If you have not heard about the FinTech (Financial Technology) revolution in vogue, you need to wake up and smell the coffee! The future of banking is here i.e. Technology, with the potential to change the way we conduct transactions in all aspects of business and finance. Food for thought – Will digital transformation be the death of brick and mortar business models? Will automation substitute human physical power intervention? Will Blockchain take over banking in the financial industry? And will technological advancements facilitate compliance of financial institutions to general data protection laws and country/global regulations? These are some of the questions I deem as vital to this revolution. Therefore, let us discuss these trends and determine their impact on the industry.
With this revolution, digitalization as opposed to brick and mortar is the only solution to remaining relevant in the financial industry. Banks for instance are no longer investing in technological infrastructure and applications to minimize costs alone but also to improve operational efficiency, strengthen system infrastructure and develop business innovations. The retail client base and preferred target market for most banks is tech savvy and social media active – Therefore, financial institutions that will take advantage of e-platforms (e-wallet/e-commerce) and self-service solutions to develop suitable products and services for their target market will enjoy competitive advantages which will result in revenue growth and profitability.
There is not any industry that has not been impacted by automation. Safe to say the financial industry is no exception. Studies conducted by many IT (Information Technology) specialists have hinted that machines will execute close to 30% of bank work in the next two (2) decades. With simple processes being automated (e.g. cash deposits in Zambia, account opening and mobile cheque clearing across the globe), operational efficiency in the banking industry is expected to improve hence human physical power intervention for the automated processes will no longer be required. From the foregoing, we can establish that innovation is a people issue which demands skill sets relevant to the evolving advancements and the use of more human brain power. Therefore, a cultural and mind-set change to continuously innovate and accept automation is necessary across the industry. This means that players in the industry now have extra time on their hands to create more consumer centric products and processes that will transform service delivery.
Cryptography – Blockchain
Known to some as the FinTech leader, Blockchain is making a buzz in the financial industry despite a great sense of misunderstanding by many. It is an efficient system which updates end to end currency transactions facilitating real time completion of transactions and eliminating the daunting task of paper work unlike banks which are time bound with strict cut off times and rely on submission of documentation to facilitate transactions. Unlike banking, cryptography by use of Blockchain technology processes transactions with little or no transfer fees as opposed the hefty charges imposed by banks. It also offers instant credit and settlement of funds (loans) without the need for heavy documentation and scrutiny however the lack of documentation makes Blockchain more prone to misuse by money launderers and terrorist financing. Will Blockchain take over banking the financial industry? I certainly do not have the answer to that but my 2cents on this is that it has definitely challenged the status quo.
Regulations & Data Protection
Uncertainty around the safety of consumers’ money and personal data because of all these technological advancements in the financial industry is most likely going to warrant new regulations to ensure concerns around InfoSec are addressed. Allow me to note that regulations aren’t entirely bad because consumer confidence in the revolution depends on the perceived safety of systems hence the advancements will only occur if the financial industry is confident that its infrastructure and systems are stable and secure.
In the 1st half of 2018, the EU (European Union) issued the General Data Protection Regulation (GDPR) to re-engineer data handling processes across all sectors in Europe in line with new technological advancements targeting those that deal with large data such as Banking and Health sectors. The EU further went on to add penalties and fines for organisations that did not comply to this regulation. Outside Europe, the regulation is applicable to organisations that handle and process European citizens’ data.
With regards to data protection and confidentiality for the banking sector in particular, additional attention is required to maintain system capability following these advancements to ensure they do not leave loop holes prone to malware, cyber-attacks and hacking. In view of this, banks must now realign their corporate governance strategies, assess the strength of their systems, levels of system user access and invest in secure disaster recovery sites and cyber security awareness techniques.
The debate as to whether FinTech’s’ will take over banks is inevitable. FinTech’s are giving banks a good run for their money but my view on this debate is that FinTech’s and banks complement each other and so the need for both to work together for the sake of delivering exceptional service to the consumer is necessary. On that note, I conclude by saying an exciting self-service banking experience awaits the consumer – One that is simpler, faster and more convenient.