There’s no shortage of stories on how tech breakthroughs will transform financial services, from changing the way we interact with our personal finances to threatening entire banking institutions with disruption.
It can be difficult to predict exactly what this landscape will look like in the next few years, but most seem to agree that the pace of change, with rapid creation and adoption of tech solutions, will not be letting up.
Part of my role involves identifying key innovations which are set to change the financial industry. Here are five trends I’ll be keeping an eye on in 2019.
1. The death of blockchain vanity projects
Blockchain is the technology sitting behind Bitcoin, the “digital currency” that is separate from any central bank. While cryptocurrencies like Bitcoin have had a lukewarm (at best) response from most banks, the underlying technology has generated much more interest across the industry. Blockchain allows the transfer of digital ownership through a constantly growing chain of time-stamped records called blocks, and the proclaimed impacts of this technology seem endless, being touted as disrupting existing banks in areas such as payments, loans and trading.
Consensus has been gradually emerging that blockchain is an interesting technology that opens up new possibilities. However, it is neither the solution to every challenge nor a replacement to every existing utility, and there are hurdles to implementation, including technical, regulatory and even behavioural barriers.
This year there will be more sophisticated conversations about these limitations. We’ll see fewer experimental proofs of concept (some of which could never become reality at scale and are little more than vanity or PR projects), and more solid examples of how it can help businesses and individuals like you and me.
2. Open banking having an impact after a slow start in 2018
Have you heard of open banking? If not, that is not hugely surprising. It’s been described in the Financial Times as “the quiet digital revolution”.
Many people will be aware of some new apps designed to access and aggregate their financial information - this is a result of the open banking launch just over a year ago, a government-backed initiative which means banks must share customers’ information with other authorised providers on request.
Banks will only share this data if given explicit permission, and it’s up to customers if they wish to do so, to gain new insights into their finances or to get a better deal on financial products. The objective is to make banking fairer and more transparent and encourage new product development, but it’s taking longer than expected to take off.
Although awareness is considered low, and people are rightly cautious about sharing their financial data, the number of people taking advantage of it is increasing. This year we should see banks and fintechs (financial technology start-ups) collaborate better, and communicate the benefits more effectively, hopefully resulting in more people buying into how open banking can help them.
3. The ethics of artificial intelligence (AI)
Artificial intelligence is expected to infiltrate almost every aspect of modern life within a generation. For now development of AI has probably been most widely visible to consumers in the form of ‘smart’ assistants and chatbots, while in the background important questions are being raised on how to ensure we don’t stray into ethically dubious territory.
In addition to the oft-cited concern of the ‘next industrial revolution’ on employment prospects, a key ethical issue of AI is how we ensure the right parameters are set and data is used so that the machine behaves in the way humans would agree is ‘right’. Just one of the areas this has implications for is financial inclusion, where we need to be able to show why people get turned down for products such as personal loans, mortgages or insurance. An issue being discovered in testing is biases contained in the data so that machines in some cases are essentially trained to be racist, sexist or otherwise discriminatory in this decision making.
In Europe, the European Parliament Committee on Industry, Research and Energy backed plans in January for a comprehensive policy framework on AI and robotics, weeks after ethical concerns in the field were highlighted in an EU report. So we’re likely to see more commentary emerging on these topics, a new area for most organisations to consider.
4. Biometric advances – paying with your face
Starting with fingerprint and facial recognition on smartphones, biometric innovations are now real, and for many people simply normal. Banks in particular are increasingly using voice and imaging technology to verify their customers’ identities, for example KFC in China and the retail giant Alibaba have both tested letting people pay by smiling. Apple has even patented a vein recognition ID scan.
There is potential for this technology to help combat fraud and it’s an area that is rapidly developing, however there are still concerns that fake videos can easily be created.
This has implications for banking security as well as the potential danger of attacks to people’s reputations and use in disinformation campaigns.
5. Continued lowering of the barriers to investing
Roboadvisers in one form or another, like Nutmeg, WealthFront and Acorns, have been around for a while now and have opened up the route to simple investing for many people through technology. (For full disclosure, Schroders has a stake in Nutmeg).
Crowdfunding platforms such as Crowdcube and Funding Circle also offer alternative investment opportunities, where people can purchase equity in small companies, social movements and creative projects
These will become ever more sophisticated and increasingly give people access to new asset classes, based on their interests and values as well as on their desire to invest their cash.
As a couple of examples, Royalty Exchange offers an online marketplace for investors to buy royalties from music artists via auctions, while YieldStreet enables investors to build portfolios across multiple asset classes including real estate and marine assets.
Good for the little guy
This accelerating change is hard to keep up with but it’s not a bad time to be a consumer. These advancements – and many more we haven’t covered - favour customers by giving them more power and increasing transparency of services.
Banks are being forced to innovate in order to give their clients better, differentiated services. In addition, they need to constantly assess the ethical implications of the advances being made.