What does the future hold for the financial sector?
- Finance is on the verge of change with big data, the IoT, and AI
- Paying with wearable tech
- Blockchain and cryptocurrencies will secure your financial data
- Quantum computing is the next big thing in finance
Though traditionally cautious and slow to change, the financial sector is being reshaped by technology. In part, this is due to the general impact tech is having on our lives. But it’s also the result of emerging innovations that offer unrivalled opportunities for financial institutions. And the coming changes are nothing short of disruptive.
Finance is on the verge of change with big data, the IoT, and AI
The Internet of Things (IoT) is the connectivity that allows ordinary devices and appliances to become ‘smart’, generating and sharing data with one another. Finance, too, is set to be transformed by the IoT. For instance, by tracking patterns of behaviour, lenders can better assess credit-worthiness and improve fraud detection. It’s easy enough for connected devices to locate customers, verify their identity, and allow a transaction – all without troubling the end user or seeming intrusive.
Visa is already offering this service to its banking customers. Its Mobile Location Confirmation system is a voluntary service that end users can opt into. When they do, they pair their card with their smartphone using the Visa app. In turn, their mobile begins recording approximate GPS data. When they try to make a purchase from a vendor, the app sends Visa the approximate location of the client as well as the vendor. When they match, the purchase is approved.
Since financial institutions thrive on data, big data can provide invaluable information about customer behaviour and enable real-time market analysis for investors. But we think the most exciting thing for big data is the potential it has to introduce banking to the developing world. The ubiquity of mobile devices in the developing world means that a wealth of data is being underutilised by financial institutions. By tracking the behaviour of potential customers and by harnessing the power of the IoT to provide big data, these thin or non-existent financial profiles can be ‘thickened’. This data provides the rich information banks need to better assess risk, allowing market penetration in regions where credit histories simply don’t exist.
Besides big data, artificial intelligence (AI), too, has become the driving force of change in the banking sector, influencing the way we make transactions, underwrite, and invest. MyKai, a bot designed by Kasisto, a New York-based startup that aims to make banking easy, helps customers manage their banking and financial needs. All customers have to do is link the bot to their bank cards. And they can even choose their preferred method of communication with MyKai – they can send and receive SMS via their smartphones or opt for Slack. Once everything’s connected, they can start communicating.
Paying with wearable tech
The past decade has seen the rise of wearable devices that are changing the way we interact with technology. The benefits of this tech are being recognised in many industries, and soon, the finance industry will begin to feel the impact as well. For instance, Queensland’s Heritage Bank has won the race for being the first to offer wristbands that act as Visa cards containing the same Visa Paywave near-field communication (NFC) chip that allows ‘tap and go’ shopping at a point of sale (POS) terminal. Heritage Bank’s chief executive, Peter Lock, says the band works exactly the same way as a Visa card, but it just happens to be strapped to the wrist – and it’s waterproof, too!
Another recent innovation in this field comes from the Hong Kong-based company Tappy Technologies. It developed a battery-free chip that can be embedded into any kind of watch or jewellery. Not only does this increase convenience, but it’s also highly secure because it relies on biometric authentication. “If we want to see mass adoption of payment enabled wearables then we must look beyond traditional methods of card personalization. Tappy aims to scale the wearable payment business globally by empowering the end users themselves to seamlessly, ‘On The Go’ transfer their existing card information securely into their favourite branded watch, jewellery or accessory,” says Wayne Leung, the CEO of Tappy Technologies.
Blockchain and cryptocurrencies will secure your financial data
The global financial system is often prone to fraud and delays that add costs, cut into profit, and frustrate clients. The solution to these problems is blockchain technology. This tech is already being used by the State Bank of India (SBI), which partnered with IBM, Microsoft, KPMG (Klynveld Peat Marwick Goerdeler), Skylark, and ten other commercial banks to put loan documents into blockchain. Previously, all documents had to be physically exchanged or mailed to other parties, but now, digitally signed documents are recorded as part of an electronic block and are easily shared with clients.
Blockchain is the underlying technology behind cryptocurrencies such as Bitcoin, Ethereum, Monero, and Nxt. Since each transaction is cryptographically coded and has a digital signature, it’s almost impossible to copy the bytes that represent the token, which minimises the risk of fraud. Preventing fraud is just one of the benefits of blockchain. Users can complete their transactions without waiting for approval from a third party. Moreover, cryptocurrencies don’t require exchange, eliminating the fees associated with national currencies.
Quantum computing is the next big thing in finance
A significant amount of our daily lives relies on computers. Although advancements in technology have made computers faster than ever before, they still find certain complex tasks impossible. But quantum computers can fill this gap.
A quantum computer is a device that uses quantum mechanics to solve complex problems much faster than a conventional computer. Conventional computers use bits represented by binary numbers: 1 or 0. The information they process can only exist in one of these two ‘states’. However, quantum computers use quantum bits or ‘qubits’, which can be both 1 and 0 at the same time, enabling them to store more information in new, complex ways. The high-speed performance of quantum computers will change how banks accomplish complex tasks. For instance, QxBranch developed a quantum computing simulator for the Commonwealth Bank of Australia (CBA). The system can run on the existing cloud, and according to the QxBranch executive chairman, Ray O. Johnson, it “will transform data analytics, and the finance industry will be among those most likely to experience both capability and business growth”.
As these technologies illustrate, the financial industry will undergo rapid change in the near future. Innovation will introduce a new era of security and transparency. There’s no going back, financial transactions are becoming faster, easier, and safer, and they’ll provide unbridled convenience for both banks and consumers.