How Technology Will Shape the Future of the Financial Industry

FinTech is changing the way we bank, invest, and manage our finances.

15:09 21 September 2022

Financial technology, or "FinTech," has created new opportunities for businesses and consumers alike. FinTech is changing the way we bank, invest, and manage our finances. Big data and artificial intelligence are two major forces driving this change.

 

Financial institutions can now gather and analyse vast amounts of data much more efficiently with a decision engine. This helps them make better-informed decisions about lending, investing, and risk management.

 

For consumers, FinTech is making it easier to access financial services and products. There are now a growing number of mobile apps and online platforms that offer convenient and affordable ways to manage your finances.

 

AI Will Automate Financial Tasks

Artificial intelligence (AI) is increasingly being used to automate repetitive and time-consuming tasks in the financial sector. Thanks to advances in machine learning, AI is becoming increasingly adept at completing financial tasks, such as processing payments, managing compliance regulations, and detecting fraud.

 

This trend is only set to continue, with PwC estimating that AI could contribute $15.7 trillion to the global economy by 2030. As AI becomes more sophisticated, an ever-greater proportion of financial tasks will be automated, freeing up human employees to focus on higher-level work.

 

AI will also have a major impact on the way financial services are marketed and sold to consumers. Using data gathered from customer interactions and transactions, AI will provide personalised recommendations for products, such as loans and investment portfolios.

 

Automation can also help to reduce the risk of human error, which will come in handy, especially since approximately 25% of workers had lost their jobs in the past 12 months because they had made cybersecurity mistakes. 

 

Regulatory pressures are also pushing financial institutions to adopt AI. In 2018, the European Union’s General Data Protection Regulation (GDPR) came into effect, placing strict new regulations on the way data is collected and processed. AI can help organizations comply with GDPR by automatically detecting and flagging potential breaches.

 

Challenges and Risks

While FinTech promises to bring many benefits to the financial sector, there are also some challenges and risks that need to be considered.

 

1. Regulatory uncertainty

The financial sector is one of the most heavily regulated industries in the world and new technologies can struggle to meet all the compliance requirements. This can lead to delays in the adoption of new technologies or, sometimes, a complete refusal to adopt them.

 

2. Privacy concerns

Another challenge facing FinTech is the need to balance protecting consumer privacy and using data to provide better services. Using AI to personalise financial services could be seen as an intrusion into people’s private lives, while the sharing of financial data on blockchain could expose individuals to fraud and identity theft.

 

3. Cyber security threats

The financial sector is a prime target for cybercriminals, and any new technology introduces new vulnerabilities that can be exploited. In 2017, the WannaCry ransomware attack caused havoc in the banking system and the Equifax data breach highlights the risks posed by centralised databases.

 

4. Job losses

The automation of financial services could lead to job losses in the sector. This is already happening in areas such as banking and insurance, where customer service and claims processing are being replaced by chatbots and artificial intelligence.

 

5. Social impact

The use of algorithms and artificial intelligence in financial services could lead to “algorithmic bias”, where the technology discriminates against certain groups of people. This could have a negative impact on social cohesion and exacerbate inequality.

 

Conclusion

FinTech is revolutionising the financial sector, and its impact is being felt across the globe. The technology is bringing many benefits to the industry, including greater efficiency, lower costs and improved access to financial services.

Innovation always comes with some challenges and risks, but if the financial sector can navigate these obstacles, then the future looks bright for both the industry and its customers.