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Five disruptive technologies driving opportunities in Financial Services

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The key drivers of innovation are undergoing a fundamental transformation, a change that is having a far-reaching effect on all sectors and industries. Innovation now draws on the advances at consumer-oriented technology companies, the likes of Google, Amazon, and Facebook, as well as smaller tech startups. This reality has transformed the innovation framework and the way that financial firms invest. The focus has shifted towards increasing customer engagement and improving the customer’s experience, and therefore funding is increasingly going to app development, digitization and personalization.

Here are five key technologies that are driving change in the financial services industry. There is a curve of maturation for each technology: Some of the innovations are further along than others, and there are areas where they meet. These points of intersection may prove to be advantageous, as the progress and lessons learned in one area of innovation are transferred to another.

  • Artificial Intelligence (AI): Broadly defined, AI involves the use of computers and algorithms to take over manual, investigative tasks once considered to be the domain of people. AI is used throughout the financial industry in the area of fraud detection. A more recent and interesting use is in lending, where lenders can use AI to predict re-payment probabilities based on current and future variables (income, lifestyle, hobbies, and culture) rather than relying solely on past credit history.
  • Machine learning/robotics: Machine learning gives computers the ability to learn directly from information and data without explicitly being programmed for that knowledge. Machine learning will allow companies to look at the explosion of data within organizations and monetize the information. Banks are already conducting proofs of concepts in such areas as anti-money laundering transactions, where the vast majority of transactions flagged “suspicious” turn out to be “false positives.” One of the largest banking and financial services organizations in the world has thousands of employees analyzing these false positives and working on algorithms to spot genuine examples of money laundering. The promise of reductions in cost as well as increases in prediction accuracy are compelling arguments for the use of this technology.
  • Cloud-based platforms: The cloud has been used until recently more as a processing utility, but it is evolving into a universe of different applications that are developed on a common platform by different enterprises eager to keep down the cost of acquiring their own hardware and software. The cloud allows banks and innovation labs to test fintech payment-type of solutions and alternative payment platforms inexpensively. It also enables firms to develop and test apps and bring products to market quickly.
  • Big Data/data analytics: The concept of Big Data posits that within the enterprise resource planning systems of each financial organization there exist vast stores of data that can be mined for insights into customer behavior and then monetized to create additional value by selling new products/services to customers. Data analytics defines a set of tools and techniques that allow firms to gain insight into complex business environments and use their data to transform their business. Key areas where data analytics is being employed are in risk management and meeting changing regulatory requirements.
  • Blockchain: Blockchain began as the encryption and verification technology underlying Bitcoin. Now, it promises to do away with unnecessary and redundant recordkeeping in financial services. If successful, the technology will fundamentally change the way financial transactions are recorded and ownership is verified. Blockchain is being investigated for use in trading platforms for swaps and options, asset management, and for its promise to control costs and lower trade execution fees.

Building Successful Partnerships Most companies and firms lack the resources that are required to pursue these innovations concurrently. To take advantage of these emerging technologies and to be able to innovate, companies must move towards establishing alliances with key partners. Partnerships allow firms to create superior value by maximizing the innovative qualities of each partner.

There are several key best practices in any winning alliance:
  • Turn the joint value proposition into an operational plan
  • Develop and align relevant use cases that are repeatable to differentiate
  • Create a governance structure with regular cadence and KPI’s to measure and manage the collaboration
  • Establish the rules of engagement so each party is clear on their role and responsibilities
  • Establish trust in the alliance with a well-crafted, action-oriented operational plan
  • Engage in transparent communication with the partner to build and maintain trust
Global Landscape for Innovation Innovation is a worldwide phenomenon, taking place in all the major economies and financial centers. Areas such as mobile banking, non-bank payments, peer to peer lending and internet based wire transfers are rapidly transforming the banking landscape. This rapid evolution is straining current technology platforms and introducing a host of risks as well as quantum leap opportunities for financial institutions that are agile and nimble enough to stay ahead of the technology curve. This takes a global approach to understanding financial flows and makes it critical for firms to take a global approach in keeping abreast of innovation and how it can transform their businesses.

Contacts Claudia Kuzma
Alliance Director, Financial Services Advisory
T +1 312 602 8659

Len Steinmetz
Director, Financial Services
T +1 212 624 5556

Don Bailey
Principal, Financial Services
T +1 704 632 3930

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