by Drew Propson*
Words and phrases such as “disruption”, “revolutionizing” and “digital transformation” have become so commonplace in the context of financial services that they have lost their impact. Impact, however, is exactly where we are heading with emerging technologies. These technologies – such as artificial intelligence (AI), the Internet of Things (IoT), 5G, and quantum computing – are beginning to form powerful clusters that are collectively reshaping financial services, bringing new opportunities to firms and consumers alike.
What changes in financial services, then, can we expect in the near term, and how might businesses and individuals benefit? This is a core area of exploration in a newly launched report by the World Economic Forum, in collaboration with Deloitte: Forging New Pathways: The Next Evolution of Innovation in Financial Services. The report draws on more than 200 interviews and nine international workshops over the past year, engaging senior executives of financial services firms, experts, academics and regulators.
As outlined in the study, emerging technologies can be mapped into four main clusters, with AI and cloud sitting in the middle as the core cluster that unlocks other technologies. AI and cloud are essential given their ability to access and analyze data that other technologies generate, store and transmit. They are, thus, also part of all other clusters. The remaining clusters each centre around one of the following capabilities:
-Bridging the gap between the physical and digital financial worlds, creating new ways of generating and accessing data (5G, IoT, task-specific hardware (TSH), AR/VR, AI, cloud)
-Enabling new, more secure methods of orienting and structuring transactions of both value – such as currency and securities – and data (distributed ledger technology (DLT), privacy-enhancing technologies (PETs), AI, cloud)
-Augmenting the analytical capabilities of AI (quantum, AI, cloud)
What is truly exciting about these clusters is how they interact, allowing for the development of new financial products and services which, in turn, impact individuals and businesses in important ways. Here are three areas in which we will soon experience the effects of technology clusters:
1. Increased automation and embedded financial services simplify daily activities
By combining several of the technologies from clusters one, two and three, responsible automation can be achieved, allowing for seamless transactions for routine activities. This can lead to new revenue channels for both financial services firms and outside industries providing related products and services, while customers will enjoy a streamlined experience.
For example, consider the potential of a machine-to-machine (M2M) payments protocol facilitated by AI, cloud, IoT, 5G and DLT. Here, a payment network, or consortium of institutions, develops a protocol through which asynchronous M2M payments are decisioned, authenticated, transmitted and received on behalf of consumers. Such a protocol could be used to enhance a number of user experiences.
Take, for instance, an electric vehicle that has an embedded digital wallet linked to the owner’s bank account. Through previously determined consent parameters, when the owner drives through tolls, recharges and parks, payments could be automatically deducted from the wallet, simplifying the cumbersome process of making payments individually. Payments are also collected, as the owner has enabled selling power back to the grid when the vehicle is expected to be idle for some time.
Or consider a short-term property rental company that has a digital wallet linked to its commercial bank. The wallet receives payments from guests, pays out maintenance fees and taxes, and hires cleaners and other essential services autonomously. The wallet is also linked to a property’s mortgage and can pay monthly charges based on guest revenue. Ultimately, administrative duties are significantly reduced.
2. Cross-industry partnerships flourish allowing customers’ financial and non-financial services needs to be addressed simultaneously
Financial services firms are increasingly working to meet customers where they are, with tailored products and services at the moment of need, or in anticipation of the need. Emerging technology clusters are enabling granular data collection alongside timely analysis and secure information sharing, helping firms identify what services would most benefit each customer and when. These same technologies are facilitating cross-industry collaborations, allowing firms to offer full end-to-end customer solutions.
A plausible insurance use case can underscore the opportunities that exist here. By employing AI, cloud, 5G and IoT, a connected post-claims solution could be developed. This post-claims experience is created through a connected ecosystem of product and service providers that collectively offer a differentiated claims handling process to drive customer loyalty and increase back-office efficiency.
Take auto insurance. Imagine: an accident occurs, and the insurance company is automatically notified of the incident. Based on sensors that are embedded in the car, the company also has immediate information on the speed of the car at the time of impact, airbag deployment, fluid levels, and other relevant details.
From their analysis of data collected through IoT sensors, the insurance company is able to gauge the extent of the damage and determines that it is not a serious accident but will require rapid assistance. The insurance company maintains a number of cross-industry partnerships through an approved supplier network and leverages them to provide immediate services related to the accident. The insurance company notifies the driver that a tow-truck and additional transportation for the driver are on the way. Furthermore, the insurance company books a rental car and an auto body shop appointment for the following day, easing the burden of the incident.
3. Customers will not think about financial services
Perhaps the greatest achievement of the new evolution in financial services will be that many of the changes brought about by emerging technology clusters may not be noticed at all. That is, a business or individual will find that their financial needs are being met, and financial opportunities available to them are greatly expanded, but this will be accomplished so seamlessly, and integrated into one’s life so fully, that the financial services and products themselves will not be front of mind.
The World Economic Forum’s report highlights several use cases, beyond those outlined above, that offer a window into how this customer-centred environment is developing. While we may not be able to completely predict what is next in financial services, with emerging technologies enabling automated feedback loops, we can be certain that the customer will remain centre-stage for years to come.
*Head, Technology and Innovation in Financial Services, World Economic Forum
**first published in: www.weforum.org