Future Tech 20: Making The Next Financial Services Success Stories
Sabrina McClune
Technology will be a key differentiator for bottom-line growth in the financial services industry. Over 50% of firms plan to increase investment in technologies such as AI, blockchain, and cloud computing.
The advancements in these twenty technologies are set to shape the success stories of the near future.
We have reviewed over 64 sources to identify the tech trends leading the financial services sector to success.
Here are the 20 technologies driving the industry's future success stories.
1. Augmented Reality
Augmented reality (AR) usage is expanding rapidly, with AR users expected to increase from 800 million in 2021 to 1.73 billion by 2024.
The Commonwealth Bank of Australia was a pioneer in exploring augmented reality. Its "home finder" application allows customers to view key information about properties through a lens.
Currently, the app is available only for iPhone, but we can expect similar applications for AR goggles and glasses as companies like Meta innovate in this space.
Future applications of AR in the financial services industry are limitless, including virtual trading and payments, data visualisation, biometric security, and customer service apps.
Moreover, AR will revolutionise employee training, offering augmented learning solutions that greatly enhance employee wellbeing.
2. Buy Now, Pay Later
Dubbed the ‘future of millennial finance’, Buy Now, Pay Later (BNPL) enables consumers to pay for purchases in instalments.
The use of BNPL among under-30s has doubled since 2019. BNPL loans are expected to finance 13% of all online transactions by 2025.
Solutions like Klarna and PayPal are becoming widely accepted in retail, with PayPal generating $3.5 billion of sales from over 7 million consumers.
As authorities begin to regulate the fast-growing BNPL sector, traditional lenders have an opportunity to compete with FinTech companies leading this market.
Though slow to enter the BNPL market, traditional financial services institutions excel at adapting quickly to regulatory changes.
"You only have to look at the growing popularity of Buy Now Pay Later to see that payment decisions are no longer driven solely by rewards. And, with Visa and Mastercard recently active in both the BNPL and A2A space, perhaps the real question now is how long it'll take before [buy-now-pay-later] cards become the 'alternative' payment method."
3. Blockchain Technology
The blockchain market is expected to grow from $4.9 Billion in 2021 to $67.4 Billion by 2026, with major banks such as JP Morgan and Goldman Sachs investing heavily in its development.
Blockchain's use cases are extensive. The key benefits include risk reduction, real-time authentication, and enhanced consumer participation.
Acting as a distributed but immutable record of interactions, blockchain can serve as a secure 'middleman' in financial transactions.
Its automated nature streamlines processes and reduces inefficiencies.
Blockchain has significant implications for timely financial processes such as contract creation, settlement, identity verification, and know-your-customer (KYC) procedures.
These time-saving capabilities make blockchain a highly attractive investment for financial services.
"It is vital for the financial services industry to innovate and to investigate new technologies to improve their products and services. If the incumbents don’t change their offering and innovate, newcomers will disrupt their business."
4. Foreign Exchange Solutions
As opportunities increase for smaller businesses, cross-border payment flows are projected to exceed $156 trillion by the end of 2022, with the global foreign exchange market growing at an annual rate of 7.5% between 2021-2026.
Small and medium-sized enterprises (SMEs) struggle with Foreign Exchange (Forex) solutions designed for larger businesses. Technologies embedded with currency exchange capabilities, such as OpenPayd and Stripe, are beginning to fill this gap.
Cross-border payments have been revolutionised by digital platforms for consumers.
In the coming years, larger players will invest heavily in technologies that could transform this crucial B2B service market.
5. Climate Technology
Climate technology (ClimaTech/cleantech) – addressing our impact on climate change – is a rapidly growing market. Reports show that 6 out of 10 technology start-ups in the UK focus on green tech.
The potential for carbon reduction in the financial services industry is not just an opportunity, but a necessity.
The industry’s annual paper document output is estimated at 507 million pages, equating to the deforestation of 50,000 trees each year. An 80% reduction in paper use could save the industry up to £1.3bn annually.
Next-generation technologies like AI, blockchain, and cloud computing often have a smaller environmental footprint than their predecessors.
Other technologies have emerged to meet the demand for green consumerism, such as Joro, which translates spending into carbon footprint metrics.
As awareness of environmental issues rises, ESG (Environmental, Social, and Governance) factors will become increasingly important.
Stakeholders may start considering carbon savings when evaluating technology investments as a predictor of growth.
"There is potential to better channel and incentivise investment in technology areas that have the greatest future emissions reduction potential."
6. RegTech
RegTech helps financial organisations manage compliance by aiding data management and governance processes. Banks spend $270 billion annually on global compliance, with 10–15% of their workforce involved in these processes.
