Financial services technology in 2020 and beyond

By Christina Bentley on October 16, 2018

The influence of emerging technology is changing the face of business, across sectors and around the world.

After the global financial crisis in 2008, new regulatory measures posed the biggest challenge to financial service providers. Now that those regulations have become the norm, the quickening pace of tech innovation is by far the most disruptive force in the sector.

In order to integrate emerging technology into the financial advisory model, it’s important that we understand the kinds of advances that are most influential on the industry and how they are changing the way we do business.

The rise of fintech

Traditional financial institutions have long dominated the money advice and planning industry. This is no longer the case. Tech-forward disruptors are having a significant impact on the sector, and the ease with which they can break into the space is steadily increasing. Fintech disruptors are companies that move quickly and typically focus on a specific tech innovation, and they are making things difficult for many larger, more established institutions. According to recent data, a number of traditional institutions are at risk of losing roughly a quarter of their business to fintech firms in the next five years.

The sharing economy gains influence

Consumers will always need banking and financial advisory services, but they may not always seek them at a traditional bank. The sharing economy, now mainly dominated by companies such as Uber and Airbnb, will also gradually shift to financial services. Consumers will increasingly embrace the decentralisation of assets and the use of technology to choose a financial adviser. The traditional bank will no longer be an automatic source of advisory and wealth management services.

Blockchain

For now, blockchain and fintech are mainly operating in the retail space, but there is clear evidence that these technologies are looking to migrate to institutions such as financial investment advice. There are a number of industry groups working to commercialise this technology and use it to innovate financial services. Despite the relatively short lifespan of many blockchain and fintech start-ups, industry insiders believe that the public ledger element of blockchain will soon become an essential part of financial service provider operations.

Digital in the mainstream

Twenty years ago, banks and wealth management firms designated special e-business teams to build their internet operations. These teams were able to harness the power of the internet to create more efficient, responsive products for consumers. The modern trend of digital delivery of financial advisory services and big data analytics is on the same path. Financial institutions are devoting separate resources and development teams to the digital space, applying emerging technology to payments, banking, insurance and money advice and planning.

Customer profiling predicts growth

The rise of data and analytics across sectors has made it easier for companies to access consumer habits and preferences. Where once focus groups and surveys gave generalised information about the things that customers valued, advanced technology makes it possible to pinpoint specific demographics and manipulate data to gain more useful insight to boost profitability.

The influence of AI

Companies across industries are already employing artificial intelligence tools to help streamline processes, cut costs and reduce risks. AI development projects aim to improve robots’ ability to employ emotional intelligence, language, logic, social skills, pattern recognition, physical tasks, navigation, learning and more. Experts believe that AI technology will improve incrementally over the next five years or so, but expect to see massive growth after that.

Jumping to the cloud

Cloud computing is fairly standard in daily life for most of us, from file sharing and storage to productivity apps and entertainment. Most financial institutions now use some form of cloud-based computing, but there is likely to be a major migration of core activity to the cloud in the near future. Payments, credit, billing and account statements for financial advisers and other key services will join the migration.

Cybersecurity a top concern

According to a 2016 survey, 69 per cent of financial service CEOs listed cybersecurity threats as a top concern. News reports of even high-profile institutions falling victim to customer account hacks, data theft and other cybercrimes are, sadly, common. Going forward, the following factors will continue to make cybersecurity a key risk impacting financial service providers:

  • Outsourcing to third-party vendors
  • Rapid technology evolution
  • Cross-border transactions
  • Increased consumer dependence on mobile technology
  • International data security threats

Asia as a tech innovation hub

By 2020, the majority of the middle-class population is expected to shift from Europe and North America to the Asia Pacific region. Over the next several decades, nearly two billion people will move into urban centres in Asia and Africa, opening a host of new opportunities for independent financial advisers. The main driving factor: technological innovation. Population growth encourages technological innovation, which means that more employers look to establish a presence in these areas to access a global market.

Tech in industry regulation

Financial service providers are not the only ones looking to technology to improve their infrastructures. Global regulatory organisations are also starting to engage tech to improve data collection and analysis. The goal is to provide better industry monitoring and mitigate risks, rather than reacting to issues after they’ve happened.

Staying ahead of trends

Financial advisers can begin planning for these changes now by focusing on ways to improve existing frameworks and prepare for growth.

  • Update IT operations
  • Simplify legacy systems and integrate AI to cut costs
  • Expand tech capabilities, particularly in customer intelligence data
  • Prepare system architecture for new connections
  • Implement updated cybersecurity measures
  • Bring in new talent in IT and consumer targeting

Conclusion

In many ways, the future of the financial services sector is right around the corner. Emerging tech has been simmering under the surface for years, but these trends will quickly become the norm over the next decade or so. Financial advisers must stay ahead of the curve in order to anticipate how these changes will impact business and remain flexible enough to implement new models to cultivate growth.

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