5 Technologies Shaping The Financial Services
Sabrina McClune
1. Embedded Finance
Embedded finance technology had a strong 2021, securing $4.24 billion in venture capital, almost triple that of 2020.
The overall value of the embedded finance market is set to exceed $138 billion by 2026, increasing from just $43 billion in 2021.
According to OpenPayd research, 96% of European brands plan to offer embedded payments within the next five years.
This will disintegrate the boundaries between banking and other platforms, giving easy access to investments, payments, and lending.
Embedded lending, otherwise known as Buy Now, Pay Later (BNPL), is just one example of the growth potential for embedded finance.
Solutions like PayPal and Klarna currently dominate, with surveys revealing that 62% of consumers have used BNPL five times or more.
The integration of financial services into non-financial platforms is set to continue to grow, with business leaders making it a top priority.
"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."
2. Climate Technology (ClimaTech)
Climate technology (ClimaTech/CleanTech) - technology that addresses our impact on climate change – is a burgeoning market.
Reports indicate that 6/10 technology start-ups in the UK are currently focused on creating green tech.
The potential for carbon reduction in the financial services industry is not an opportunity. It’s a necessity.
Prior estimates (now deleted from the EY media hub) put the industry’s annual paper document output at 507 million in 2021, equivalent to the deforestation of 50,000 trees each year.
Many next-generation technologies such as AI, blockchain, and cloud computing have a greener footprint than their incumbents.
Other technologies have arisen to address this emergent green consumerism, such as The Commons, which translates spending into a metric for your carbon footprint. As awareness of environmental issues grows, ESG will continue to rise on the agenda.
Stakeholders may begin to look at carbon savings when considering technology budgets 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."
3. Cloud Platform-As-A-Service
Cloud computing enables financial services to develop platform-as-a-service (PaaS) models that adapt to the needs of their customers.
By fully embracing the cloud, institutions can deploy services rapidly and at a much lower cost than traditional software.
18% of enterprises were utilising cloud services in 2018, compared to an estimated 28% by the end of 2022, with adoption rates to continue to rise beyond this.
The global cloud computing market is set to grow from $445.3 billion in 2021 to $947.3 billion by the end of 2026, with 85% of banks focusing on PaaS as their primary area of growth.
Banks and other financial providers have seen that the cloud offers results too good to ignore. Utilising the cloud to deploy PaaS models could unlock:
- Potential operational cost savings of 50%
- Flexibility to quickly build propositions
- Increased data and asset protection
- Hyper-personalisation for consumers
- Competitor differentiation
"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."
4. Artificial Intelligence
Banks and other financial organisations are getting serious about AI.
According to estimates, AI technology promises a potential 22% reduction in operational costs by 2030. This amounts to more than $1 trillion.
81% of banking executives believe that AI will be a key competitive differentiator, with 75% of C-suite executives stating that those who don’t scale AI in the next five years risk going out of business.
An estimated 91% of financial services organisations are already using AI live or in production.
AI technologies have potential in many areas, including:
- Personalising customer services
- Boosting revenue and productivity
- Reducing error rates and detecting fraud
- Improving risk management and algorithm training
- Automating underwriting and anti-money laundering (AML)
It is estimated that the global annual value of AI and analytics could reach $1 trillion, with the machine learning market set to reach $8.8 billion by the end of 2022, along with banking-related chatbot interactions set to grow an overall 3,1505% between 2019-2023.
"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."
— Kevin Levitt, Global Business Development, NVIDIA
5. Cybersecurity Software
Financial organisations are 300 times more likely to be targeted by cybercriminals due to the amount of sensitive customer data they hold.
The situation is exacerbated as digital transformation shifts communications and services online.
In 2021, the financial services industry had the second-highest average cost for data breaches out of all sectors, with each breach resulting in average losses of $5.72 million - a 238% increase in the cost of fraud.
Several key technologies will become more commonplace over the next few years.
Biometrics
As a method of detecting individuals through physiological aspects such as facial features and fingerprints, biometrics offers financial services companies strong payment and identification capabilities.
Studies have shown that 61% of individuals believe that biometric identification is as or more secure than a password, offering banks and other financial businesses a method of protecting digital assets, preventing fraud and building digital trust.
The biometric market is forecast to be worth $104,959.6 million by 2028.
Authentication
As a more cost-effective solution than biometrics, two-factor authentication (2FA) helps to provide an additional protective barrier against cyber risk, preventing 80% of data breaches when in use.
2FA has become increasingly common, with 79% of surveyed individuals stating that they used some form of 2FA in 2021, compared to just 28% in 2017. However, the sporadic availability of 2FA as a security option is still concerning.
Email Encryption
The volume of emails sent by financial companies increased by 81% during Covid-19, with email often used to transfer documents and confidential data to customers.
Email is a channel regularly associated with data breaches due to its lack of built-in security, with 83% of businesses suffering email-related data breaches within 12 months.
Email encryption services such as Mailock scramble the contents of your emails, turning them into code and preventing unwanted third parties from accessing the data.
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The global worth of the email encryption market is expected to increase from $3.4 billion in 2020 to $11.8 billion in 2026.
The key to success with cybersecurity is balancing risk with usability. Though security is necessary, it shouldn’t get in the way of efficiency; if anything, it should look to improve upon it.
"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."
References:
Value of venture capital (VC) investments in embedded finance from 2016 to 2021, Statista, 2023
96% of European brands will offer embedded payments within five years, OpenPayd, 2021
6 Examples Of Embedded Finance Changing The Future, Finextra, 2020
The PwC Net Zero Future50, PwC, 2021
State of Climate Tech 2021, PwC, 2021
Roundup Of Cloud Computing Forecasts And Market Estimates Forbes, 2018
Cloud Computing Market Forecast, Markets And Markets, 2018
Why is PaaS important?, Oracle, 2021
Understanding and Assessing the Value of PaaS, Global Banking and Finance, 2021
3 Ways Analytics and AI Are Transforming Retail Banking, Contovista, 2021
AI will separate winners from losers - Temenos survey, Finextra, 2020
AI: Built To Scale, Accenture, 2021
AI Takes Center Stage: Survey Reveals Financial Industry’s Top Trends for 2024, NVidia, 2024
Global Artificial Intelligence Study: Exploiting the AI Revolution, PwC, 2021
How AI is Powering the Future of Financial Services, NVidia, 2021
Cyberattacks hit financial services 300 times more than other sectors, CIO Dive, 2019
How Data Breaches Impact The Financial Services Industry, Hartman Executive Advisors, 2021
UK now ready for biometric banking, Experian, 2016
Global Biometrics Market Expected to Generate a Revenue of $104,959.6 Million by 2028
What Is Two-Factor Authentication (2FA)?, Okta, 2021
2FA Statistics: 2FA Climbs, While Password Managers and Biometrics Trend, Duo Labs, 2021
Is email security a 'ticking time bomb' for the financial services sector?, Financial Reporter, 2021
Email Encryption Market worth $11.8 billion by 2026, Globe Newswire, 2023
The force of biometrics in post-pandemic financial services security, Security, 2021
Reviewed By:
Sabrina McClune, 05.06.24
Sam Kendall, 05.06.24
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Originally posted on 15 02 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. |
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