The aftermath of 2020 in technological innovation for the financial sector

18/01/2021

The beginning of a new year is a good time to make predictions. The year 2020 and its unprecedented health crisis have accelerated the development and use of many new technologies. This trend, now firmly established, will position 2021 as a pivotal year for a financial sector that is undergoing profound change.

The acceleration of digital technologies: a reality

COVID-19 was the Chief Digital Officer in 2020. The health crisis enabled the financial industry to significantly accelerate its digital transformation. Banks have rolled out digital solutions to interact remotely with their customers. One example is the electronic signature.

The reduced need for travel in the business world and the rise of teleworking has led to the use of numerous applications that allow remote interaction, both for holding board meetings and for the digitisation of documents that until recently were managed in paper format. This trend will continue over time and the planet will undoubtedly be one of the first to benefit from it.

The increasing use of data

Is data the “black gold” of the 21st century? Artificial intelligence (AI), the use of which has been widespread for more than ten years, has already entered the banking sector with the use of algorithms in trading rooms and, more recently, in use cases that improve customer experience and knowledge, operational efficiency, and risk management. The explosion of data has been at the source of these developments. 2020 saw a huge number of firms hosting all or part of their infrastructures in the cloud, enabling more agile development at lower cost. The development of 5G, which is still in its infancy, will be the ultimate accelerator to make AI an unquestionable reality for the benefit of all.

Tokenisation and digital currencies coming out of laboratories

In the Blockchain world, 2020 was marked by a series of announcements, especially concerning Central Bank Digital Currency (CBDC). Nearly 80%1 of central banks confirmed that they have projects under way in this area. At the same time, the tokenisation of assets has also become a reality. A great many projects have been started up in this domain, based on all types of underlying asset such as bonds – especially with Societe Generale Forge – equities, real estate, investment funds, and even illiquid assets such as works of art, wine, and... professional football players!

The combination of CBDC with these tokenisation initiatives will undoubtedly accelerate project development and influence the entire value chain (primary, secondary, post-trade and custody). The search for a business model will be crucial as a player in this segment, and will transform the industry.

An open ecosystem to benefit innovation

The development of platforms is undoubtedly one of the most talked-about subjects. The market capitalisations of those companies that have opted for this business model are a reminder of its importance and, from a customer point of view, its value. Aware that they are not able to build everything themselves, organisations have a growing interest in developing links with the existing ecosystem in order to enrich the added value of their client offerings and gain in efficiency and agility.

Time to market is crucial in a world undergoing such enormous transformation. The amounts invested over the last three to four years by venture capitalists in fintech and the development of “unicorns” confirm this trend. APIs  (Application Programme Interfaces) enable this connection between players to transform businesses. The bank of the future, in order to be more focused on its clients, will have to be even more open to new players.

Hyper-client centricity: the key to success

The development of digital technologies has completely overturned the habits of consumers, investors, our clients, our children...and the planet. In addition to the enrichment of an offer via increasingly platform-based solutions as mentioned above, client centricity is essential for deciphering trends and being able to respond to clients’ needs as effectively as possible. The organisations that are able to develop this culture, in co-creation with their clients, will undoubtedly be those that are the pioneers of tomorrow.

Data: an asset that must be protected

Digitisation is increasingly becoming a reality. Cyberattacks are becoming more sophisticated and more frequent. This is a cause for concern and is taken very seriously not only by banks, but also by everyone in their daily lives. In a report published last December, McAfee2 estimated that global cybercrime losses amount to more than $ 1 trillion, a more than 50% increase from 2018. This corresponds to around 60% of the market capitalisation of the CAC 40 as at 31 December last year. 

Technologies: tools for sustainable finance

The health crisis reminded us once again how important it is that all of us take responsibility for the care of our planet. Financial institutions have a key role to play, as they are at the heart of the economy. The integration of ESG  (Environmental, Social, Governance) criteria is essential, and will become an obligation for all stakeholders. Data on the financial industry will make it possible to measure its impact in order to make responsible investment decisions. By combining these elements with technologies such as AI and Blockchain, the finance of tomorrow will be even more responsible and sustainable.

2021 will undoubtedly be a very interesting year for fintechs and a key step towards a sustainable financial revolution.

Article published in PaperJam Luxembourg.

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