Published on April 1, 2019 by Anandita Ray
The 21st century has been marked by rapid digital penetration, evolving consumer preferences, and new technologies focused on simplifying user experience. Consequently, the financial services industry has witnessed a paradigm shift, with FinTech disruptors changing how the ecosystem works. Investment in FinTech is at an all-time high, and traditional institutions are witnessing a constant metamorphosis of business models, reflecting greater technological innovation.
Some major trends that will shape industry dynamics in 2019 are mentioned below.
Blockchain to reshape money movements
The cost of money transfer, although lower than the historical average, currently stands at c. 5% – still high, given the increasing volume of transfers. Owing to blockchain’s ability to remove intermediaries, banks and FinTechs will increasingly adopt the technology as the backbone of a new cross-border payment infrastructure to solve inefficiencies.
Ripple is working with more than 100 banks globally to establish a global payment network that would facilitate instant, affordable, and transparent transfers; this phenomenon will increase further in 2019.
Cryptocurrencies may become more mainstream, with increased acceptance rates for payments and transactions. In time, money transfer operators may offer low-cost remittances in both cryptocurrency and fiat.
Bank-focused blockchain projects are on the rise. Several players, including HSBC and Barclays, are developing a “utility settlement coin,” which can convert to foreign currencies and settle international transfers.
Blockchain is also expected to play a greater role in trade finance, where multiple trading partners and a large number of manual records and paperwork still lead to delays, duplication, and fraud.
IBM, UBS, and several other international banks have already formed a trade finance consortium to create a global trade finance platform run on blockchain:
The technology will be used to digitize sales and other legal contracts, monitor locations of goods, and facilitate real-time settlements, thereby tieing several participants
Other areas that will see a higher adoption of blockchain include smart contracts, know your customer, and risk management.
RegTech to gain further momentum
Amid an increasingly regulated business landscape, financial institutions are implementing RegTech to avert hefty noncompliance fines. Adoption is particularly timely, given the implementation of new regulations, such as the updated Payment Services Directive, the revised Markets in Financial Instruments Directive, and the New York State Department of Financial Services Part 504.
For instance, BBVA UK has opted to use Wolters Kluwer’s OneSumX for its regulatory reporting and liquidity risk requirements.
Russia-based Sberbank also uses the same solution to streamline its treasury operations.
Six major global banks (including BNP Paribas, Goldman Sachs, and UBS) have signed up for a fully-digitized MiFID II trade compliance engine (provided by Droit Financial Technologies) for financial markets.
According to industry estimates, investment on RegTech in the financial services sector is likely to increase ~500% over 2017- 20, crossing the USD50bn mark.
Previously, the majority of RegTech solutions utilized models based on SaaS and Open APIs. Going forward, solutions are expected to be more holistic, involving all ecosystem participants.
For example, FIs are mapping functional taxonomy to the regulator’s language, resulting in a direct link between regulatory agencies and designated compliance practitioners.
New solutions will also aim to automate compliance tasks for FIs, thereby reducing operational risks, reputational damage, and potential market fines.
Convergence of AI and RPA
2018 witnessed the implementation of AI – mainly virtual assistants, voice-bots, and chat-bots – primarily focused on enhanced customer experience. 2019 is likely to be marked by an increasing use of robotic technology in particular, across daily process management, customer service requests, regulatory compliance, reporting, employee and customer on-boarding, and service desk automation.
According to industry estimates, robotic process automation (RPA) software will be deployed in 75% of financial services institutions by end-2019.
With the help of RPA, firms are realigning resources to focus on strategic roles. In 2018, Japan’s largest bank, Sumitomo, implemented RPA to trim labor costs and improve operational efficiency. Other leading banks, such as Axis Bank and Deutsche Bank, have also been in the news for adopting RPA to automate business processes.
Additionally, wealth management institutions have already begun building their capabilities in hybrid robo-advisor services. The model is expected to be replicated by banks and FIs.
In 2018, Mexico-based Bancolombia introduced its “Invesbot” product to help clients better manage their investment portfolios.
Going forward, the integration of AI into RPA platforms will emerge as a leading trend. According to industry analysts, future applications include process-related analytics and data mining, which will enable RPA systems to recommend processes to be automated next.
The financial industry is, undoubtedly, shifting more toward digital and automation. Players in the sector will witness further technological evolution to not only streamline processes, but also make them more secure and fast.
Acuity Knowledge Partners provides support to both traditional and new-age financial institutions in scaling up their operations and leveraging partnership opportunities to sustain growth. We have dedicated teams of highly qualified analysts, who work with clients in strategy research assignments, including target identification and evaluation, market monitoring, competitor strategy analysis, peer benchmarking, and financial modeling.
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About the Author
Anandita Ray has over 7 years of experience in the research and consulting industry. She currently works in the Strategy Research and Consulting practice at Acuity Knowledge Partners and supports clients in the payments and remittance industry with assignments related to growth strategy formulation, go-to-market strategy, market entry and expansion, and competitor analysis and benchmarking. Anandita holds B.Com (Hons.) from Calcutta University and Masters in Finance from Amity University.
08-Jan-2020 11:48:57 am
This is exceptionally proficient and accommodating. Thanks for sharing!!!
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