The first industrial revolution was centred around mechanisation while the second industrial revolution had its roots in mass production. The third industrial revolution, also known as the digital revolution, focused on quality and mobility. Needless to say, each of these has changed the way we live, interact and do business.
The financial services sector, which is the backbone of the economy, has evolved alongside each revolution to suit the economic demands of each period. For instance, banks evolved their governing policies and regulations during the first two revolutions. During the same period, they also augmented their service offerings to include clearing facilities, security investments, cheques and overdrafts. The financial services industry took a quantum leap with the telecommunications transformation in the early 20th century. The period witnessed an exponential increase in complex and leveraged derivatives.
Now, the fourth industrial revolution is here. Characterised by the fusion of cyber-physical systems that interact with each other to produce, distribute and trade on a globalised platform, the breakthroughs emerging from the revolution are reformulating our lifestyles and economies. The attributes of digitalisation, automation and big data are also impacting the functioning of the BFSI industry much as they have impacted every other segment of the 4.0 economy.
Below mentioned are some of the ways in which technology will impact the execution of financial services
Over three-quarters of bankers participating in an industry survey believe that artificial intelligence (AI) will dominate banking over the next three years - from streamlining communications to providing tailor made recommendations in real time1. By equipping service providers with insights about customer needs, AI technologies will enable members of financial communities to deliver accurate services while providing an emotionally intelligent response. All such elements are essential building blocks of successful consumer relationships.
While blockchain technology is in its infancy, a report by Harvard Business Review claims that its effects on the banking system will be similar to that of the internet on the media1. This is because the technology affords unparalleled safety, reliability and transparency during the exchange of money, information or data. And it is a cost-effective strategy. Not surprisingly, 77% of fintech institutes expect to adopt blockchain technologies in their operations by 20202.
Financial services in the 4.0 world will not dwell much in the past. Rather, its focus will be on providing real-time insights, forecasting future trends and risk management strategies. Furthermore, in an economy that is increasingly driven by the potential of ideas, the finance function will include the value of intangible assets. To summarise, the financial services will evolve to deliver real-time, 360O insights (to include financial and non-financial aspects), with a forward-looking impact and meet the needs of multiple stakeholder communities simultaneously.
The 4.0 world was preceded by the great recession of 2008. The aftermath of the disaster saw a rise in regulatory demands for greater lucidity in financial reportage. In step with this trend, financial service providers will have to channelise their focus on transparency, standardisation and accountability. Their efforts will be backed by the advent of big data and advanced analytics, robotics and AI.
Evidently, the environment of finance is rapidly changing, and the future promises to be exciting. Financial services companies should prepare to evolve their processes, capabilities and most importantly, their thinking to meet the demands of the new, disruptive environment.