Over the past decade, the financial industry has begun to embrace a series of innovations that have the potential to dramatically change the nature of the business in the future. Improvements in blockchain, artificial intelligence, cloud computing and biometric security – to mention a few – are notable examples of technical progress starting to have a direct impact on finance.
Whilst these are at varying stages of adoption in the industry, they are linked by their ability to bring about transformative change in terms of the range, quality and volume of services that firms will be able to offer in the future. Other than their applications in finance, these technologies are also very mutually dependent with cloud computing facilitating the use of AI and biometrics or with biometrics being largely driven by AI, especially pattern recognition.
This series will focus on the workings of the technologies, their current and potential applications in finance and the risks presented by them. Whilst many of the innovations are coming from smaller FinTechs and tech companies, their adoption is being driven by the largest firms seeking to maintain their competitive advantage and cater to emerging client demands; hence, firms that are slow to embrace digital change are likely to fall permanently behind and risk losing market share.
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Distributed ledger technology (DLT) – its most notable example being blockchain – is the underlying process through which a ledger can be securely shared and updated across a decentralised network. This technology facilitates peer-to-peer (P2P) exchanges of assets, documents or information – this involves a direct exchange between two parties without any form of intermediation; in effect, the transfer occurs similarly to a cash transaction.
This technology has the potential to improve on many features of financial infrastructure, notably in settlement, clearing and security – this makes DLT uniquely suited for application in finance. Leading financial institutions have already realised this and significant investment is now being devoted to DLT solutions; blockchain technology has already been used to facilitate repo transactions, syndicated lending and improvements in settlement systems. Future articles will study, in more detail, the current and potential applications of this technology across finance.
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Artificial intelligence (AI) involves the use of sophisticated computing techniques to perform tasks in a ‘rational’ way – not necessarily mimicking humans but using a systematic method to solve tasks that usually require human intelligence to complete. This is valuable to financial institutions because it can bring about great automation, in menial tasks, whilst also potentially leading to greater performance and decision making than people.
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Cloud computing provides its users with on demand access to computing power without the need for in house infrastructure. This has already been widely implemented in financial services, an industry with high and variable demands for computing power, making it especially suited for adoption.
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Biometric security is the use of individually unique physical features for identification; common examples including fingerprint patterns, iris shape, voice verification, etc. Such technology is gaining traction in finance as a way of smoothing the customer experience, hence providing for greater ease of use in banking services whilst also improving on security. This has the potential to both cater to a growing consumer demand whilst improving trust and confidence that clients place in financial institutions.
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