Talking about the ‘financial services sector’ is like talking about ‘the continent of Asia’.
It’s not incorrect – but it covers up a whole lot of nuance and diversity, and a significant amount of difference in the way people think, work, and feel.
A personal banking app and a quantitative trading company are both financial services companies, but the way they operate can feel like night and day.
So, when we see real financial services industry trends – trends that span huge chunks of the sector – we know it’s time to sit up and pay attention.
Let’s take a look at the financial services industry news that’s on everyone’s mind right now.
Digital experience platforms and new APIs make open banking a reality
Nowadays, more and more customers worldwide expect to have their bank in their pockets – or, at the very least, on an easily accessible laptop.
That’s why brands and customers alike have fallen head over heels for digital experience platforms, or DXPs. What’s not to love about customers being able to move money around, apply for a loan, and make payments on one platform?
That love affair is about to become a whole lot deeper, thanks to a new generation of APIs that take DXPs to new heights.
New EU regulations and the US’ general enthusiasm for DXPs have broken down some of the last barriers standing between consumers and an effortless digital banking experience.
These new APIs are also doing something that banks and retailers alike have dreamed of for years: allowing customers to leap effortlessly from banking tools into other services.
If you’re buying a bigger ticket item like a new TV through an app, you should now be able to jump over to use embedded finance technology to apply for a loan to finance your purchase – all at the click of a button. That means fewer bumps on the road to customer conversion.
And it’s not just the DXPs benefiting from these new APIs. Money management tools are becoming more advanced, too. Customers should now be able to easily move banking data back and forth between their bank and their money management tool. That gives customers a more complete picture of their finances – which means these advanced have tools room to breathe and really flex their money management muscles.
Blockchain leaves the hype behind
For a while, blockchain felt like a kid that just graduated from school at the top of the class: full of potential, but a little full of its own self-importance.
Nowadays, it’s more mature. It understands more about its place in the world. We know what it can and can’t do. And we’re starting to see how it can actually make a difference.
Specifically, financial services companies are exploring how it can:
- Manage transactions and improve payment processing – Cutting out intermediaries means making a payment is often faster and more secure (and cheaper too – no intermediaries means one less set of payment fees). Look at companies like Coinbase and JPMorgan Chase to see this in action.
- Reduce fraud – Every blockchain transaction is recorded in a secure ledger which (in theory) can’t be doctored or amended. That makes it easier for bad actors to cover up their payment history – and prevents things like ‘double dipping fraud’, where scammers approach multiple insurance companies to file the same claim.
- Make banking more transparent – We’re seeing a growing number of DeFi (decentralized finance) tools, which use blockchain ledgers to promote more transparent banking. With every transaction recorded in a tamper-proof public space, it’s easy for anyone to conduct an audit and understand exactly where their money goes.
RPA helps financial services companies move faster without losing control
Financial services companies hate instability. They love consistency.
And the financial services market loves to show them just how unpredictable it can be.
So how do you maintain stability while moving fast enough to keep up with a market that changes constantly?
You bring in an extra pair of hands.
One that can speed up essential processes, while leaving people with enough time to do the level-headed strategic thinking.
RPA (robotic process automation) has already been used to automate repetitive financial services tasks like invoice processing and compliance reporting for some time. In fact, Gartner research from 2020 showed that around 80% of finance leaders had already implemented or are planning to implement RPA.
Now, companies are combining RPA with AI to add a new level of intelligence to automation. Instead of just completing repetitive manual tasks, RPA can use AI to adapt faster to changing financial regulations, help decision-makers find the most important information in a financial agreement, and automate processes like accounts receivable and payable or work hours adjustments.
AI is also making the ‘human’ side of financial services more efficient, allowing chatbots that help customers answer more complex questions without forcing them to wait to speak with a human.
The result? Financial services companies can make better decisions faster – and still feel like they’re in complete control.
The financial services industry learns to trust IoT again
IoT had a bit of an image crisis.
A few years ago, financial services companies realized that the sensors they had been embedding into their offices, their banks, and their ATMs could also leave the door wide open for criminals to steal financial data.
In a sector as heavily regulated and security-conscious as finance, it’s no surprise that everyone panicked and threatened to leave IoT behind.
