Technology Powering a Future-Ready Finance Industry

Specific Areas of Technology Impact 

Financial service businesses use digital technology to drive both innovation and disruptive business models. Technology usage provides benefits in many areas:

• Organize, access and exploit data much better
• Activities such as checking the balance and completing transactions are easier through banking apps.
• Allows consumers to manage their own savings and investments
•  Adapting to regulatory reforms and ensuring regulatory compliance in areas such as Dodd-Frank Wall Street Reform and Consumer Protection Act in the US and the European Market Infrastructure Regulation (EMIR), and MIFIR/MIFID II reforms.
• This trend is increasingly pronounced as firms across the globe work out how to meet the challenges of the Dodd-Frank Wall Street Reform and Consumer Protection Act in the US and the European Market Infrastructure Regulation (EMIR),
•  Remove the redundancy involved in organizing financial data.
• Automate regular activities like balancing checkbooks or organizing receipts to complete tax filing.
• Upselling and cross-selling, based on data, such as a car insurance offer to a customer buying a car
• Supporting investment and trading through electronic markets and automatic order execution resulting in lower fees, more efficient markets, and greater information and transparency for investors.
• Innovations like cryptocurrencies have made financial transactions more secure.

Medium of exchange

Technology helps move money, from simple payments to international money transfers using global networks like SWIFT (Society for Worldwide Interbank Financial Telecommunications).

Moneylending  

Technology has impacted the money-lending aspect of traditional financial services with new products and services like buy-now-pay-later (BNPL), peer-to-peer lending platforms (P2P), and many highly automated underwriting programs using AI (Artificial Intelligence) and RPA-driven algorithms.

Holding money

Technology enhances the industry’s traditional function of holding money including deposits and investment products. Tech enables virtual banks, which hold charters and ensure regulatory compliances within their jurisdiction.

Investing

The democratization of trading has effectively shaken out the brokerage industry that was very high-margin and fee-based. Cryptocurrency solutions, such as Bitcoin and Ethereum are powerful tools for investment and wealth management among others while Blockchain itself has made financial transactions entirely transparent.

Data Management Advisory and Operational

Financial data management is enhanced by specialized software to consolidate financial information, maintain compliance with accounting rules and laws, and produce detailed financial reports. Data management integrates cloud database, analytics, and data integration services to help derive deeper business insights.

Data management helps operate more efficiently in areas such as high-volume transactions, real-time data analysis for personalized banking, fraud detection, and process optimization. Financial institutions have streamlined operations, service delivery and costs by using technology.

Robo-advisory promises to be a significant application in the future, driven by technology. Multiple technologies have collectively disaggregated the financial services sector and made operations efficient.

Creation of growing set of subcategories

Technology has created a fintech revolution spawning a variety of subcategories. These include among others:

• Decentralized finance (DeFi)
• Insuretech (insurance technologies)
• Regtech (regulation technology)
• Lending (LendTech)
• Payments (PayTech)
• Trading (TradeTech)
• Personal Finance (WealthTech)
• International Money Transfers
•  Digital (crowd) funding, lending, and credit.
• Banktech- from core banking solutions to customer service robots

Benefits of Technology

The market

• The global financial technology market was estimated at $110.59 billion in 2020 and is expected to reach $699.50 billion by 2030 growing at a CAGR (Compound Annual Growth Rate) of 20.26%.
• The global market for biometrics in the banking and financial services market is expected to reach $8.9 billion by 2026.
• A report suggests that the total investment of blockchain in the banking and financial services sector will reach $17.47 billion by the end of 2025.

Specific Areas

The advent of technology in the financial services sector has several benefits:

• Deploying AI (artificial intelligence) technology could save banks an estimated $447 billion.
•  Use of smart and intelligent computer programs has enabled banks to save 20% on capital expenditure.
• Using AI has allowed a reduction of 3,60,000 hours of manual work by automating the tasks in banks.
• 82% of traditional financial organizations plan to collaborate with FinTech companies in the next five years as they fear losing out.
•  Industry studies indicate that 71% of banking and financial firms that use information and big data analytics have a competitive advantage.
•  85% of financial institutions globally agree that ‘the integration of technology and innovation should be at the forefront of the financial services industry’.

Coverage

Telecom and mobile connectivity technology has broad-based access to banking services by overcoming reach and coverage barriers.

Convenience

Financial services technology has made it convenient for users to access the banking ecosystem and activities such as signing up for the service, making customer inquiries, and payments, accessing loans, and transferring funds. Technology and the evolution of digital banking have reduced physical visits to brick-and-mortar bank offices by 36%.

Speed

Financial technology solutions are quick and help complete transactions in seconds that traditional banking systems’ processes took days to complete. The #1 driver in 2021 for adoption of new technology in financial companies was to help ‘cut cost or improve efficiency’ (50%).

Safety

The software solutions in the financial services industry feature fraud and breach detection methodologies that manage the risk and threat of theft of funds and confidential data.

Improved Customer Experience

Financial technologies like Smart contracts, big Data, AI, mobile payment, credit cards, and chatbots have enhanced customer service, experience and satisfaction while also reducing human error. For instance, Financial chatbots can save over four minutes on every interaction. An example is Poland's fourth largest universal banking group that was successful in enhancing its marketing campaigns through personalized banking experience using SAP S/$ HANA.

