Underestimated new and old technologies could dominate the space during the next 12 months
By Holly Huang
Not so long ago, McKinsey & Company predicted that during this year, investment in FinTech would exceed US$30 billion globally. Fuelled by the desire of banks, insurers and investment companies to make the provision of services cheaper, faster and more secure, McKinsey, yet again, won’t be wrong — consultancies and researchers universally agree that this figure will be achieved, if not superseded.
Market commentators are united on the trends that should shape 2020: Hyper-personalisation, innovative mobile payments, digital-only banking, widespread collaboration between banks and tech start-ups, and a slew of regulatory reforms making economies fit for purpose in a digital age.
However, while these are sure to take place, I see a number of other trends emerging under the radar, but which could be more disruptive than any of the above. Here are five I believe will prove significant over the next 12 months.
1. The democratisation of wealth management through robo-advisory and hybrid servicing models
Traditionally, the top wealth managers have relied on human expertise and knowledge to stand out from their rivals. Having such abilities usually came with a hefty fee, meaning that only high-net-worth-individuals can afford best-in-class servicing.
The application of artificial intelligence (AI) and machine learning (ML) to wealth management enables firms to more robustly identify investment opportunities, optimise portfolios and better manage risks than before. This has since led to an ‘arms race’ among the world’s top managers. However, with these technologies becoming less costly, boutique firms are also leveraging these same tools to achieve optimal results.
While the capabilities of these new technologies are immensely powerful, managers will still be needed to oversee the investment process. AI and ML are known to create biases, which can greatly distort the judgement of their findings. The data that feeds AI and ML applications must be clean and timely, and too must be scrutinised by humans.
2. Robotic process automation (RPA) is superseded by intelligent automation (IA)
Use of robotics to execute mundane back-office tasks have transformed the effectiveness and efficiency of back-office functions. But by design, Robotic process automation (RPA) has its own limitations and is restricted in its capabilities. For example, an RPA-powered system that analyses millions of transactions for compliance purposes within seconds only does just this: analyse millions of transactions to ascertain whether they are compliant or not.
Unlike RPA, intelligent automation (IA) is not a single tool, but a collection of technologies that can tackle more complex and varied challenges. These other technologies usually include workflow automation, process intelligence, intelligent data extraction, and conversational interfaces (chatbots etc.) — some of which are already buzz-phrases in their own right. With financial institutions wanting to be both ultra fast and ultra smart in how they operate (as both further drive down operating costs), the deployment of IA should surge during 2020.
3. The onward march of blockchain continues
For more than a decade, commentators have been salivating over the abilities of blockchain. And despite an infinity of naysayers forewarning the technology’s demise, it continues to perform tasks that other solutions are simply unable to fulfil. The inability to alter a ledger once a transaction has taken place makes blockchain a preferential technology in today’s battle against cybercrime. Globally this costs businesses up to US$600 billion annually, with financial firms losing an average of US$18 million each.
Increasingly, financial institutions are using blockchain to facilitate secure smart contracts, digital payments, identity management, and trading activities. In the US, for example, Investment in blockchain FinTech is expected to top $6.7 billion by 2023.
4. Parametric insurance gathers momentum
Unlike conventional insurance that compensates financially for a specified loss following an expensive claims process, parametric insurance cover is paid out automatically upon a specific event taking place. To date, many polices are linked to natural disasters such as the occurrence of a category five hurricane. When these events happen, an amount of money is automatically dispersed to claimants with the assistance of an oracle, which in the case of hurricanes is a meteorologist.
Parametric insurance is finding its way into the consumer space, with policies reaching customers through apps, online adverts and chatbots. In the health space, for example, should a customer need urgent surgery relating to an illness specified in advance when the patient is healthy, an automatic insurance claim will be processes, with the doctor acting as the oracle.
5. FinTech adoption in emerging markets continues to outperform developed markets
It will surprise no one that China tops global FinTech adoption rates — the nation has for more than a decade dominated the hardware and software spheres. What’s more surprising, however, is how countries like India, Russia, South Africa and Colombia are charging ahead of the likes of the Netherlands and UK, according to the EY Global FinTech Adoption Index.
Driving this trend are multiple factors: One of them is smartphone penetration; another is the need for low-cost financial services, which conventional bricks and mortar banks, investment managers and insurers are unable to facilitate. FinTech providers across the payments, loans and savings spaces offer ultra-cheap, no-frills services that meet rapidly growing customer needs.
In the world of FinTech, necessity is indeed the mother of innovation.