Pivotal tech trends set to shape the future of banking
Weighing in on the emergence of payment trends, big data and AI in order to rectify finance
As technology becomes far more adaptive and advanced, so do the ways in which financial products and services are accessed by Canadians, and others across the globe. With technological innovation at the forefront of the banking industry, we’re starting to see a rise in certain patterns, which ultimately will begin to change the finance sector as we know it.
The first technology worth talking about is blockchain. Blockchain is considered to be a distributed database used to allow multiple parties to access the same data simultaneously. By storing all data in blocks that get linked together through cryptography, it is seen as secure and safe for most users. While different types of information can be stored on blockchain, it is most commonly used as a ledger for transactions. Because of the blockchain, crypto, like Bitcoin and Ethereum, are able to be sent to and from users around the world within seconds. Cryptocurrency stands out in contrast to government-printed dollars simply because the rules are controlled by shareholders rather than a major government.
The next trend to discuss are none other than payment types. For starters, sources suggest that by the end of 2022, the global cross-border payments market is expected to reach USD $156 trillion. What exactly is a cross-border payment? Cross-border payments are defined as financial transactions where the payer and recipient are based in two separate countries. These payments can be made in numerous ways and are beneficial because of the following trends:
- International trade and e-commerce
- Cross-border asset management
- Expanding supply chains across borders
When comparing the rate of growth of international mobility of goods and services over the past few years, it makes sense that the importance of cross-border payments would increase. However, while becoming more common, there are ways in which these payments could be better. In a world where everyone is searching for the quickest and most convenient ways to make exchanges, this certainly wouldn’t be the right choice. Most cross-border payments have to go through intermediaries, which have a longer turnaround time than domestic payments. Additionally, cross-border payments commonly suffer from high-level security breaches, putting the money at risk of getting hacked. However, there are tons of pros to this payment method, as the more payment methods that are being offered to customers, the more that is translated into recognition of their needs. Users will opt for cross-border payments for a better experience, higher functionality and above all, convenience.
When comparing this method of payment to real time payments, each holds different strengths and weaknesses. Real time payments (RTP) are defined as payments that are initiated and settled instantaneously. These come in handy for businesses that need funding ASAP, as the money is quite literally, instant. Because the payments are irrefutable, once the payment is processed and received, it cannot be reversed. This is the biggest downside, simply because with a lack of transparency towards when and how much money is being sent, businesses could lose money, something they didn’t anticipate. Because cheques and promissory notes always took time to clear, businesses began to see real time payments as a smart advantage to the financial industry. By providing users with the digital experience and ease of making a payment quickly and efficiently, merchants will be advantageous and likely draw in more clients.
This final technology is one that keeps growing larger every second, and is none other than Artificial Intelligence (AI). According to an article, as of this year, banks are looking to apply generative AI concepts in banks with the intention of helping with fraud detection, trading prediction and risk factor modeling. AI is predominantly used in risk management, and sees more benefits than disadvantages. Banks can use AI in front, middle and back office, to transform the customer’s experience. AI works to create personalized strategies for each client, and generate insights and patterns within the industry one might not recognize right off the bat. This allows for smarter decisions to be made with the help of AI,
AI has become so popular in the banking industry that even traditional banks are starting to adapt more technologically-advanced processes to make their jobs easier. Because leading firms are beginning to make AI technologies an integral part of their business, that requires other competitors to stay up-to-date and relevant. The ability to process large amounts of data makes AI an attractive feat, when it comes to being a major trend worth looking out for. A report published suggests that by switching to a strictly AI banking system, financial institutions can save an estimated USD 447B by 2023. Since AI is able to help banks streamline many aspects of human jobs, financial institutions can evade risk and cut down on spending costs, while providing its users with a more flexible business model.
As the future of retail, online and digital banking grows stronger, so do the technologies that come with it. By implementing newer technology trends into financial institutions, we can hope that banks will get better at recognizing their full potential and aim to achieve just that through these processes.