The first industrial revolution cantered around mechanisation, while the second industrial revolution had its roots in mass production. The third industrial revolution, also known as the digital revolution, focused on quality and mobility. Each of the revolutions changed the way we live, interact and do business.
The financial services sector, which is the backbone of the economy, has evolved alongside each revolution to suit the economic demands of the age. For instance, banks developed their governing policies and regulations during the first two revolutions. During the same period, they also augmented their service offerings to include clearing facilities, security investments, cheques and overdrafts. The financial services industry took a quantum leap with the transformation of telecommunications in the early 20th century. The period witnessed an exponential increase in complex and highly leveraged derivatives.
Now, the fourth industrial revolution is here. Characterised by the fusion of cyber-physical systems that interact with each other to produce, distribute and trade in a globalised platform, the breakthroughs emerging from the revolution are reformulating our lifestyles and economies. The attributes of digitalisation, automation and big data are also impacting the functioning of the finance industry much as they have affected every other segment of the 4.0 economy.
Here is a low-down on some ways in which technology will reshape the execution of financial services:
Artificial Intelligence (AI) will define the financial services landscape
A report by the World Economic Forum states that only 16% of companies in the financial services sector are using AI tools today. However, it predicts that over the next two years, the number will increase to 64%. By equipping service providers with insights about customer needs, AI technologies will enable members of financial communities to deliver specific services while providing an emotionally intelligent response. All these elements are essential building blocks of successful consumer relationships.
Blockchain will overhaul the approach to accounting
A report by Harvard Business Review claims that its effects on the banking system will be similar to that of the internet on the media. This is because the technology affords unparalleled safety, reliability and transparency during the exchange of money, information or data. And it is a cost-effective strategy. Not surprisingly, nearly 24% of global financial executives are conversant with blockchain technology. About 77% of fintech organisations aim to adopt blockchain in their production system by 2020.
Financial reportage will be real-time and will expand to include intangible assets
Financial services in the 4.0 world will not dwell much into the past. Instead, its focus will be on providing real-time insights and forecasting future trends and risk management strategies. Further, in an economy increasingly driven by the potential of ideas, the finance function will evolve to include the value of intangible assets. Hence, the finance function will evolve to deliver real-time, 360O insights (to include financial and non-financial aspects), with a forward-looking impact to meet the needs of multiple stakeholder communities simultaneously.
Transparency, standardisation and accountability are critical to financial reporting in the 4.0 world
The 4.0 world was preceded by the great recession in 2008. This led to the demand for more transparency and accountability in financial and regulatory reporting. Integration of technologies such as big data and advanced analytics, robotics and AI, simplify the path towards these goals.
The environment for the finance function is rapidly changing, and the future promises to be exciting. Finance leaders should prepare to evolve their processes, capabilities and thinking to meet the demands of the new, disruptive environment.
