Financial technology has disrupted the finance sector. Attracting more than £10 billion in investments from UK businesses in 2022, fintech promises to transform how firms in the sector deliver value for customers.
In 2023, innovations are flooding the market, levelling the competitive playing field and forcing firms to rethink how they operate. From blockchain and artificial intelligence to cloud computing and digital banking, these technologies offer new ways for customers to interact with their finances. Powerful tools offer enterprising firms new opportunities for service provision.
Technology is developing at an ever-increasing pace. We’ve explored the trends that are expected to shape the finance sector in 2023.
Cryptocurrency and blockchain have developed from fringe concepts hidden in the dark web into central players of the modern finance landscape. Bitcoin’s value has skyrocketed over the last decade, growing from around $300 per coin in 2014 to around $28,000 in 2023.
The growth of cryptocurrency signals a wider move in finance towards decentralisation. This concept is the transfer of power and decision-making away from centralised authorities or institutions to a more distributed network of participants. Decentralisation is expected to significantly impact areas such as banking, payments, and lending.
Blockchain is the powerhouse behind decentralisation. Transactions are automatically regulated with ‘smart contracts’, programs that execute party terms without the need for oversight. There are no middlemen involved, and anyone can create a wallet and start trading, removing any financial barriers to entry.
However, decentralised ecosystems aren’t currently regulated. Public keys are anonymised, which makes preventing financial crimes tricky. Users also take full control over security. They have their own access keys and authentication methods, but there are no recovery options. If their details are stolen or forgotten, users could lose all of their assets.
Artificial intelligence (AI) has been one of the most significant innovations in business. AI has the potential to transform how we work, from automating admin tasks to providing greater analytic capabilities.
In finance, AI is transforming processes like risk assessments, fraud detection, customer service, and investment management.
One of AI’s most significant impacts is in data analysis. Machine learning algorithms mean AI systems can identify patterns and anomalies in financial data far more quickly than humans, enabling more accurate risk assessments and fraud detection. AI can also automate routine tasks, such as data entry and processing. This frees up time for human analysts to focus on more strategic tasks.
AI-powered chatbots and virtual assistants are helping the customer service experience. These intelligent systems can understand and respond to customer queries and provide personalised recommendations, replicating organic conversations at a fraction of the cost of a customer service team. AI systems can also run 24/7, ensuring customers can access round-the-clock support.
In investment management, AI can analyse market data and identify investment opportunities. By leveraging machine learning algorithms, AI systems can analyse historical data to identify patterns and trends, enabling more informed investment decisions. AI can also manage investment portfolios, adjusting holdings in response to changing market conditions.
Digital services are changing the finance landscape. Online-only banks, trading apps and decentralised finance ecosystems offer users greater visibility into their finances and more value for their money.
For instance, online-only banks like Starling and Atom have no overhead costs associated with branches. They can offer more competitive rates to customers than traditional banks, and focus on providing convenient, secure services.
Today’s customers expect to be able to access financial services anytime, anywhere, from any device. Digital services provide customers with a seamless and convenient experience, allowing them to manage their finances on the go. Branch visits dropped 26% in just 6 years, with two-thirds of UK adults using online banking services at least once a month.
The move to digital services promises to transform how we interact with our finances. Cryptocurrencies have gained traction in recent years, and some have become accepted forms of payment. Microsoft has accepted Bitcoin since 2014, and PayPal lets users buy and sell currencies like Bitcoin, Ethereum and Litecoin.
However, the growth of digital services also poses challenges to the finance sector. Data breaches are an increasing concern as firms store more of our data than ever. Additionally, the adoption of new technologies, like cryptocurrencies, raises questions about regulation and consumer protection.
Open banking gives customers more control over their financial data and allows them to share it securely with third-party providers. This has the potential to increase competition, drive innovation, and improve customer experiences.
With access to users’ financial data, providers can create tailored products that better meet the needs of individuals.
In the UK, over 7 million people use open banking. Users can opt-in to access a range of applications, like budgeting and payment apps.
Customers can connect their financial accounts with other applications, such as budgeting apps or investment platforms, without manually entering data or providing credentials. A more seamless and intuitive financial experience for customers makes it easier for them to manage their finances and make informed financial decisions.
The rapid pace of technological change in the finance sector means that regulatory frameworks have to evolve in response. As new technologies and business models emerge, regulators are working to ensure that financial institutions remain safe, stable, and transparent while promoting innovation and competition.
Firms need to be aware of any changes and apply them quickly, or face potential fines from the FCA. Regulatory technology, or RegTech, has emerged as a solution for firms struggling to stay abreast of constantly changing compliance obligations.
From customer verification software to AI in transaction monitoring, RegTech gives firms access to powerful tools that keep them compliant and competitive. As regulations continue to adapt to innovations like open banking and digital services, RegTech helps ensure firms can deliver these services in a secure and transparent way.
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