How technologies like artificial intelligence, machine learning, and digital payment methods are shaping the future of finance
- Digital banks offer a glimpse into the future of banking
- Would you trust AI to manage your assets?
- Digital transformation of the insurance sector
- The future of payments is digital
- New business models for the digital age
- The growing threat of cyber-attacks in the financial sector
- Ethical issues facing the world of finance
- The future of finance requires a new set of skills
As technology continues to transform every aspect of our lives, the effects are starting to spill over into the world of finance as well. Today’s consumers demand seamless, personalised experiences at any touch point, forcing financial institutions to offer a multitude of innovative services to remain relevant in our increasingly connected society. The future of finance will be increasingly digitalised. Algorithms will coordinate banking, insurance, and investments. New business models will emerge. Technology will transform banks as well as insurers. Artificial intelligence will pay claims and improve the digital customer experience. Technology will also help us keep hackers at bay. To make this possible, we’ll need new thinkers and doers. Led by visionary leaders, they will form the backbone of the financial organisations of the future.
Digital banks offer a glimpse into the future of banking
In the future, we will use digital platforms for borrowing and saving money. Chatbots and artificial intelligence will ask specific questions, find the right answers, and draw valuable conclusions. Our digital financial advisor will always be closeby to advise on how we can organise our financial life. Will the current financial organisations still be our service providers or will we entrust the likes of Google, Amazon, or Apple with this?
Evolving consumer preferences and increased demand for more efficient ways to access banking records and complete financial transactions without having to visit physical bank branches has given rise to digital banking. According to a recent report published by Juniper Research, the global number of digital banking users will exceed 3.6 billion by 2024. Aion is a new digital bank that was recently launched in Belgium. Unlike other banks, which typically charge various fees for transferring money, Aion operates on a subscription-only model that eliminates all add-on fees and charges and helps you make the most of your money. “Moving money, withdrawing money, investing money, exchanging money, borrowing money, and even saving money shouldn’t cost you money,” says Wojciech Sobieraj, CEO of Aion. “Aion is on a mission to change the way banking is done. Instead of trying to upsell and maximise profits per customer, Aion charges a flat subscription fee so that we do all the hard work for you, our members.”
For €19 per month, you will get access to a regular membership that offers daily banking services, as well as ETF asset management services and a personal concierge service, which most other banks consider as premium services. You will also get access to an AI-powered service called MoneyMax, which is designed to help you proactively manage your day-to-day spending by searching for better loan interest rates, devising ways to reduce your household utility bills, and finding better deals when shopping online.
The Australian digital bank Hay recently announced it will start taking applications for new accounts. The bank offers an online transaction account that features a variety of personal financial management and smart budgeting software and a Hay Visa Card with zero-fee foreign exchange rates. Hay relies on the New Payments Platform (NPP) to allow you to conduct instant transactions and receive real-time push notifications. You also get access to a detailed spending tab with merchant names, company logos, their map locations, and category information, allowing you to see where your money has gone. If you decide to travel abroad, Hay will automatically switch to travel mode and show account balances in both the Australian dollar and the local currency.
Would you trust AI to manage your assets?
The wealth management industry is increasingly embracing digitalisation, with robo-advisors and AI-based investing being the most important developments. For example, using algorithms, tradebots automatically keep an eye on exchange rates. Robo-investments require little to no human intervention with services ranging from automatic rebalancing and tax optimisation to long-term investment planning. Wealth managers are already using technology to personalise investor experiences and increase their chances of success. A new report published by IHS Markit predicts that the value of AI in global banking will reach $300 billion by 2030.
Vanguard, one of the world’s largest investment companies, recently announced the launch of a new automated investing service called Digital Advisor. Unlike the company’s previous solution, which offered a hybrid service with access to human advisors, the new robo-advisor will be digital-only. And, even more importantly, it will be cheaper. Digital Advisor will have a $3,000 account minimum and charge a 0.15% management fee.