In the first half of 2021, $4 billion was invested in RegTech companies, and this trend is expected to continue in the future.
"We expect to see other areas of financial services starting to play a bigger role, as RegTech is rapidly being applied in more sectors than the usual retail and compliance space. We also see RegTech playing a more prominent role in the important conversation on sustainable finance and Environmental Social and Corporate Governance (ESG) reporting."
7. Embedded Finance
Financial services integration into non-financial platforms is expected to grow, with 54% of business leaders making it a top priority. Embedded finance could be worth $7.2 trillion globally by 2030.
Embedded finance eliminates the boundary between banking and other online platforms, enabling easy in-app payments, lending, and investments.
This often requires a combination of technologies (cloud infrastructure, APIs, consumer apps) to integrate financial products seamlessly into retail processes.
Secure API providers like Plaid are increasingly favoured over in-house development for these integrations.
The initial challenge of managing integration providers will likely lead to further innovations for more flexible infrastructure.
"The beauty of embedded finance is that it streamlines financial processes. Before the development of embedded finance or banking, there was usually a gap between a consumer and the company they did business with. (...) Embedded finance companies have found a way to act as the bridge or close the gap between themselves and the consumer."
8. Artificial Intelligence (AI)
Banks and financial organisations are increasingly adopting AI, which is expected to reduce operational costs by 22% by 2030, amounting to over $1 trillion.
AI applications include automating loans and insurance underwriting, customer communication (e.g., chatbots), and new cybersecurity measures.
Royal Bank of Canada is a notable example, having developed a private AI cloud in 2020 to run thousands of simulations and training sessions efficiently.
This technology has already reduced client calls and accelerated the delivery of new applications within its infrastructure.
"Whether in accelerated trading, automated call centres, real-time fraud prevention, or other financial services, AI is helping financial institutions drive the future of finance for their customers and clients."
9. One-Click Checkout
One-click checkout offers a seamless experience, allowing users to complete transactions without repeatedly entering their details. 37% of adult consumers use mobile one-click checkout at least once a month.
Financial organisations partnering with brands to provide enhanced one-click options could see significant increases in service use and partnerships.
70% of global shoppers abandon their online carts due to complex checkout processes.
Start-ups like Fast and Stripe, specialising in one-click solutions, have attracted significant funding, with Fast raising $124 million to date.
"Payment services have fuelled the convergence of various industries. Convergence is increasing where there are large, established digital customer bases and where the payment transaction or channel can be used as a connector to, or facilitator for, other services."
10. Cloud Computing
Cloud computing is a revolutionary development for the financial services industry. It enables organisations to deliver platform-as-a-service models, access new delivery channels, reduce data storage costs, and protect customer data.
According to Gartner, 28% of IT enterprises will utilise cloud capabilities by the end of 2022, up from 18% in 2018.
Cloud computing is not a one-time transformation but a continuous process.
While first-party data warehousing is crucial, firms must continue to integrate cloud-based solutions as their service channels evolve.
Insight is the key to cloud computing's significance. As data generation increases, success will depend on leveraging the cloud's power to harness this data effectively.
Many major players are migrating services to the cloud, with PayPal now handling all transactions through Google Cloud.
"Banking and capital markets leaders increasingly recognise that cloud is more than a technology; it is a destination for banks and other financial services firms to store data and applications and access advanced software applications via the internet."
11. Platform-As-A-Service
Utilising cloud technology for platform-as-a-service (PaaS) capabilities allows financial organisations to create flexible and adaptable infrastructures, known as banking-as-a-service (BaaS).
Banks report that BaaS can reduce operational costs by up to 50%. The PaaS market is expected to grow from $56.2 billion in 2020 to $163.3 billion by 2026, with 85% of banks identifying BaaS as their main area of growth.
SolarisBank and Starling Bank are leaders in this space, with Starling Bank allowing other financial services and retailers to use their banking licenses to create tailored financial products.
"Platform-as-a-service (PaaS) allows an organisation to leverage key middleware services without having to deal with the complexities of individual hardware and software elements, increasing efficiency."
12. Open-Source
Open-source technology will integrate into the next-generation financial services infrastructure, offering access to previously costly software and enabling further experimentation with technologies like blockchain.
The open-source service market is forecast to grow by 24% by 2025, with the potential to generate £7.2bn in revenue.
Open-source banking will transform platform development, allowing firms to build on the work of others.
New platforms will thrive in this ecosystem, eager to invest in services they can offer to their customers.
