A new wave of technologies – such as blockchain, digital wallets and robo-advice – is revolutionising the way we manage, control and distribute money. Gone are the days where you had to enter a bank to carry out a transaction. Just whip out your smart phone with your mobile banking app and you’re set. In fact, today you can even seek financial advice courtesy of automated computer programs – no human interaction required.
Almost every area of the finance industry is being disrupted by these new technologies, forcing the traditional banking sector to re-evaluate and invest in digital innovation, and changing the face of money as we know it.
According to Alan Tsen, founder of Block+Labs, a thematic innovation lab that aims to develop new ventures in the blockchain technology sector, blockchain has had the biggest single impact so far.
Blockchain is a public digital ledger with a complete record of transactions, which is shared among a network of computers worldwide. It can be used to transfer anything of value, from money and bonds to house titles and contracts. The most common products currently using blockchain are digital currencies such as bitcoin.
For example, blockchain provides people with access to cryptocurrencies (such as bitcoin) where tokens can be traded online like physical cash to make instant and secure payments anywhere in the world, without third-party taxes and fees. Blockchain technology can also be used by sectors other than finance, including travel and media: to support loyalty points programs and newspaper websites, which can charge readers per page or per article rather than per month.
“The financial technology landscape is definitely changing,” Tsen says. “In fact, many factors are coalescing to form a tectonic shift in how the industry is structured. At the forefront of this change is blockchain technology.
“When this ‘peer-to-peer electronic cash system’ was first proposed, it wasn’t clear that the underlying piece of technology that made it possible – a blockchain – would be as impactful an idea as it has been. The core idea of moving the role of trusted intermediary away from ‘middlemen’ to a network has been a revelation to both incumbent banks and start-ups alike.
“In fact, it’s been so impactful that we’ve seen it being experimented with by almost every bank in the world and across a broad set of use cases. In finance, this has included everything from settlement to trade finance.”
Indeed, ING is one of a number of banks that have joined a global consortium called R3, whose aim is to develop a common infrastructure for blockchain technology and its applications in the financial system worldwide.
“Banks in general have recognised that something that is publicly available, accessible and secure is potentially disruptive to the current banking model,” says Jonah Cretser-Hartenstein, Manager of Digital Innovation and Emerging Channels at ING DIRECT Australia. “We need to be exploring how we can leverage this technology to enhance our value proposition and potentially find new ways of delivering value to customers as the technology evolves.”
Cretser-Hartenstein says the big benefits of blockchain technology are that it offers secure, fast and efficient transactions – doing away, for the large part, with the current cumbersome and expensive paper trails.
“Basically, technology has made transactions more convenient and secure and faster,” he says. “It’s also breaking down borders. International remittances and payments, and even just sending money to family overseas, is becoming much cheaper as well as being more accessible and secure.”
While the ripples of blockchain have been felt far and wide in the finance sector, other emerging technologies are also having an impact. FinTech Australia CEO Danielle Szetho says artificial intelligence (AI) is also reshaping the financial landscape.
“As well as blockchain, AI and even the way in which data is being used in sophisticated ways these days are completely disrupting parts of the value chain in finance,” Szetho says. “You’ve got AI, such as robo-advice, which is potentially rendering parts of the workforce essentially obsolete.”
Robo-advice is an automated process of offering financial advice via computer, tablet or smartphone. According to InvestSMART, robo-advisers are forecast to manage around $255 billion in investor capital by 2019.
Szetho says robo-advice offers consumers a faster and cheaper way of gaining financial advice than meeting with a human financial consultant, making it more widely accessible to the masses.
“Robo-advice is interesting because in some instances it is competing with financial advisers, in others it’s used to support them,” she says. “Traditionally a financial adviser would gather a lot of information from you then go away and devise a plan and you would come back and get a recommendation. Robo-advisers can offer standalone advice or help finanical advisers create recommendations on the spot.”
Cretser-Hartenstein believes the current robo-advisers are “just the tip of the iceberg”, with huge potential in this innovative technology yet to come.
“With robo-advice and chatbots we’re seeing the evolution of artificial intelligence,” he says. “Whether it’s an algorithm or something even smarter than that such as machine learning, you’re looking at being able to take this massive computer power we have today, where computer programs have the ability to understand the context in which you’re trying to perform an action and return an intelligent and relevant response.
“This is going to be incredibly powerful and significant to the way financial services will change. At the moment with robo-advice you can answer a few questions and give it some context about your goals and intent and investment approach and it will come back to you with a recommended allocation of funds across a portfolio.
“That’s just the start. That’s based on an algorithm, it’s not necessarily particularly intelligent yet. What we are starting to see take off is the ability for that algorithm to continue to evolve and enhance itself and be able to proactively come back to the consumer with opportunities to rebalance their portfolio based on changes in the market. And even take it to the next level and have a conversation with you about whether or not that’s appropriate.”
As to how people feel about taking financial advice from a machine as opposed to a person, only time will tell, but Szetho says there’s room in the market for both.
“It certainly helps to have a human element, but some of these chatbots and AI are extremely compelling. When it comes to the current generation, they are very used to engaging with companies through technology. However, if you are having any problem, most people still want to talk to a human being.
“And when it comes to large transactions such as buying a house, that’s when many people will want to talk with a person. I don’t think that will change for quite some time. These investments are more about relationship-based transactions, where you want to understand a lot more of the finer details about what you are doing.”
Cretser-Hartenstein agrees: “I think it will always be part of our human need to interact and feel confident that there is someone real sitting behind the technology. But I think we can get 80-90 per cent of the way there for most simple tasks through artificial intelligence.
“It’s a really exciting space and there is a lot of investment going there. I think we are going to look back at this point in time – 2016 – and say that was the beginning of a new era. There’s so much more to come.”