“Vanguard is now moving downstream by launching a product for clients that have even lower asset levels or are comfortable with a digital-only product,” says David Goldstone, head of research at Backend Benchmarking. “This rapid expansion of services into the lower wealth tiers of the market means that companies will be trying to attract clients at much earlier stages of the clients’ life cycles.” While the solution will initially focus on individual retirement accounts, allowing you to input retirement goals and receive investment recommendations, the company plans to add features that will advise investors on saving for emergencies, managing debt, and optimising extra or idle cash.
Digital transformation of the insurance sector
What if you could get insured in 90 seconds? Or have a claim approved by algorithms in three minutes? Digital insurance is getting smarter and impressively efficient. Sensors will soon track our bodies, vehicles, and homes to spot risk factors. In the future, a healthy diet and exercising may lead to lower premiums. Drones will inspect buildings for defects, and data analytics tools will check paperwork to uncover fraudulent claims. Blockchain will empower people and by forming a peer-to-peer insurance network, a group of individuals might make corporations obsolete.
The US-based insurance company Lemonade recently announced its expansion to Europe. Originally launched in 2015, Lemonade now enables consumers in Germany and the Netherlands to get contents and liability insurance almost instantly using nothing more than a mobile app. The Lemonade app also allows them to file claims and get paid in a matter of seconds. Traditional insurance companies typically get to keep all of the money that isn’t used to pay out their clients, making them reluctant to approve claims. Lemonade, on the other hand, takes a fixed fee from your monthly payments, while the rest goes to paying out claims. Any money that remains unclaimed at the end of the year is donated to a charity of your choice as a part of the annual Giveback scheme.
Besides adding a charitable component to insurance, Lemonade’s business model also replaces brokers and bureaucracy with chatbots and machine learning algorithms, eliminating much of the paperwork. “The value proposition we’ve created resonates with young consumers in a universal way,” says Lemonade CEO and founder Daniel Schreiber. “Young consumers in Tokyo and Berlin and Tel Aviv and New York and SF all like interacting with chatbots, having zero hassle, and appreciate an unconflicted business model based on a charitable component. The new generation of consumers have that common denominator, in all those cities, where a tech brand is able to straddle countries and languages.”
The Belgian insurance company Ageas recently revealed plans to start using an AI-powered solution to assess car damage and estimate repair costs. Developed by the UK-based tech company Tractable, the company’s AI can automatically detect the affected parts of the vehicle and assess the extent of the damage, providing a quick and accurate estimate that includes recommended repair and paint costs and labour hours. The AI will also speed up the claims process for policyholders, allowing them to receive updates on which steps they need to take next – minutes after submitting photos of the accident. “Ageas using Tractable’s AI to generate end-to-end estimates is a breakthrough for the insurance sector worldwide. By harnessing AI at the beginning of the claims process to assess the damage and generate estimates, we accelerate every part of it, creating efficiencies for the insurer and greater clarity for the policyholder,” says Adrien Cohen, co-founder of Tractable.
The future of payments is digital
In the future, we will pay with a swipe or a smile. In the background, business systems will automatically carry out all kinds of processes. We will also be able to pay with our self-driving car or personal wearables. Smart contracts will be finalised – and suppliers and service providers paid – as soon as a job is marked ‘complete’ on the blockchain. According to a new report by Reports and Data, the global digital payments market is estimated to reach a value of $10.07 trillion by 2026.
E-commerce giant Amazon recently revealed plans to develop technology that will enable customers to pay for their purchases with a wave of the hand. Customers would first have to link their credit card information to their palm prints, allowing them to make payments by simply swiping their hands over a special checkout terminal. While the development of the proposed technology is still in its early stages, Amazon has already approached Visa and Mastercard to join the project and plans to offer the terminals to coffee shops, fast food restaurants, and other brick-and-mortar stores.
