other financial institutions are taking an interest in Artificial Intelligence with Chatbots as the most visible form of AI being adopted across the sector. These chatbots or automated service assistants are equipped to resolve any kind of query the customer might have via an online messaging system. This thus saves them from the trouble of having to visit the branch to resolve their issues.

This kind of interest in AI has occurred mainly because of its capabilities as well as business needs. The exponential growth of data, innovative technologies such as Machine learning, cloud computing, and increased regulatory requirements have further created the perfect setting for the expanded use of artificial intelligence in the financial sector.

Among the benefits of AI in the financial industry include better customer experience, fast product delivery, excellent risk management, and heightened compliance. Since AI tools work purely on algorithms and numbers, the chances of errors in financial transactions and investment decisions are reduced to nil.

5. Digital Disruptors

From robust payment technologies such as PayPal, Venmo, and ApplePay to various lending solutions such as Avant, Fundera, OnDeck, and Kabbage, the financial sector is going through a digital transformation of sorts. With several innovative solutions for payment processing, lending, and customer experience, these digital disruptors are going to bring a significant change in the financial landscape.

To Sum It Up

Increased demand for secure and customized banking experiences coupled with the convenience of digital & mobile banking has given strong impetus towards the adoption of financial technology within the financial sector.

Present-day technology disruptors are providing both opportunities as well as challenges to the financial industry. While these technologies are unlikely to wipe out traditional banks completely, they will, however, surely force the banking and financial services industry to reinvent themselves in order to best serve the financial needs of customers.

There is no denying the fact that challenges such as cyber-attacks and breach of data will pose some risk. Thus, banks and financial service firms who wish to stay on top of the greater customer expectations will not hesitate and adopt these digital technologies to enjoy a competitive advantage.

 

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Sheza Gary

Sheza Gary

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This post is from a series of posts in the group:

Disruption in Retail Banking

Growth in internet and mobile technologies has transformed many industries and economies. The market forces and competitive landscape has completely changed in many sectors. iTunes has fundamentally changed music industry, Amazon has driven most big brick and mortar book sellers out of business, Expedia is one of the worlds' biggest travel company….. the list goes on. Internet and mobile technologies are big disrupters for most industries. What started (and tapered a bit!) with the dot com boom of 2000 has become a lethal threat to most business models today. Powered by mass adoption in mobiles phones, proliferation of smart phones and cheaper band-width, internet and mobile technology have changed many industries. The banking industry in has been dominated by a handful of big global or regional banks for 100s of years. While the credit crisis has shaken this industry, the core market forces for the industry have not changed. Will Innovation in Internet and Mobile technologies disrupt retail banking? Will there be 5 new names in global top 10 retail banks in 2020?


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