How technology is revolutionising finance

The internet has transformed how we work, shop and keep in touch with each other.

Digital technologies have already enabled us to communicate more spontaneously and work more collaboratively, but now computers look set to revolutionise how we handle our finances too. From crowdfunding to contactless payments, the past decade has seen an explosion of innovation in the financial services industry, and it shows no signs of slowing down.

In corporate headquarters across the world’s financial hubs, programmers are being shown around the offices of the world’s largest banks. From London to Hong Kong, entrepreneurial programmers are being snapped up by the likes of JPMorgan, Goldman Sachs and HSBC and given tours of the inner workings of the finance industry. The question corporate executives are presenting them with is, ‘How can fintech improve our services?’

Fintech, or financial technologies, is an emerging field that’s using computers and smartphones to disrupt how the world thinks about money and transactions. And forward-thinking startup companies are emerging as leaders in the space.

“There’s a real sense of urgency to engage with fintech,” says Keely Flint, director of strategy at Nile, a service design company that specialises in finance innovation. “Disruption is being led by startups, and the banks know seismic changes are going to happen. They need to recognise the challenge and the opportunity.”

Underpinning many of the innovations being developed by fintech startups is a new type of database known as a blockchain. First used for the digital currency bitcoin, banks are now investing heavily in research and consultancy to develop the technology for use in consumer products.

“Like an accounts book, the blockchain works as an enormous ledger where every transaction is recorded and indexed,” explains Timandra Harkness, presenter of BBC Radio 4’s technology series FutureProofing. “Except they call it a ‘distributed’ ledger because the information is stored digitally across thousands of different computers.”

Conventional databases, like the ones banks use to store customer information and record transactions, are typically stored on computers locked in cupboards somewhere. Every night IT managers and security specialists toss and turn in bed worrying that somebody might find a way to, digitally speaking, break into the cupboard.

Fortunately, it doesn’t happen very often, but when it does, the results can be devastating. Earlier this year, hackers successfully stole $100 million by breaking into the servers of Bangladesh Bank. Just this month, Tesco Bank was hit with a cyber attack which saw money siphoned out of some 20,000 current accounts.

In contrast, financial information stored on a blockchain is continuously verified by a network of thousands of servers all over the world. Falsifying the distributed ledger involves compromising not just one computer, but thousands simultaneously.

Improved security isn’t the only feature that has attracted banks to blockchain technologies. The existing global finance infrastructure is a complex mish-mash of old computer systems made over five decades. Such legacy systems were made for hundreds of distinct jurisdictions and thousands of separate organisations, some of which no longer exist. For anyone wondering why a bank payment can take days to clear, a simple Google search won’t provide a concise answer.

To simplify the way money flows around the globe, many of the world’s most innovative companies are working together. Tech leaders including Intel, IBM and Samsung are collaborating with banks like JPMorgan and Wells Fargo on the Hyperledger Project – an ambitious attempt to build a universal ledger that can greatly increase the efficiency of financial transactions worldwide.

If all this talk of distributed ledgers and digital currencies makes your head spin, it might not be long before you can have a robot explain it to you. In March, Royal Bank of Scotland fired 220 of its financial advisors and replaced them with robo-advisors. Using artificial intelligence algorithms, these digital assistants continuously monitor huge volumes of financial data  to provide investment advice.

“It’s interesting that we’re ready to trust artificial intelligence to accurately predict the future and to tell us what’s best,” says Harkness. “Some of that comes from having access to massive amounts of data. Robo-advisors can find patterns that a human would find very difficult because it involves juggling so much information.”

However, it remains to be seen whether robots can truly replace advice given by humans. “There are a lot of questions still to be answered.  For example, how do you embed a tone and sense of brand experience into something that’s automated?” asks Flint. “Human contact and the confidence that comes from speaking to an expert is difficult to simulate. Ultimately, we may not even want to automate those elements of an advisory role.”

As financial technologies continue to advance, existing institutions must develop strategies for implementing them. Without these services, banks not only risk dissatisfied customers, but also compromised security and limited efficiency. The fintech revolution is here — so sit back, relax and let your robo-advisor do the talking.

Johanna Hart is a freelance writer whose work has been published by Google, Facebook and Natwest.