"There are clear benefits to using open-source within the financial services and banking sectors. The collaborative ethos behind open-source, including the community-driven ability for it to be modified and shared, produces faster innovations alongside driving down costs of development and speeding up the time to market."
13. Email Encryption
Financial services firms handle vast amounts of personal data.
Despite widespread cybersecurity training, sending open-risk emails containing sensitive information is still common.
Regulatory constraints often necessitate sending documents by recorded post, even in today's digital age.
Encryption protects sensitive emails by encoding their contents, which can only be decrypted with the appropriate keys.
Solutions incorporate two-factor authentication using SMS codes or challenge questions and integrate with security certificates like Unipass ID.
In 2020, 10% of all data breaches occurred within the financial industry, with 58% involving personal data loss.
Email volume in financial services has increased by 81% since the start of the COVID-19 pandemic, raising the risk of breaches.
Email encryption allows secure communication, mitigating the risks of remote work and increased digital reliance.
14. Machine Learning
A branch of AI, 70% of financial firms are using machine learning to predict cash flow events, refine credit scores, and detect fraud.
Financial organisations plan to expand machine learning use in the coming years, enhancing anti-money laundering (AML) processes, training algorithms, automating trading, and advisory services.
The global machine learning market is projected to reach $8.8 billion by the end of 2022, growing annually at 43.6% since 2017.
"As the financial services industry continues to leverage machine learning and predictive analytics, the volume of data these firms generate and store is ballooning. Protecting that data, other sensitive assets, and business operations will only become more challenging. Firms will have to adopt new security technologies that can mitigate their security and compliance risk."
15. Chatbots
Chatbot use in mid-sized banks grew from 4-13% in 2021, with banking-related chatbot interactions set to increase 31,505% from 2019-2023.
Chatbots provide multiple advantages for first-call customer service, including faster response times and better data access than human agents.
Importantly, chatbots save resources and impact the bottom line. By 2023, they are expected to save employees 826 million customer-facing hours.
A reported 80% of financial institutions recognize the benefits of chatbots and plan to increase their use, with PayPal leading the way with its Facebook Messenger chatbot.
16. Robotic Process Automation (RPA)
Robotic Process Automation (RPA) is advancing automation software, helping financial services companies improve customer service, boost productivity, and reduce human error.
In the coming year, 49% of banking and investment CIOs and 44% of insurance CIOs plan to increase investment in automation.
Banking RPA software is expected to grow to $900 million by the end of 2022, with the global RPA market reaching $6.9 billion by 2025.
"Defining internal control and governance for finance robotics programs is essential: Clearly delineate responsibilities between bot development, bot operations and bot outputs to yield full utilization of finance robotics and cost savings."
17. Big Data And Analytics
Collecting and analysing big data is crucial for executing key tasks in the financial services industry, including market segmentation, predicting customer behaviour, personalising services, and detecting fraud.
60% of financial institutions believe that big data analytics give them a competitive edge, with 90% stating that big data initiatives will determine future success.
Big data analytics in banking is expected to grow annually by 22.97% between 2021-2026.
18. Voice Banking
Voice banking is poised to be the newest technology to impact the financial services industry, enabling customers to perform activities like logging in, activating cards, making transfers, and paying bills using voice commands.
Voice banking will leverage virtual assistants like Siri and Alexa, of which there are currently 4.2 billion worldwide, with this number expected to double by 2024.
Integrating with these devices will allow financial services to create more personalized customer experiences, encouraging consumers to engage more actively with financial products.
44% of surveyed customers are interested in using voice assistants for routine bank operations, with voice shopping projected to make up 10% of all mobile e-commerce transactions this year.
"The rapid shift in consumer behaviour and expectations, the potential for improving loyalty scores, and the economics of cost savings all provide the business case for embracing voice as a new and integrated distribution channel."
19. Biometrics
The biometrics market – focusing on physiological characteristics like fingerprints and facial features – is expected to be worth $104,959.6 Million by 2028, growing at 15% annually.
Customer authentication in financial services is costly and time-consuming, with the top 10% of global financial institutions spending $100 million annually on KYC and due diligence.
Biometrics provides accurate identification to prevent fraud, enhance mobile banking security, and reduce IT and customer support costs associated with password resets.
"Consumers are eager for a future where opening a bank or brokerage account doesn’t require three forms of cumbersome identity checks and passwords containing every letter of the alphabet."
20. Two-Factor Authentication
Two-factor authentication (2FA) has become increasingly common, with 79% of surveyed individuals using it in 2021, up from 28% in 2017.
This trend is set to continue as financial organisations extend 2FA to more of their services.
30% of internet users have experienced security breaches due to weak passwords. 2FA provides an extra layer of protection.
