Technology surrounds us. It’s used by everyone for nearly everything.
Robots plant our fields, automated power grids connect us, and the internet does everything else.
Well, maybe not everything.
Money is a particularly large hurdle for technology to overcome. While innovations promise automation, security, and cost-effectiveness, major banks are still skeptical.
The further technologies progress and the more we digitize the everyday, the more younger generations accept and even expect their use.
The days of untrustworthy technology are all but gone. For legacy industries like banking to keep pace, they’ll need to take the leap.
But, will it be enough to stave off fast-growing fintech firms?
Or, more importantly, do they even want to?
What’s Out There
Over the past few years, financial technologies have inundated news cycles, big business, and every Jim Cramer wanna-be’s blog.
It’s an exciting time for the finance industry, and it affects everyone from small business to global enterprise.
Here are just a few.
Artificial Technology (AI)
Artificial technology isn’t just rebellious self-aware robots.
Your bank’s not going all West World on you.
AI is an umbrella term that includes natural language processing, machine-learning, real-time data management, and even cloud storage.
For banks, AI is pretty beneficial. It could improve customer service wait times by setting up “bots” for basic issues and inquiries, or even to give investment advice.
Banks could upgrade their cybersecurity and fraud prevention with voice and facial recognition. This not only saves on time asking easily-crackable security questions, but saves money easily taken by savvy scammers.
The options are practically endless. But, while some banks have explored the opportunities, most haven’t.
You’ve probably heard of this one. If not, you’ve definitely heard of Bitcoin.
Blockchain is the technology that makes cryptocurrencies like Bitcoin work. For a more in-depth analysis, check out our article on the subject.
Basically, blockchain technology improves the security, speed, and cost of transferring funds or other assets. It does so by establishing a network of servers and computers where entire copies of a transactions’ history are stored, known as a distributed ledger.
So, how can banks benefit from this technology?
By allowing clients to send domestic and international transfers via a public blockchain, banks benefit from the security inherent in the system. This means there’s no time wasted in verification, and money saved by not paying someone to do so.
That’s just a hint of the potential of this technology’s use in banking.
If there’s one thing banks are likely to at least explore, it’s RegTech.
Much to the chagrin of crypto and blockchain enthusiasts, RegTech allows banks to facilitate the application of regulatory requirements on their operations.
As the above financial technologies edge their way onto the banking scene, governments are finding it hard to produce and impose regulatory legislation fast enough.
With RegTech, banks can automate regulatory compliance processes to ensure they or their partners aren’t breaking any laws.
On the surface, this seems great. But, especially for international transfers, it gets a lot more complicated.
Why, Why Not, and Who Cares?
The benefits of these technologies are clear.
But, there’s a reason why these technologies are slow to enter the banking industry, let alone pervade it.
One of the main issues, especially for the use of AI, is that banks are generally reactionary entities.
As Brian O’Donnell from The Globe and Mail notes, “banks continue to suffer from the 80/20 rule – their data science experts typically spend 80 percent of their time searching for, correcting, and consolidating data and only 20 percent actually developing algorithms for analytical insights.”
Basically, banks spend more time correcting issues than finding ways to prevent them, such as using an automated or cloud-based system to streamline operations based in AI.
Long story short, while some aspects of AI will likely be used by your bank, it’s unlikely you’ll see any major innovations anytime soon.
Blockchain is held back by this as well, but more important is the banking industry’s regulatory requirements. As blockchain and cryptocurrencies gain popularity, many financial experts have pointed out the technology’s uses in illicit online activities.
The result of these revelations is governments attempting to regulate the technology. One of the major ways they’d do this is to impose a central entity as the main storage center of transaction information through “private blockchains.”
While many believe this would increase the security of the system, it actually defeats the purpose. The ledger is no longer distributed, making access to sensitive information much easier.
It’s hard to wrap your head around the idea that the more public information is, the more secure it is. But, that’s a reality for one of today’s highly innovative financial technologies.
So, banks may see blockchain applied to their operations. But, it’ll be a hollowed-out version.
RegTech is the most likely of these technologies to be put into practice by major banks. As regulatory compliance becomes a bigger issue, and governments push for tighter legislation, banks will need a sure-fire way to stay within the boundaries of the law.
The problem with this technology, as mentioned before, is that it hinders using AI and blockchain at their full potential.
But, even if we entered a golden age for banking technology, would it make much of a difference?
The trend in consumer and service markets is toward personal connection and brand loyalty. As FinTech startups enter the scene and establish deeper relationships with customers, many believe that banks will suffer a major drop in client numbers.
Although, maybe we underestimate legacy, and going with what you know.
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