Technology innovations and compliance requirements are disrupting financial institutions. Industry leaders need to be aware of these IT trends for 2018:
Blockchain technology has been on the horizon, but 2018 is the year it emerges as a significant power to transform the financial industry. Blockchain technology is a public ledger where all transactions are secured using cryptocurrency with access keys. The technology creates a permanent transaction with a time stamp that is part of each block connected in a chain to the block before and after it. Any change to a transaction requires approvals by every stakeholder in the chain.
In an era where data is king, blockchain networks provide for data accuracy, security, transparency, all while increasing speed and efficiency of financial transactions. The technology can significantly reduce fraud.
Cyber attacks and data breaches will continue to rise
With constant cyber-attacks that target financial data, it is no longer acceptable for the financial industry to rely on antiquated methods that risk data breaches. Adoption of blockchain technology is critical to maintain the public’s trust and retain your customer base.
Digital currencies and third-party payment will increase competition
While mainstream financial institutions initially ignored Bitcoin, it has now emerged as a leader in cryptocurrency market. Previously used primarily for individual transactions, global commercial transactions now use it also.
While Bitcoin is the most popular, it has competitors in the cryptocurrency market. Other digital currencies include Ethereum and Ripple that are used more for enterprise solutions. Sone altcoins have advanced features over Bitcoins; however, one thing is sure, digital currency is here to stay.
A significant opportunity for third-party payers involves the January 2018 implementation of the Revised Payment Services Directive (PSD2). This regulation is a European Union directive; however, it impacts multinational financial institutions. It allows bank customers to use third-party providers to manage their finances while the customer’s money remains in the bank. Financial institutions are required to provide these third-party payers access to their customer accounts through APIs. And while APIs are not new, anyone can now develop an API to interface directly with banks’ data and infrastructure.
Machine Learning (ML) and Artificial Intelligence (AI) will have practical use cases Financial institutions will leverage technological advancements in Machine Learning and Artificial Intelligence to analyze internal data on customers from previous transactions in addition to past customer behavior and their preferences. Data from the external environment will examine economic indicators and industry trends. Advanced algorithms will evaluate all of this information to provide automated personalization by providing each customer with the appropriate offerings best suited for them exactly when the customer needs them.
Backend operations will also benefit from this technology. Workflows will be improved to gain process efficiencies.
Compliance directives in the financial industry are complex, expensive, and never-ending. In 2018, the European Union is implementing three major initiatives, but these requirements don’t just apply to EU countries. Multinational corporations that conduct business in EU countries also are impacted by these directives.
The Revised Services Directive (PSD2 – January 2018) and the General Data Protection Regulation (GDPR – May 2018) are related initiatives. Both regulations are designed to increase data security, standardize data protection laws, and to put customers in control of their data. The founding principle of these regulations is that this data belongs to the individuals and they should be able to share it with the corporations of their choice. As consumers are conducting transactions globally, they benefit when the regulations are standard regardless of country.
Effective in January 2018, all financial service corporations in EU must comply with the Revised Markets in Financial Instruments Directive (MiFID II). This regulation is designed to provide more excellent protection for investors through transparency into all asset classes. The ultimate desire is to push transactions into electronic transactions with better security and audit trails.
US financial institutions were hopeful that the Republican administration would provide some relief from the Dodd-Frank Wall Street Reform and Consumer Financial Protection Act, but repeal of this bill is not on the horizon. As always, financial institutions need to be vigilant in complying with existing and new regulations that appear never-ending.
As we move into 2018 and look to the future, these technology trends of blockchain; digital currencies and third-party payment; machine learning and artificial intelligence; and compliance directives are positioned transform the financial service industry. While the financial sector adapts to meet the challenges, it will need to partner with fintech vendors who understand the industry and who develop technology solutions that meet the needs of the industry.
Financial corporations gain value from partnership with IT MSP
With so many technology-related changes in the financial industry, organizations are at a critical juncture. They can benefit their organization by partnering with a managed service provider (MSP) with an established reputing serving the financial industry. The future of your organization depends on the design and implementation of an appropriate IT strategy that leverages your data, helps you compete to win, all while adhering to regulatory compliance requirements.
DataComm can help leaders in the financial service industry navigate the complex IT landscape. The enthusiasm for trendy technology and the constant fear of missing out (FOMO) needs a balanced approach to consider your company’s specific circumstances.
DataComm serves as an extension of your organization with a team of financial IT experts. We can help you evaluate your technology options in relation to your customer personas, your company’s financial products and services, your existing legacy systems, and your organization’s overall IT business strategy. The final design will ensure compliance and security while leveraging technology to maximize your ROI.