From media to retail to healthcare, new technologies have triggered a wave of disruption across dozens of established industries. Taxi operators, for example, must contend with digital upstarts like Uber and Lyft that have made it possible for passengers to call a car and driver at the push of a button, and some industries—such as travel and photography—have been rendered all but obsolete by new technologies. While finance is also being affected by technological innovations, today’s advances may be the tip of the digital iceberg: In fact, the CFA Institute predicts “fintech disruption” may define the financial industry of tomorrow.
In a previous blog post, I discussed the CFA’s recent Future of Finance report, which analyzes several global megatrends and proposes four scenarios for how they might transform the world of finance; the futures they envision are entitled “parallel worlds,” “lower for longer,” “purposeful capitalism,” and of course, fintech disruption. Fintech—which describes a range of technologies that can deliver financial services to consumers—is already a powerful force, and its influence can be seen in the rise of robo-advising, which uses algorithms and large data sets to automate many elements of financial planning.
The CFA bases its prediction for widespread fintech disruption on several existing technological megatrends, like the proliferation of IT-enabled devices that make it possible to receive constant updates about investments in real time, but it is particularly interested in big data and machine learning. Big data allows firms to upload and store massive amounts of information and access it from anywhere via cloud technology, which can be analyzed virtually instantly with the help of artificial intelligence and complex algorithms.
In the coming years, as data storage becomes more efficient and computing power increases, the CFA predicts that fintech devices and programs will be able to scan enormous quantities of data to deliver fast, accurate, and hyper-personalized insights and recommendations to investors. But identifying technological advances is only part of the picture: How does the CFA envision fintech affecting the financial industry itself?
There are several potential avenues. In one scenario, entrant firms could deploy new technology with greater speed and efficiency than more established, entrenched firms, allowing these new players to “outflank” the competition by driving down costs and winning over the tech-obsessed Millennial generation. Conversely, established firms could develop fintech fluency—perhaps by purchasing fintech firms altogether and assimilating their services—to drive down costs as well as attract and retain customers; additionally, by using fintech to offer more personalized services while enhancing customer services, firms could step into the role of concierges for clients.
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