People travelling through the Avlabari metro station in the Georgian city of Tbilisi can now use their faces to pay for their fare. Rather than reaching for their wallets, people can simply smile at the camera to move past the turnstile and enter the station. For now, the service is only available to those with a valid Bank of Georgia credit card. To sign up for the service, they also need to upload an image of their face to a common database by taking a selfie in the Bank of Georgia mobile app, allowing the facial recognition system to recognise them, deduct the fare from their card, and let them in. In the future, the Bank of Georgia plans to install the system at other metro stations, as well as at ATMs.
New business models for the digital age
Open banking policies force banks to provide third parties with access to our financial data. This enables startups to develop money-saving apps. Digital platforms also enable you to lend money to others. But will peer-to-peer platforms stand the test of time? Google, Amazon, and Apple have big plans with their own financial services offerings. Welcome to the age of banking-as-a-service! Personalisation will be taken to a whole new level. In the future, the financial needs of customers and companies will be identified and predicted.
Dozens is a new app recently launched in the UK that offers a whole range of financial services, including a current account, a card, spending and budgeting features, a savings account, an investment account, and an investment bond product with a 5 per cent annual interest rate. What’s important to point out is that Dozens is not a bank and only has an e-money licence and an investment licence, which means it can’t touch your money without your consent. Also, unlike a bank, it offers all of its services for free and only charges you for investing. Each month, the company releases a certain amount of bonds for users to bid on, which are deposited in a separate account and then paid out after a year with 5 per cent interest.
The growing threat of cyber-attacks in the financial sector
Banks are the perfect targets for hackers. Stealing biometric data or login details enables criminals to siphon away millions of dollars. But financial companies are getting increasingly high-tech as well. They use smart algorithms to protect our accounts. Will this be enough, though? As more and more IoT devices go online, criminals have more points to attack. And once quantum computing hits the mainstream, traditional encryption methods might become useless. What then?
Cybercrime is estimated to cost banks $1 trillion globally each year. Knowing that, it comes as no surprise that financial institutions spend approximately 10 per cent of their IT budget on cybersecurity. The US-based digital payments platform SafetyPay recently teamed up with the financial crime prevention company Feedzai to protect its customers from fraud with the help of AI. Feedzai’s platform uses sophisticated machine learning algorithms to monitor a customer’s transaction activity and identify anomalies by comparing it against their historical data in real time. “We are working hand-in-hand with SafetyPay’s platform to minimise and prevent fraud risk for its customers around the globe, all while providing a frictionless payment experience,” says Nuno Pires, Senior Vice President, LATAM.
Ethical issues facing the world of finance
Our growing reliance on technology raises a number of ethical issues in the financial sector, with the impact on the human workforce sitting at the top of the list. According to a recent report published by Wells Fargo, more than 200,000 jobs in the banking industry will be lost to automation within the next decade. As consumers become increasingly comfortable with digital banking, banks are starting to close a growing number of physical branches, cutting huge numbers of employees. In the UK, 3,303 bank branches have closed permanently since 2015, which account for more than a third of all bank branches in the country. Does that mean that machines will eventually make all human workers in the sector redundant?
The future of finance requires a new set of skills
Robots will increasingly take care of manual tasks at tomorrow’s banks. More automation does however enable employees to develop and implement their creative and other skills. In the future, employees in finance will need to become digital natives and learn how to use tech to their advantage. They’ll need to be able to assist customers in person as well as remotely. As banks, startups, and tech companies all scramble for customers, the finance industry needs to diversify its workforce and hire thousands of software developers, cyber-security experts, and engineers.
The financial sector is in the midst of a major digital transformation driven by changing consumer expectations. As consumers increasingly shift to online and mobile devices, they are putting enormous pressure on financial institutions to offer personalised, digital-first services that enable access to fast, interactive, and engaging banking experiences. Not only do consumers now expect banks to allow them to manage their money remotely, but they also want them to predict and fulfill their needs almost instantly. From digital banks and AI financial advisors to innovative payment methods that allow you to pay with a smile or a wave of the hand, technology is becoming an increasingly important asset in the financial sector, changing the way we budget, spend, save, and borrow money.