Emerging technologies are transforming the financial services sector

Emerging technologies are transforming the financial services sector across various business units from creating new services and contributing towards client acquisition to spearheading fraud detection and surveillance, as well as conducting AI-enabled credit analytics, writes Christopher O’Flaherty, Financial Services Technology Analyst at BDO South Africa.

When American economist and statistician Simon Kuznets first postulated Gross Domestic Product (GDP) in 1934 as a measure of the physical goods and services that contribute to a country’s economy and growth, little did he know that less than a century later digital goods and services would constitute a $11.5-billion digital economy. He would have been confounded by the fact that despite many online services being made available to consumers at almost zero cost, they could create such economic value.

Today, personal data is the life blood of our information economy. It also holds immense business value for every industry and fuels the $517-billion advertising industry. Digital platforms and social media channels track consumers’ passive and active digital footprint across the internet to provide greater audience insights to deliver maximum conversions and Return on Investment (ROI). At the same time, these online platforms and applications also disseminate advertising, while simultaneously collecting intelligent metrics to analyse large data sets on engagement rates and conversions for remarketing purposes.

With so much economic value attributed to data, general data protection regulations have been set up to ensure the secure, fair and respectful handling of personal data. Both public and private sectors need to manage their collected data sets in a responsible and transparent manner that prioritises consumer privacy, whilst maximising economic potential.

Financial service providers (FSPs) have a great responsibility to handle this data correctly as should something go wrong this could have immense economic and reputational repercussions. FSPs should ensure that sensitive information is encrypted and protected. Some data, however, is only sensitive when analysed in context. Hence, for purposes of regulatory oversight and data analytics, data sets may be ‘sanitised’ (through cleaning and sorting) so that they do not identify the client in case of a data breach.

The immense business potential of intelligent Big Data combined with the power of Machine Learning and Artificial Intelligence (AI) will accelerate the mainstream adoption of emerging technologies across various industries. They are useful in generating more accurate industry- and business-related insights that encourage actionable, data-driven decision-making. There are multiple use cases within the financial industries, especially as they requires innovative ways to differentiate themselves to remain relevant.

These emerging technologies have the potential to increase profitability across various business units of an FSP and achieve scale by: removing costly and time-consuming roadblocks through automation; generating new revenue potential by creating new products and services; formulating different business models; and contributing towards client acquisition, service and experience.

With an appropriate risk framework in place, and once properly understood by internal business and technology professionals, emerging technologies can also promote the adoption of agile project management solutions, which are often a key focus area within FSPs.

When it comes to products and services specifically offered by financial industries, emerging technologies can manage risk and bias management; spearhead fraud detection and surveillance; and conduct AI-enabled credit analytics. Indeed, the global AI fintech market is predicted to reach $22.6 billion in 2025, according to Mordor Intelligence.

And the Covid-19 pandemic fast-tracked this digital transformation by a few years as we embraced technologies and services geared to a decentralised workplace. Many tech services had to scale very quickly to accommodate the exponential demand for their services. Similarly, they also realigned their technology offering to better suit their clients’ new digital-first needs.

The pandemic also saw innovative partnerships between the financial industry, tech firms and start-ups, which accelerated digital transformation from a B2B and a B2C perspective. As an example, in recent months, digital and contactless payments, as well as virtual cards, have become the norm rather than a nice-to-have payment option, as consumers opted for online shopping and favoured contactless payments over handling cash.

These emerging technologies have also provided FSPs the opportunity to tap into a new clientele. The rural unbanked no longer need to travel to the city in order to set up a bank account. They can do so online, thanks to automated account creation, at any time and within a matter of minutes with the help of remote identification verification features.

And as the unbanked becomes banked, they will require additional services. FSPs are beginning to offer additional ‘untraditional’ services as part of their diverse portfolio of offerings, such as online shopping, flight bookings, medical aid and life insurance. Emerging technologies also enable the industry to develop new products and services as they predict future trends, which, in turn, will attract more customers.

As we have seen in the Global South, when digital transformation becomes more egalitarian, it enables developing countries to navigate complex socio-economic challenges and becomes a critical part of their development outcomes. At the same time, building the infrastructure needed for widespread digital transformation also has the potential to simultaneously improve the quality of life in the surrounding areas and drive GDP growth.

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