Why finance must embrace the fourth industrial revolution

Why finance must embrace the fourth industrial revolution

An explosion of new technologies such as automation, robotics, big data, machine learning, augmented and virtual reality and personalisation is changing the way businesses operate – so much so that some commentators are heralding a fourth industrial revolution. Sectors such as healthcare, retail and agriculture are storing and analysing data, to gain insights and implement better practices. It seems, however, that technology in finance has been entirely focussed on hardware and efficiency, without offering much in the way of benefits to its customers.

In fact, technology could be the very thing creating a barrier to accessible, user-friendly finance. The Financial Times estimates that 70% of stock trading is automated – JP Morgan states that less than 10% of stock decisions are taken by individuals – meaning that much of the financial world is entrusted to obscure algorithms that are incomprehensible to most financial services users, resulting in lower levels of engagement from users. This is echoed in research from Scottish Friendly, which has revealed that 53% of Brits are suffering from a chronic case of ‘investophobia’. The fact is, while technology should be making finance far more accessible, it remains a foreign industry for most people.

Lagging behind

While estate agents and travel agents once worried that their industry would shrink if the public had more access to data and information, the opposite happened. The internet’s easy access to data enabled users to make smarter decisions, and both industries expanded. Travel sites such as Kayak, Expedia and booking.com let users see all their options at once, increasing a feeling of empowerment. In the same way, the housing market benefited from sites like findaproperty.com. In contrast, financial advisors still hold the keys to many seemingly simple procedures; for example, it is still not easy for users to compare the risk, returns and fees associated with an investment.

Increased accessibility for consumers

However, things do seem to be changing. New research forecasts that by 2021, nearly 3 billion users will access retail banking services via smartphones, tablets, PCs and smartwatches. Banks will need to focus on providing a more frictionless digital experience, especially if they are to remain market leaders. Of course, it’s not just banks we’re talking about; Uber can link to your credit card so you don’t have to exchange cash with your driver; and insurance companies can use black box telematics to bill you according to your personal driving performance. The expectation and demand for accessible tools for managing money will inevitably lead to similar innovations in finance.

Why does it matter?

Creating easier access to financial tools and markets could be one of the greatest catalysts for strong, global economic growth. More importantly, technology could also lead to transparency. As the financial world becomes more opaque and complex, technology and understandable data could bridge the gap into simpler language and allows people to understand and therefore engage and become more involved.

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