As an essential part of cybersecurity policies, 2FA helps prevent fraud and eases the burden on customer support.
Are you focusing on the right technologies? Use the Future Tech 20 to reassess your transformation strategy for future success.
References:
Augmented Reality (AR) Overview, Statista, 2021
How Will Augmented Reality Be Used in Banks?, Quora, 2021
9 Applications of AR/VR in the Financial Industry, TJIP, 2022
Buy Now Pay Later: The New Payments Trend, Forbes, 2021
Why Buy Now Pay Later (BNPL) Is Growing In Popularity, FinTech Magazine, 2022
Global Blockchain Market Report 2021, Globe Newswire, 2021
Which Major Banks Have Adopted or Are Adopting the Blockchain?, Works Hub, 2022
Blockchain Use Cases in Finance, Consensys, 2021
7 Benefits of Blockchain for the Financial Industry, London Speaker Bureau, 2022
5 FinTech Trends for 2022, Finextra, 2022
Foreign Exchange Market Report, IMARC Group, 2021
London's Leading Greentech Companies, Netguru, 2022
UK Financial Services Failing to Go Paperless, Accountancy Daily, 2022
The Commons, Joro, 2022
State of Climate Tech 2023 Investment, PwC, 2023
Why RegTech Is Financial Services' Best Ally, Apiax, 2022
The 5 RegTech Startups Reshaping the Finance Industry, Plug and Play, 2022
Future RegTech: What Do Firms Really Want?, FCA, 2022
The Unstoppable Rise of Embedded Finance, OpenPayd, 2022
Infographic: The Unstoppable Rise of Embedded Finance, OpenPayd, 2022
Plaid API for Open Banking, Plaid, 2022
6 Examples of Embedded Finance Changing the Future, Finextra, 2022
FinTech Trends, FinancesOnline, 2022
Disruptive Digital Technologies in Financial Services, Deloitte, 2022
How AI Is Powering the Future of Financial Services, Finextra, 2022
How the Rise of PayTech Is Reshaping the Payments Landscape, EY, 2022
Bank 2030: Financial Services and the Cloud, Deloitte, 2022
Modernize IT Infrastructure in a Hybrid World, Gartner, 2022
Google Cloud Financial Services Solutions, Google Cloud, 2022
Finance Platform-As-A-Service, DSP, 2022
Platform-As-A-Service Market Report, PR Newswire, 2022
Banking-As-A-Service Requires An Outside-In Approach, Finextra, 2022
The Value of Platform-As-A-Service (PaaS) in Financial Services, Global Banking & Finance Review, 2022
How Open-Source Technologies Open New Opportunities for FinTech, Finextra, 2022
Verizon Data Breach Investigations Report, Verizon, 2022
Is Email Security A Ticking Time Bomb for the Financial Services Sector?, Financial Reporter, 2022
The State of AI Adoption in Financial Services, Forbes, 2022
Machine Learning Global Markets Report, BCC Research, 2022
How Machine Learning Is Changing Financial Services, FinTech Magazine, 2022
Bank 2030: Financial Services and the Cloud, Deloitte, 2022
How Intelligent Automation Is Helping to Create the Next Generation of Financial Services, techUK, 2022
Protiviti Insights, Protiviti, 2022
Robotics in Finance Insights, Gartner, 2022
Big Data Finance, Talend, 2022
How Big Data Has Revolutionised the Finance Industry, Techerati, 2022
Big Data in Banking Industry Report, Mordor Intelligence, 2022
The Rise of Voice Banking, SDK.finance, 2022
PwC Financial Services Library, PwC, 2022
Global Biometrics Market Growth Report, Globe Newswire, 2022
The Impact of Biometrics in Post-Pandemic Financial Services, ImageWare, 2022
The Force of Biometrics in Post-Pandemic Financial Services Security, Security Magazine, 2022
Two-Factor Authentication (2FA) Adoption Surges, ChannelE2E, 2022
30% of Security Breaches Caused by Weak Passwords, PR Newswire, 2022
Reviewed By:
Sabrina McClune, 19.06.24
Sam Kendall, 19.06.24
|
Originally posted on 30 12 22
Last updated on September 20, 2024 Sabrina McClune is a Women in Tech Excellence 2022 finalist who writes extensively on cybersecurity, digital transformation, data protection, and digital identity. With a postgraduate degree in Digital Marketing (Distinction) and a First-Class Honours degree in English, she combines a strong academic foundation with professional expertise. At Beyond Encryption, Sabrina develops research-led content that supports financial and technology sectors navigating the complexities of the digital age. |
Previous post