What is the Future of Finance Industry?

With the advent of the 21st Century, finance entered a new friendship with technology. The internet, websites, and applications transformed the old school brick and mortar finance into a handheld format. With the rise of the new decade, Industrial Revolution 4.0 has emerged from concept to fructifying application. An industrial revolution transforms all the industries that are going to be stay relevant for the time to come. Just like the automobile industry. We do not have anything in our sight that might eliminate vehicles from the roads. The industry shall stay. However, with every industrial revolution the type of vehicle and its production, and its supply chain has changed leaps and bounds. Somewhat this is going to happen with the finance industry. With the emergence of blockchain, artificial intelligence, robotics process automation, and other internet-based services, even the finance shall reinvent. Here is what lies in the future of the finance industry.

Better Tracking Systems

India has recently seen several financial frauds. The frauds have risen to ₹71543 crores in FY 2018-19. Even the most developed economies have not been able to tackle the menace of money laundering. Several global banks were penalized for their failure to detect fraud. There was a SWIFT mechanism developed to track the cases in international frauds, but the Nirav Modi-Punjab National Bank fraud has manifested its inefficiency. Even if it were working well, the criminal has been able to develop more sophisticated systems to facilitate such operations.  Machine Learning-based Pattern Recognition systems are bound to replace the current tracking systems. Danish bank ABN-AMRO and an Israel based Big Analytics firm have started working on this. Similarly, HSBC is working with some start-ups on integrating such features with their systems.

Self-driven Finance

The business models have been changing worldwide. The conventional models of employment will change. Even the Coronavirus crisis came as an opportunity for the companies to go digital and evaluate their ‘work from home’ productivity. Uber has shown how to be the world’s biggest cab aggregator without even owning a single cab. Similarly, the models of earnings and savings will change. Countries like India and Vietnam are seeing a rising number of start-ups on the entrepreneurial front. On the employee front, the world has started opening up for freelancers.

With such new models coming up, the financial services will also have to be flexible. The customers would want more control over their investment plans where they can design their savings and wealth management programs. The loans, mortgages, and investments could be directly rebalanced based on the varying income of the person. This is no more a distant dream with Artificial Intelligence.

Cryptocurrencies

The cryptocurrencies like Bitcoin have already paved the way for future currencies. They work independently of any regulator. This technology of blockchain will lead the future, as it will smoothen the process of cheque encashment. In this era of increasing the number of cryptocurrencies, we will have new commodities and currencies that the world can trade-in. This means we will need more advisors and research on this front. More coin exchanges and ‘Initial Coin Offers’ will be on the front. The industry will have to come with regulations for these exchanges and the coin offers. Also, the future would want the blockchain technology to run on less energy than it does today.

Data Security

The past few years have seen some real laws coming up on data security. European Union’s General Data Protection Regulation seems to be a standard that most countries might follow with some changes. Personal financial data is being shared on several e-commerce and m-commerce applications, payments and transactions. API Banking already allows banks to share the customers’ data with the corresponding service provider. In the case we discussed ‘self-driven’ finance plans, it would need financial data, including the minute details, of the customer. The protection will be a big challenge.

Cyber Security across Organizations

The future would demand the integration of most services. When each service is integrated with another, the failure of one service with impact all the others.  This is not limited to data security. Data Security is just one aspect of Cyber Security. Data Security is associated with the organization’s framework of data storage and sharing. However, think of Denial of services or malware and viruses, and the damage they pose. Hence, it will be important that all the organizations in the Fin-Tech industry update themselves to a basic standard. Otherwise, a small loophole would lead to the fall of the entire system.

Winding Down

One thing in the future of Finance goes beyond doubt that it is strongly coupled with technology. This is why the challenges of the future are all associated with information technology. Though today the technology is the solution to the financial problems, the next set of challenges would not be on the financial front but the technology front. Finance might not stay on its own for long; it will transform itself into Fin-Tech. A data vendor company started in 1978 namely Factset Data Systems. In 2001, it renamed itself as Factset Research Systems owing to rising supremacy of technology over finance.