Artificial intelligence (AI), blockchain, and cloud technologies are increasingly appearing on the horizon. This could be exactly what the banker ordered, given the legal mandates for open banking and General Data Protection Regulation for 2018. These three key technologies can fuel the financial services industry’s evolution into the digital age.
AI is a collection of machine learning, natural language processing, and cognitive computing designed for scale. It is this scalability that is exciting, as it can create exponential growth and deliver today’s required personalized communications. For example, in July 2017 UK payments processed 21 million payments per business day. If 0.5% of the daily volume needed additional review, 105,000 items would need to be checked, often manually and with rules-based, tick-the-box solutions. AI would significantly increase productivity by matching payment behavior and pattern recognition, and simply asking the question, “does this look right?” AI-powered chatbots could help business users and consumers answer inquiries and enhance the customer experience.
Blockchain is also a mix of technologies that enables us to trust someone we do not know and protects us from cybercriminals. The block contains vital information about a party, and the chain is the sequence of third-party, verified events that have taken place over the history of the transaction. Blockchain is fully encrypted and can be permissioned for private and public groups. Given the manual, paper-based state of the supply chain, it is not surprising that we’re seeing many new proofs of concepts and pilots using blockchain.
Cloud computing gives improved security, scale, and agility to respond to market demands and can decrease banks’ cost bases. The advances in cloud technologies permit software applications to move seamlessly between legacy, private cloud, and public cloud solutions. One such technology, containers, allows the applications to flow safely across the end-to-end processes regardless of the underlying technologies, much like how shipping containers transformed the inefficient, non-scalable 20th century transportation industry to the one today.
Finance’s digital evolution
These technologies are could be the savior of financial services industry. Financial services are rapidly becoming a technology-driven sector, evidenced by the increasing amount of money being spent in this area.
- Financial services is now one of the largest buyers of software
- IDC expects this figure to grow more than five percent over 2016’s spending
- The forecast of $2.7 trillion in worldwide IT spending by 2020 is led by the financial services industry
Legacy banks and financial services firms can either build the technology themselves or work with fintechs to do so; either way it has to be done. Eminent evolutionary biologist Charles Darwin could have been discussing this new banking environment when he noted:
It is not the strongest of the species that survive, nor the most intelligent, but the one most responsive to change.
Potential impacts of financial services’ digital evolution include:
- Low-cost centers using AI to increase straight-through processing (STP) to 100%, thus removing cost, increasing customer satisfaction, and reducing liabilities from errors
- Administration of trade finance through blockchain to reduce costs and increase certainty of ownership at any point in time
- Spare computer capacity created by using the cloud, enabling banks to meet peak-day requirements and increase cybersecurity
Security is now a bottom-line concern. See The Future of Cybersecurity: Trust as Competitive Advantage.
This article was originally published on Finextra.