- The pandemic’s impact on finance
- Challenging times call for remarkable innovations
- Visions and predictions for the finance sector
- Closing thoughts
There is no denying that the coronavirus pandemic has had a devastating impact on society. As the backbone of our economy, the finance sector took the brunt of its force. However, the pandemic has also ushered in a new era of innovation within the sector, with digital technology set to assume a more prominent role in the post-pandemic period, completely reinventing the world of finance.
The pandemic’s impact on finance
At this point, it’s looking increasingly likely that the economic downturn stemming from the pandemic will be the worst our society has ever experienced and that the effects will be particularly pronounced in the world of finance. Strategic advisory firm McKinsey estimates that the banking sector will lose between $400 billion and $1 trillion between 2020 and 2024, with the losses driven mostly by commercial and industrial loans to industries heavily impacted by the pandemic, such as automotive, transportation, retail, and commercial real estate.
The pandemic has also initiated some long-term structural changes in the finance sector, not only in terms of financial institutions’ internal work processes but also in terms of customer interaction. The growing demand for contactless banking is likely to be the most pervasive among them. It forces financial institutions to come up with innovative fintech tools that enable consumers to complete transactions without having to interact with others, physically touch any surface, or even walk into a bank. In fact, physical bank branches are expected to further diminish in numbers as banks increasingly digitise their processes and transition to remote work. The adoption of chatbots, virtual assistants, and biometrics technology will increase significantly to enable banks to meet consumer demands for reduced physical contact.
Challenging times call for remarkable innovations
To resolve all of these new challenges and enable clients to access their services remotely, financial institutions have come up with some rather innovative solutions that could play an important role in the world of finance as we transition to the new normal.
Using AI to streamline loans processing
For many people affected by the crisis, banks represent the only way out, so it’s no surprise to learn that the number of loan applications has increased dramatically since the start of the pandemic. To help their employees better handle the increased work load, Banco Santander’s UK division has implemented new AI-powered data analytics tools that can automatically process loan applications. “We had prepared but the volume was higher than expected,” explains Carlos Selonke, Santander UK’s chief technology officer. “It’s a huge focus for us, making changes to increase our velocity.” A similar trend has been observed in other banks all over the world. “Bots allowed us to process a much higher volume of applications than we would have been able to do before. It meant the timelines didn’t get longer with the massive volume,” says Simon McNamara, chief administrative officer at National Westminster Bank.
Detecting fraudulent activity
AI is also increasingly used to help insurers fight fraud, which has become a global issue in recent years. FRISS, a global leader in automated fraud and risk detection software, recently rolled out a new product named Fraud Detection, which uses AI to automatically process claims and flag those that show signs of fraudulent activity. “Fraud detection tools are becoming increasingly important to insurers. With the strain on the global economy, experts are predicting a rise in fraud rates,” says Karlyn Carnahan, Head of the North American Property Casualty business at Celent. “Pre-integration of fraud tools into a claims or policy admin system allows insurers to rapidly deploy these capabilities and stay ahead of the projected rise in fraudulent claims.”
Smart voice assistants
To enable its clients to execute their banking transactions using nothing more than the sound of their voice, the US Bank recently incorporated an AI assistant into its mobile app. Designed to emulate a human bank teller, the smart assistant uses natural language processing to understand and answer customer queries, and help them carry out financial translations. “The goal was to create a voice-first experience,” explains Ankit Bhatt, senior vice president and chief digital officer for consumers at US Bank. “I believe voice is a more effective medium than touch. It’s certainly faster. We identified early on that we wanted to create value by simplifying the experience and making it engaging. It’s more intuitive, and we really believe in its efficiency.”
Replicating the office environment in VR
As the finance sector increasingly embraces remote work, VR technology could play an important role in restoring a sense of normalcy to employees’ lives. For instance, Swiss Bank UBS supplied its London-based traders with Microsoft HoloLenses to enable them to recreate the trading floor experience in their new home offices. “If people really can’t come to the office, can we create a virtual presence?” asks Beatriz Martin, UBS UK chief executive. “We are thinking about experimenting with the tools that are out there.”
Visions and predictions for the finance sector
Most experts agree that the pandemic has significantly accelerated the digital transformation of the finance sector. “Consumers’ desire for digital banking services will most likely increase, forcing many traditional financial institutions to fast-track digital innovation efforts. As a result, many traditional banks and financial institutions may look to fintech firms for assistance in bringing better digital banking solutions to the marketplace,” says Sergey Balansanyan, cofounder of Longevity Bank. Similarly, Alastair Thomson, finance director at FD Centre, believes that “COVID-19 has given an insight into how businesses and individuals can manage their financial affairs differently. In itself, it’s not brought new ideas to the fore, but it has accelerated the adoption of ideas which were already in place, if little used, pre-COVID-19.”
Artificial intelligence technology in particular will have a major impact on the future of finance. “AI will play an important role in helping financial institutes with smarter underwriting decisioning processes – developing solutions to assess the credit worthiness of borrowers (like SMEs) with no credit history. Risk can be managed better if AI algorithms can be developed to generate accurate predictions – using a combination of cloud-based and on-premise AI solutions, FIs will be focusing on combating different risks like fraud, detecting point of compromises and money laundering,” says Debasmita Das, senior AI specialist at Mastercard. “Companies would also invest in Conversational AI as well as virtual financial assistants in the personal banking space.” Futurist Richard van Hooijdonk agrees that AI will take on a more prominent role in the future of finance, handling customer queries, processing loan applications, offering investment advice, and protecting financial institutions from hackers. Van Hooijdonk also envisions the emergence of innovative payment methods that allow consumers to pay for their purchases using their faces, fingerprints, or even vein patterns.
Emma Mayer, head of marketing at TrueLayer, predicts that “in the future, consumers can expect to manage their entire financial lives online – you’ll no longer need to visit a bank to open an account or apply for a loan.” Futurist Brett King also envisions a future in which the human touch will be much less in demand. “When you think about the world and how we’ll access banking services, we’ll talk to Alexa and Siri and get financial information,” says King. “We might use smart glasses from Facebook and Apple. Those operating systems will be the gatekeepers for the way we connect to core banking utility.”
The pandemic has accelerated the digital transformation of the finance sector and led to an increased adoption of innovative technologies like artificial intelligence, machine learning, AR/VR, and biometrics. As people seek to reduce physical contact, there will be a proliferation of contactless banking solutions, chatbots, and virtual assistants within the sector. While physical bank branches aren’t going away anytime soon, they will dwindle in numbers as digital technology allows consumers to conduct financial transactions online, forever changing the way we access financial services.