Technology driven disruptions in the financial services industry

By Maureen Doyle-Spare, General Manager-Head of ASSET and Wealth Management and Insurance.

Where are we seeing the acceleration of technology driven disruptions in financial services institutions and what are the forces driving them?

There are strategic technologies that provide the scaffolding to propel drivers which are accelerating rapid disruption, each that bring challenges. These challenges are present in areas such as Generative AI and the importance of explainability, but also in foundational areas such as operating platform technologies for greater efficiency gains.  Below are a few areas that can enable this overall disruptive transformation.

Artificial Intelligence

Artificial intelligence is disrupting the financial services industry by revolutionizing traditional practices and reshaping the way businesses operate. AI powered and machine learning models allow organizations to automate and optimize various processes, including risk assessment, fraud detection, trading, customer service, and personalized recommendations. By leveraging AI, organizations can stay competitive, drive innovation, and deliver super services in an increasingly digital and data led landscape.

Generative AI

ChatGPT is revolutionizing the field of financial services by providing accessible and powerful generative AI tools through its advanced natural language processing and analysis capabilities. While ChatGPT remains a popular choice, there are several other large language models available, each offering unique features based on the supported parameters and customization ease.

Once a suitable model is selected, incorporating a large language model into a specific use case can be achieved through various approaches such as Prompt Engineering or Fine Tuning.

In the financial services industry, professionals are actively engaged in extensive research and in-depth analysis to develop impactful use cases. Numerous areas are being considered to leverage generative AI effectively, ensuring the development of go-to-market solutions that deliver optimal value and return on investment (ROI).

Explainable AI

Explainable AI is of great importance in the financial services industry due to the need for transparency, accountability, and regulatory compliance. As AI algorithms and models become increasingly more complex, it becomes essential to understand the reasoning behind their decisions and ensure they align with ethical and legal standards. Explainable AI enables financial institutions to provide clear justifications and insights into how AI models arrive at their outcomes, which is particularly vital in areas such as credit scoring, fraud detection, and risk assessment.

Explainability not only fosters trust and confidence among customers, regulators, and stakeholders but also helps financial institutions identify and mitigate biases, errors, and potential discriminatory practices.

Customer Engagement

Technology is revolutionizing the financial services industry by offering an improved customer-centered approach which leverages the power of big data and artificial intelligence providing organizations unprecedented access to a wealth of information.

One way technology enables organizations to deliver model customer service to users, is through chatbots which address customers’ needs. These chatbots play a pivotal role in managing customer expectations, streamlining operation costs, and acquiring valuable insights into user experiences. The metrics gathered can then be used for predictive analysis, cross-selling and increasing user engagement and customer retention rates.

The widespread adoption of artificial intelligence, machine learning, and customer analytics is significantly driving client engagement. Customers will remain loyal due to the personalized experiences that ensue, stemming from intelligent insights gleaned from data pertaining to consumer behaviors and preferences.

Operating Platforms

Organizations are actively seeking ways to enhance operational efficiencies and identify opportunities for cost savings within their operating platforms. The success of this relies heavily on the utilization of technological advancements that encompass simplification of legacy systems, migration to cloud computing infrastructure, and deployment of robotics and AI-driven automation. Leveraging no code/low code platforms is one way for organizations to simplify legacy applications. They allow programmers, and general users, to develop applications through intuitive user interfaces instead of traditional computer programming and include benefits such as the ability to easily integrate with legacy applications and allowing developers to focus on more critical and innovative work.

Organizations have been adopting a more aggressive approach to migrating to cloud computing allowing s them to focus on their core business, and away from internal IT infrastructure and data centers, while enabling access to flexible storage and computing services at a lower cost. Cloud-based platforms allow financial institutions to bring innovations to the market quickly and test and adapt as they go, presenting numerous opportunities for cost reduction through the realization of economies of scale.

 (RPA)

Lastly, as we already know, Robotic Process Automation (RPA) is in place across middle and back- office operations, automating financial processes and accounting reconciliation for financial institutions. Replacing manual work with automation not only improves efficiency, but also reduces human error, and allows businesses to respond to fluctuations in demand. In time, RPA will penetrate more deeply throughout the industry.

Some estimates suggest that a significant proportion of jobs in the finance  industry can be automated, with these cutting-edge advancements possessing the ability to emulate human actions, enabling the automation of fundamental clerical tasks as well as decision-making processes.

Regulators

Technological disruptions are also exerting a notable influence on regulatory bodies, prompting them to adopt a diverse array of data gathering and analytical tools. By embracing these tools, regulators aim to enhance their understanding of institution’s operations and overall systemic activities and to bolster their monitoring capabilities – allowing them to proactively predict and address potential issues. An example of this approach is evident in the form of supervisory procedures, data requests, and enhanced reporting requirements associated with activities such as stress tests, asset quality reviews, and other regulatory frameworks across different jurisdictions.

As financial institutions continue to automate controls and monitoring in KYC/AML, trade surveillance, reconciliations and other areas, regulators seek direct access to these tools. Organizations need to make data and control transparency a priority as they comply with these data requests, which will improve their credibility with regulators.

Advancements in technology has emerged as a transformative force in financial services and as technologies continue to develop, we will see greater disruption. Embracing these disruptive technologies will enable organizations to stay competitive, meet changing customer expectations, and unlock new growth opportunities.