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My research paper will highlight technology and innovation in banking and finance. I chose this topic because I am majoring in Finance and wanted to research the technology that is currently available in banking along with researching the new technology trends. I believe that the finance and banking industries must remain ever-evolving and innovative in their technology to keep up with advancements and the rising expectations of user communities for an optimal experience. In a report compiled by PwC, 77% of financial institutions will increase internal efforts to innovate, with many businesses embracing the disruptive nature of FinTech. With that being said, financial institutions will need to keep up with the latest trends in order to remain competitive.
During my research, I have learned that there is a growing amount technology/tools that banks will need to either consider and/or adopt to retain customers satisfaction, remain competitive and increase revenue. New technologies partnered with operational innovation is important in the sustained health of the banking business. Bankers and financiers innovate to continue to earn profits despite a rapidly evolving financial environment, including changes in competition, regulation, technology, and macroeconomy. With technology innovation on the rise, the banking sector is transforming itself and undergoing pivotal changes. Banks are moving toward the future by looking to engage with new technological solutions, which include digitizing their processes. They are also investing in FinTech companies to enhance their services and improve client experience. There are several new trends in the banking technology. Data monetization is one of the top banking technology trends that help businesses realize different revenue opportunities. Data monetizing allows a company to tap into and measure economic benefits along with reducing expenses and accruing revenue. Some businesses, such as information service providers, have always been about deriving value from data. However, the ability to use and monetize data is now impacting almost every type of business.
Most banks traditionally have a standardized system, but customization has become a major new banking tech trend. API banking offers banks the flexibility to feasibly provide customization to their clients. As the Financial Brand notes, API’s “provide the gateway for innovative, contextual solutions that would be difficult to offer without open banking”. According to Goldstein, by the end of 2018, 50 percent of global Tier 1 and Tier 2 banks will offer at least five external APIs. Another trend to look out for in the banking industry is artificial intelligence and data analytics. According to Sorrentino (2018), “the conversation around how artificial intelligence (AI) and big data promise to transform the world is not going away anytime soon”. AI has proven the ability to collect and use data to predict activity that can make our lives and businesses run more efficiently. Banks use technology to populate paperwork associated with completing a loan document with the information they already have on record. There are also risks of AI or the use of any technological advancement. But fortunately, predictive analytics can be a great tool to detect unusual activity and protect our information. Artificial Intelligence will improve the customer experience by simplifying processes and reducing the amount of effort necessary to complete a task.
Security is a top priority for banks and financial institutions, which is why they have recently been looking into the use of biometrics to secure client accounts. With the heightened use of customers using smartphones to access their bank accounts, this effort is becoming increasingly important. Many banks have looked into scanning facial recognition, voice prints, and thumbprints as an added layer of authentication. Biometrics will also improve the simplicity of banking. The use of passwords will eventually become a thing of the past. Trying to remember passwords for all our different financial accounts can become extremely difficult. Biometrics will make logging into mobile banking apps easier and has the potential to streamline remote banking by making it easier, faster and more secure for users.
The blockchain technology is possibly one of the most significant innovations in the banking sector for 2018. The blockchain is predicted to revolutionize the payments system over the next coming years by increasing payments volume and simultaneously lowering associated fees significantly. The blockchain is a new way of storing data in a distributed ledger that allows multiple stakeholders to confidently and securely share access to the same place. Banks have shown great interest in blockchain and if fully adopted, it will enable banks to process payments more quickly and more accurately while reducing transaction processing costs. Although banks are showing a lot of interest, banks need to build the infrastructure required to create and operate a truly global network using solutions based on this transformative technology. The global network is critical in helping banks use the blockchain to help transform payments at scale and help reduce the risk of failure. Accenture (2018) states, the most effective network should have two defining characteristics:
1. It should include the necessary defined rights, obligations, controls, and standards.
2. It should offer a quick and efficient onboarding process that enables banks to essentially “plug and play” into the network for both existing and future corridors. Another promising application of the blockchain technology is the smart contract. Smart contracts are computer programs that facilitate, verify, or enforce the negotiation of execution of an agreement. Smart contracts can execute commercial transactions and agreements automatically. They cut out the middleman, but the quality of the output is based on the quality of the input.
In summary, banks realize that by creating a better banking experience for their clients, that will, in turn, keeps them competitive, fuel growth and can ultimately lead to hiring additional people who understand the value of technology. There are several trends that many banks have already adopted as mentioned in my paper. After writing this paper, I realize that I currently use a lot of the technology mentioned. I can’t remember the last time that I stepped foot into an actual bank branch. Most, if not all of my banking is done through mobile apps and online. I recently used Artificial Intelligence (AI) during a home loan process. It made the process a lot smoother and quicker because I did not have to complete any of the documents manually. They were completed electronically using data analytics. I realize that without technology in the financial sector, things would take much longer to complete and process. I feel that we take a lot of the technology for granted without knowing the background of how it works for us. The use of technology has impacted everyone and will continue to have an impact for the foreseeable future – whether they realize it or not.
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