By Dr.Hassaan Khan, Head of School of Digital Finance, Arden University

With the emergence of AI and blockchain, the future financial services sector will be very different from the one we know it. The Global Financial Crisis in 2008 and the recent Covid pandemic have led to a faster than expected transformation of the finance industry. Furthermore, innovation and technology are driving the change to new paradigms.  Below, Dr Hassaan Khan lists out the top five trends that are already transforming finance and will continue to change the financial industry in the next decade.

1. AI and machine learning are the future of finance

Chatbots — for those financial institutions that even deploy them — in general, are helpful in directing customers in transactional tasks, such as how to use mobile remote deposit capture or finding an ATM. But most of them lack the ability to handle more complicated conversations. Conversational AI is gathering momentum and financial institutions are stepping up investment in the area to better manage client data. Typical applications of AI in the finance sector include fraud prevention, quantifying and assessing risks, and analysing economic trends and data. Conversational AI is changing how financial institutions engage with their consumers by being more convenient and frictionless. It enables digital transformation more effectively. As per a recent survey, about 90% of the banking sector’s interactions are going to be automated by 2023. To stay competitive in the industry, organisations have to rethink their strategies for improved customer experience. Financial institutions are cognisant that conversational AI can help them to be prepared and meet the rising demands and expectations of their customers.

2. Digital Money and the Rise and Popularity of Finance Apps

Facilitating this new wave of digital money are mobile payment apps and so-called “digital wallets” – typically app-based services that allow users to pay for things (for example, via contactless payments) and transfer money to others. With the ever-increasing use of contactless payments and payments via apps, such as Apply Pay, Google Pay, etc., we could see paper money disappearing altogether. It is also interesting to note that most, if not all, digital wallet apps and services are provided not by mainstream banks but by technology giants like Apple, Google, Samsung and Paypal to name a few. With their financial muscle and deep investments in AI, these technology giants are threatening to break the traditional hold of banks and financial institutions over money and payment services. Apple and Google are also considering a move into the unsecured lending market, making use of the buy-now-pay-later digital payment system to attract millennials. This further threatens the stronghold of banks in this service area.

3. The Financial Services Industry Embraces Blockchain

Until recently, blockchain technology has been synonymous with cryptocurrency. According to Josh Howarth, a financial trends expert in San Francisco, California, technology will now become more integrated with existing financial systems. For example, using blockchain would allow banks to perform cheaper, more efficient transactions while maintaining tight security. It can also be used to handle peer-to-peer lending, an industry that could see a growth of up to $150 billion by 2025. This view is supported by most finance and technology experts. More banks are moving to cloud-based banking and blockchain will no doubt play a role in this. HSBC and Wells Fargo already use blockchain technology to settle forex trades; Paypal, Mastercard, and JP Morgan all allow users to make payments on their networks using blockchain currencies. This involves cryptocurrency, of course, but it shows banks’ willingness to embrace blockchain. It’s not just banks incorporating blockchain, either. AXA, the French multinational insurance company, uses blockchain technology when insuring clients against flight delays. An Ethereum blockchain then connects both the insurance contract and air traffic data. As soon as a flight is over two hours late, the system takes notice and automatically triggers the insurance payout.

4. Cybersecurity will be even more crucial than before

The digitisation of the financial services industry will inevitably put an even greater focus on the role, scope and importance of cybersecurity. The bigger the scale of digitisation in banking and financial services, the more windows of opportunity cyber-criminals will have to strike. The fintech industry is already responding and developing tougher cryptography to keep hackers at bay.

Banks and financial services institutions will have to invest large sums of money to upgrade their cybersecurity systems.

5. Greater focus on customer experience

Over the last few years, the financial services industry has shifted to putting consumers first. Today’s consumers are liberated with a broad range of services and products and a newfound sense of power over their spending habits. With a rise in card-linked rewards, personalised loyalty programs, buy-now-pay-later solutions and more, consumers have more choices over how and when their money is spent. Banks and fintechs are needing to constantly evolve their offerings in order to meet customers’ demands, and this trend will continue well into the future of banking — making end-users the real winners. The power has shifted to consumers, and it isn’t going away anytime soon.