But the last couple of years have given financial services companies the chance to educate themselves. They’ve realized that IoT is securable – and that they can use it without putting customer data at risk.
As a result, we’re seeing IoT used for a much broader range of use cases – from tracking customer health and driver behavior for insurance companies to matching accounting records with real-world transactions.
Cloud computing becomes a non-negotiable
Financial services companies have been dipping their toes into cloud computing for some time.
But now the market is forcing them to take the plunge – or get swept away by their faster, more agile competitors.
As of 2023, more than 44% of financial services organizations’ data was in the cloud and 98% of organizations were using some form of cloud computing.
That’s likely driven by a combination of high interest rates, new regulations, and inflation – all factors that are driving financial services companies to reduce costs and take advantage of every efficiency. Companies know that cloud computing is an excellent way to scale back IT infrastructure and hardware costs, without giving up storage or compute power.
That fast-paced industry we mentioned earlier also plays a role here; cloud-based working makes collaboration between team members much faster and easier, even when those teams are spread across offices, countries, or continents.
The cloud doesn’t just improve things internally; cloud computing also makes it easier to build microservice architectures – small, independent, self-contained services that make applications easier to scale and develop. In turn, customers get exactly what they’ve been clamoring for: rapid service and clever customizations that make managing money a little less tiring.
Surprise, surprise: Generative AI changes the game
Since ChatGPT turned the tech world upside down and made everyone on LinkedIn an ‘AI prompting expert’ overnight, banks have been scrambling to take advantage of it.
McKinsey tells us that banks are generally using generative AI in four ways:
- Making the paperwork more human – Virtual assistants are helping customers get through tedious processes like loan applications faster and helping employees pull together fast drafts of documentation and service contracts.
- Keeping fingers on pulses – Generative AI is cutting out a lot of the cross-referencing, database searching, and information synthesizing that banks used to rely on for insights. It’s generating pitch decks, summarizing large documents into bite-sized chunks of information, and supposedly cutting the time it takes to produce an investment bank by more than 90%.
- Getting persuasive words on paper – Like many companies, banks are turning to generative AI to personalize their marketing, creating highly targeted emails, ads, and other comms – and hopefully improving conversion rates in the process.
- Speeding up coding – Generative AI code assistants are helping banks speed up their digital transformations and build innovative apps faster by supporting key coding processes. Think using generative AI to update legacy code, or speed up debugging.
Quantum computing in financial models
Nowadays, most FS companies have more models than a LEGO convention.
Why? Because financial models are the antidote to their old nemesis: uncertainty.
That’s why everyone’s suddenly clamoring to hire quant devs; most FS companies think that a model developed by an expert quant is the next best thing to a crystal ball.
And what’s better than a crystal ball? A crystal ball fine-tuned by quantum mechanics.
In other words, quantum computing is going to take finance by storm in the next few years, making it easier for companies to calculate everything from risk analysis to fraud detection at lightning speed. Using newly-accessible quantum computing technology to create much more layered models – and, hopefully, cutting down even further on uncertainty.
Greener, leaner fintech
Like the rest of the tech world, the financial industry’s sustainability is under the microscope.
The old players are bending over backward to get their carbon footprints under control, and some fresh new competitors are using their eco-friendly credentials to carve out their own place in the market.
The biggest buzzword right now is ‘sustainable finance’, which PwC defines as ‘all activities by financial service providers that seek to reduce harm to the environment and climate, promote social engagement, and encourage sustainable corporate governance’.
In practice that means we’re seeing the rise of:
- Loan products that offer lower interest rates for businesses that invest in greener technology.
- Financial services companies investing in green initiatives, from renewable energy generation to carbon reduction technology
- Greener processes like carbon-neutral payment processes or digitizing initiatives that reduce paper billing
…and a whole range of other sustainable practices that prove that, nowadays, ‘green’ isn’t just the color of money.
Faster, smarter, more personal: Financial services is evolving
In financial services, change doesn’t happen overnight.
As the trends we’ve just discussed show, sometimes it takes a while for the things that turn the industry upside-down to mature. For the hype cycle to die down – and make room for the applications that will really make a difference.
Some of the trends we’ve covered here will take a while to reach their full potential. Some of them are already taking the industry by storm.
But, for now, you have the inside scoop – and a head start on making these new technologies part of your business.