Technologies driving Fintech innovation

Companies are adopting technologies that handle specific requirements. They include:

Artificial Intelligence and Big Data Analytics

AI enables advanced predictive analytics and automated decision-making through the analysis and processing of large amounts of data. AI can also identify and address cybersecurity threats and cyber risks such as malicious files, and suspicious IP (Internet Protocol) addresses besides enabling automated fraud detection, stock price forecasting, and loan application processing. AI technology helps manage tasks such as comprehending new rules and regulations or providing personalized financial services. Surveys indicate that 58% of banks depend ‘heavily’ on AI and an additional 32% make use of AI ‘to some extent’ in fraud detection.

Cloud and Distributed Computing

Cloud-based applications and data center infrastructure provide low-cost storage and distributed processing capabilities that support AI-based applications. They make AI, quantum computing and on-demand supercomputer capabilities available to companies.

Internet of Things and 5G

The deployment of the 5G mobile network is key to connecting IoT (Internet of Things) devices and realizing the potential of IoT in financial services. Some use cases include car insurers using black boxes to track usage data to determine premiums or using IoT to measure and reduce the environmental impact of commercial activities.

Serverless and Microservices Architecture

Financial companies are building their application platforms based on a serverless and microservices architecture that supports event-driven microservices. Cloud-based serverless services help financial businesses avoid the issues of provisioning and managing IT infrastructure.

Bank and online payment services

Digital banking technology has enabled people in activities such as making payments, taking loans, or transferring funds from anywhere. The proliferation of smartphones has helped create a cashless society.

Security

Several new technologies like biometric data, tokenization, and encryption ensure the safety of funds, personal data, and transactions. Tools for system security testing, fraud detection, code review and audit, and advanced risk systems are essential elements of a financial company’s system. Newer technologies and techniques like AI for Fraud Detection, Advanced Blockchain Systems, Secure Access Service Edge (SASE) Solutions, extended detection, and response (XDR), and managed detection and response (MDR) have enhanced the security of financial institutions.

Analytics and Reporting

Data science and analytics enable FinTech companies to process huge quantities of data and gain meaningful insights, manage risks, and validate customers’ credit scores and eligibility.

Governance, risk, and compliance (GRC) systems

Social credit scoring systems using bigdata helps companies assess the risks involved in loans. AI algorithms provide risk assessment and credit scores in real-time, enabling quicker decision-making and better profitability.

Chatbots

Banking chatbots automate simple tasks like opening a new account or transferring money between accounts at lower cost and impact back-office, product delivery, risk management, marketing, and security.

Emerging Technologies

Emerging technologies in the financial services industry have changed how consumers interact with their money, what they expect, and how those organizations operate.

Digital Experience Platforms

Digital experience platforms provide an online portal that gives customers the freedom to do what they want with data. Hybrid platforms enable real-time intelligent data integration, real-time digitization, personalization, and advanced analytics. API (Application Programming Interface) platforms allow customers to integrate their banking data with other apps.

For example, one of the largest financial services providers in Central and Eastern Europe was able to move ahead on its overall Digital and IT transformation projects to stay competitive and improve overall enterprise efficiency with the implementation of SAP S/4 HANA.

Digital Transformation

Digital transformation in financial companies can provide enhanced customer experience, improved operational efficiency and revenue generation, easy data accessibility and management, process agility and operational productivity apart from insight-driven decisions. An example here is that of a leading Filipino bank that was able to increase revenue 12x, provide customer loan approvals in 3 minutes versus 4 to 6 weeks, improve data quality for the bank’s Know-Your-Customer initiatives from 35% to 100% in one year and achieve 5x faster reporting for AMLA compliance (for covered and suspicious transaction reporting) with much higher data quality.

Machine Language (ML)

ML systems support tasks such as risk assessment, fraud detection, predictive analytics, cross border transactions and personalized customer experiences. ML algorithms can perform sentiment analysis by using large volumes of unstructured data such as photos, video transcriptions, social media posts, presentations, webpages, blogs, articles, and business documents.

An example in AI ML use is that of an American multinational investment bank and financial services holding company that implemented a program uses unsupervised machine learning. The algorithm was able to extract about 150 relevant attributes from annual commercial credit agreements in seconds compared to 360,000 person-hours taken for manual review. The solution is cost-effective, more efficient, and less prone to errors.

Robotic Process Automation

RPA (Robotic Process Automation) helps to generate reports, automate repeatable processes, and maintain logs. RPA allows banks to save money, reduce human error, speed up processing, and improve compliance and auditing in financial institutions.

Robo advisory services are digital investment and wealth management service providers that use algorithms to provide investment advice to clients. They use RPA to allocate assets optimally and maintain remunerative investment portfolios for clients at affordable fees with minimum effort.

Blockchain and Distributed Ledger Technology (DLT) 

Blockchain is expected to become a mainstream solution for payments, fraud reduction, loan processing, smart contracts, and more. Accenture estimates that investment banks could save $10 billion by using blockchain for clearing and settling processes.

Blockchain technology has driven the development of crypto currency solutions, such as Bitcoin and Ethereum while also enabling P2P (peer to peer) online financing platforms that have made monetary interactions decentralized.

The potential future uses for blockchain and DLT include payment processing, and securing online trading of bonds, stocks, and other financial assets.

Regtech

RegTech is a regulatory technology that helps businesses comply with regulations reporting, compliance and reduce costs with cloud computing technology in a SaaS (software-as-a-service) model. RegTech solutions provide high accuracy, single dashboard, data analytics, alerts, and insights to help companies achieve compliance, better results, and optimize resources allocation.

RTS Solutions

Resolve Tech Solutions (RTS) is a global technology services company that works to modernize and transform industries with its world-class IT service, consulting, and digital transformation solutions.

RTS partners with many Fortune 500 enterprises and small and medium businesses in diverse verticals like financial services, telecom, retail, government, aerospace, defense, and real estate to deploy a portfolio of technology solutions and services.