The future of financial technology – part 1
According to the WEF, the future of financial technology will significantly disrupt the status quo for the traditional financial services industry. But for every new development, there must be a corresponding shift in how the incumbents do business too.
This short series of articles looks at six of these required changes that have been identified by the World Economic Forum (WEF) and the sort of outcomes to expect. Over the course of six articles we will look at these industry changes, covering:
- Streamlining infrastructure.
- Increased automation of activities to lower costs and raise customer satisfaction.
- The strategic role of data.
- The risks and opportunities of reduced intermediation.
- Empowering customers in the self-service market.
- The rise of niche specialised products.
The drive for greater efficiency is common to every industry; maximum profits are best realised by limiting operational costs. But streamlined infrastructure is not just a cost-cutting exercise.
Flexibility is king
It would be a serious mistake to assume that the finance industry is undergoing a once-in-a-generation change. The current disruption of the existing marketplace is merely a harbinger of things to come, the first warnings that the industry is to be affected by a steady stream of new innovations and challenges.
So although regulatory and compliance frameworks will continue to govern day-to-day operations, market players will need an infrastructure capable of adjusting quickly to these changes. And by building adaptable platforms now, the ongoing administrative burden, costs and inconvenience can be minimised.
Where will this flexibility be focused?
According to the WEF there are two key areas where the payment industry will need to focus resources and effort – building new market platforms, and adapting to cope with the new emerging payment rails.
New market platforms
Data is key to the modern economy, and finance organisations will need to develop systems that can handle increasing volumes quickly and efficiently. Big Data techniques must be fine-tuned to help businesses better understand current market trends, and accurately predict future patterns that can be capitalised on.
These datasets will also have to be accompanied by automated management routines and intelligent algorithms that not only analyse the data, but which are enabled to take autonomous action. Similar systems already exist for working with the investment and FX markets, but will be applied to other sectors in future too. We will investigate the issue of automation again later in this series of articles.
Emerging payment rails
With backend systems in place, banks will be better placed to engage with the disruptors of the payments industry. Businesses like Currency Cloud facilitate peer to peer foreign exchange for instance, allowing consumers to avoid the commission charges levied by traditional banks.
But although Currency Cloud may handle the actual exchange of currencies between subscribers, traditional banks still have a role to play. From providing the payment cards that customers use to ‘load’ their accounts, through to the back-end financial processing of the business, behind the scenes Currency Cloud and similar disruptors are still reliant on incumbent banking infrastructure and processes.
Similarly, crypto currencies are becoming increasingly popular for online trade as individuals attempt to circumvent the traditional banking system. But when that money needs to be spent offline, or with a vendor who does not accept crypto currency, the owner will need a reliable conversion pipeline to assist.
Increasingly back end financial technology will need to include interfaces that can hook into virtual economies or other emerging payment rails to provide cross-over and conversions. As part of the streamlining process, back end systems will also need to be prepared for as-yet-unknown input and output.
Laying the foundation for further change
Streamlined infrastructure is the first step towards remaining competitive in the future finance and payments industry. Without a suitable platform on which to build, organisations will struggle to remain relevant as the industry continues to change. Streamlining is not simply a case of making processes more efficient, but also of preparing infrastructure to meet the challenges and changes of the future.
In the next articlewe will look at the Increased automation of activities to lower costs and raise customer satisfaction.
Submitted by Paul Sullivan via ModedaWeb