The financial industry is facing unprecedented change driven by technological innovation, cultural change and interaction with governments around the world. Banks and financial institutions will need to focus on being more agile and customer-centric to succeed in the competitive environment. Collaboration with fintech companies is likely to increase further as they offer innovative solutions.
Overall, the financial industry is undergoing an exciting transformation process. The interaction of innovation, culture and government influence will continue to determine the direction and dynamics of these changes. Consumers and businesses should prepare for a financial world that is changing faster than ever before.
Current innovations in the financial industry
Innovation is a key driver of change in the financial industry. New technologies such as blockchain, artificial intelligence (AI), Big Data and fintech companies have fundamentally changed the way financial services are delivered.
The introduction of online banking, mobile apps and digital payment methods has greatly simplified access to financial services for consumers. Customers can now do almost all their banking from the convenience of their mobile devices.
The introduction of cryptocurrencies such as Bitcoin and the underlying blockchain technology have the potential to revolutionise the way transactions are conducted and assets traded. Banks and governments are working to adapt to these new developments.
AI is being used in the financial industry for a variety of applications, including risk assessment, fraud detection, customer service and trading strategies. AI can analyse huge amounts of data and detect patterns that would be unattainable for human analysis. The Lucerne University of Applied Sciences and Arts has launched a survey. Currently, 47% of banks are already using AI in customer service, 14% in marketing and 11% in IT helpdesks. 60% of companies use chatbots.
Start-ups in the financial technology sector (fintech) have developed innovative solutions for payment processing, lending, investment advice and more. These companies have given competition to traditional banks and pushed the industry as a whole to adapt and modernise. A very good example of this is the Swiss start-up AISOT, which offers a platform where customers can disclose their product preferences and then „customised“ investments are made according to those preferences.
What role do governments have in this?
Governments around the world play a crucial role in the financial industry. Their regulatory frameworks and laws, as well as financial supervision, influence how banks and financial institutions operate and create confidence in the financial system.
In the face of increasing cyber threats, governments are enforcing regulations to protect financial data and secure transactions. Data protection laws such as the General Data Protection Regulation (GDPR) also have an impact on the financial industry.
A government’s tax policy can have a significant impact on the financial industry. Tax rates on capital gains, dividends and other financial transactions have an impact on investment decisions and the profitability of financial products.
Similarly, in the EU, the Sustainable Finance Action Plan (EU Action Plan) is increasingly influencing the product policies of banks and financial providers.
The role of financial supervision will be crucial to ensure the safety and stability of the financial system. However, regulation must also adapt to the ever-changing technology landscape and foster innovation to support economic growth. So you see in many areas that the dance between regulation that intervenes restrictively inhibits innovation. Therefore, areas have been „allowed to run“ so as not to jeopardise innovation. Most recently, this has led to unethical or even fraudulent behaviour in the crypto and ESG space. FTX, Binance and even Coinbase are examples of this; in the sustainability sector, the regulator felt compelled to intervene to prevent further greenwashing, whitewashing and socialwashing. Examples are isolated Tuna bonds in Africa, where there was an internal kick-back system, and the ESG risk integration of some European banks, which could have been avoided because the portfolio looked exactly the same before and after risk integration.