Over the past 10 years we have seen a tremendous amount of innovation in the finance, banking and fintech industries. From new payments options to advancements in artificial intelligence.
Yet, finance does not have a monopoly on "innovation." There has been a tremendous amount of technical innovations in all sectors of the economy. As you will see many of my predictions are reliant upon the convergence of new and advanced technologies. It's this accelerating convergence of finance and technology (fintech) that I feel will ultimately define a new "finance" for people, companies and governments.
What might the next 10 years have in store? Listed below are my top 10 prognostications as to how the finance industry will change over the next 10 years.
The convergence of two technologies, 1.) Genome sequencing and analysis and 2.) very accurate life event statistical analysis, will lead to the development of a new health / finance field: Personalized BioFinance. Personalized BioFinance will be a new way to analyze the health, lifestyle and activities of you and everyone in your immediate family and benchmark this information against specific life event statistical analysis. The result will be a completely customized "future plan" that is customized to your life. Personalized BioFinance will leverage each person's future plan to automatically and consistently implemented an optimal asset allocation strategy. If it is determined that you may be at risk of a certain health issues in a decade or so, then the Personalized BioFinance plan automatically adjusts your asset allocation accordingly. Personalized BioFinance will also take into consideration potential lifestyle changes such as parents that may need some assistance at the same time your children are going to start college. One of the main benefits of a Personalized BioFinance plan is that it will be created and updated automatically by machine learning and artificial intelligence. Further, Personalized BioFinance capital allocations will be regularly adjusted based upon you and your families' updated health and lifestyle information.
Payment Method Consolidation
A payment is simply moving value from Point A to Point B. It doesn't need to be more complicated than that. Today there are numerous ways to make a payment: Check, ACH, Wire Transfer, Bitcoin, Cash, etc... Within the next 10 years I predict that there will be a consolidation of payment “rails.” Once an organization(s) is able to create a payment methodology that contains these four specific elements, then I feel that most of the other payment methods will slowly stop being useful. The four critical elements for payment method domination will be:
Location Agnostic Banking
The two main reasons why banking will become, at least domestically, location agnostic will be due to the consolidation of payment methods (much more simplified) and the utilization of secure augmented and/or virtual reality to conduct all “in-person” banking activities. Once virtual reality becomes mainstream, then banks and customers will have no need for branches. All meetings, documents, transaction can be conducted virtually. Banks will be able to save a tremendous amount of money by not opening, maintaining and staffing physical branches. In fact, banks may invest more money into enabling bankers to make more onsite visits with business customers. Why not let the banker go to the customer? The question that most banks in the U.S. Will have to answer is: How does my bank compete if location doesn't matter?
The advent of self driving cars will usher in conveniences that are hard to fully imagine. One such convenience will be the delivery / depositing of cash via an Autonomous ATM. (This idea has already been patented in 2016 by Capital One Financial Corporation.) An Autonomous ATM is a self-driving armored truck with an ATM interface located on each side. Since banks will be primarily focused on electronic services and virtual banking, autonomous ATMs will enable banks to provide a modern digital convenience for ancient payment methodology. This is how the new service will work... Users will use a bank app to schedule an Autonomous ATM vehicle which will arrive at a location and time of their choosing. Once the Autonomous ATM arrives, the customer will be notified and will walk outside to the vehicle to receive or deposit their cash.
Industry Specific Banking
How does a bank compete if location doesn't matter?
I think the answer will be industry specialization. Most small to mid-size banks, unfortunately, will discover this concept way too late. Domestically, once banking is completely digitized and location becomes moot many banks will be in a race to the bottom pertaining to bank pricing of commoditized services. This is not a winning strategy. The smart banks will define and leverage an industry niche. By transforming into industry specific specialty banks, the banks will be able to develop the tools and, most importantly, subject-matter experts that will be the catalyst for future growth. No longer limited by location, industry specific banks will thrive by adding new industry specific customers from throughout the globe.
Reduction of Tactical Finance
The bad news is that if your job in finance can be distilled into a flow-chart, then within ten years that function will be automated. Companies are starting to use a technology called Robotic Process Automation to automate many non-strategic finance functions. (and other organizational tactical functions). RPA systems can type, copy, paste, save, delete, email, analyze and more 24 hours a day without a break, vacation or sick day. It even works on weekends. One more important point... companies can license an RPA “robot” for less than half of the salary of an entry level corporate finance analyst. Change is coming. Therefore, if you haven't yet done so, aggressively pursue strategic opportunities when they become available to you.
Increased Need Strategic Financial Leaders
If tactical jobs are automated, how will finance professionals compete? Strategically. Really! RPA systems are not strategic robots. It can not formulate a strategy. It can not build business relationships. It can not understand someone's motivations. Therefore, I envision two corporate finance jobs that will be great demand over the next 10 years:
Just as RPAs will be automating the tactical processes, Financial Artificial Intelligence (FAI) will be automatically analyzing real time data in order to deliver robust financial scenario analysis. The FAI will review, automatically and in real-time, competitor data, market data, economic data, political risk data and more! The output of the FAI will be various scenarios that a Corporate Finance Strategist will need to analyze in order to make an ultimate decision. Therefore, it will be critical for future finance leaders to understand the FAI system methodology, strengths and weakness of the data used, and the overall corporate strategy.
Extensive Use of Private Blockchains by Banks
There are many benefits of blockchain technology: Improved transparency, immutability, efficiency and security. Therefore, I believe that within the next 10 years most domestic (and maybe international) banks will be leveraging a singular, private blockchain for payment services. This is already happening at a smaller, non-blockchain, level via the Zelle network. Once blockchain Proof of Concept (PoC) projects are validated and cost justified, banks will be compelled to consolidate payment information in a single ledger that is easily maintained, distributed and auditable. Bank's utilization of blockchain technology will not be limited to payments. Banks will also use private blockchains for securities, smart contracts, legal records, FX transactions, cross-border trade, debt, letters of credit, etc....
Finance Turns Into Fintech
Within 10 years all aspects of finance will be affected by technology. So much so, that all undergraduate students who study finance will also need to know how to code. (There are some forward thinking finance departments that already require coding for finance students.) Further evidence that finance will turn into Fintech is that large technology companies are now offering financial services. This trend will not stop.... it will only increase in the coming years. New and innovative technologies will evolve hand-in-hand with the field of finance. That is why I believe, “A rising (technological) tide lifts all (financial) boats.”
Education Must Exceed the Rate of Technological Change
It will be (is) critical that finance professionals stay continuously informed about the latest developments pertaining to finance, banking and technology. Since most tactical finance work will ultimately be automated, how does one stay ahead of the strategic curve? Continuing Education.
Attending conference (like the U.S. Fintech Symposium) will enable professionals to stay ahead of the fintech curve while simultaneously networking with other finance professionals. Ultimately, the skills that will enable finance leaders of tomorrow to excel will be rooted in education, strategy, networking and communication.
As 2020 starts I'm optimistic about the the finance, banking and fintech industries. I think that people should be clear eyed and realize that technological change is going to happen at an ever increasing rate. Accept that. In fact, I would recommend that you lead it. We should all strive to be the leader that initiates strategic and technological change.
The fintech wave is forming and building speed.... Successful financial professionals will read the wave and ride it. Other's won't. I hope this article provides you with some insight into how finance will change over time. Will some or all of these prognostications come to fruition? I think so but there's no way to know for sure right now. What is important is that while you were reading this post you were thinking about the future. What are your thoughts about my predictions? Do you have any fintech related predictions? If so, please comment below. I, and many others, would love to hear your thoughts.
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About the Author
Daniel J. Carmody, CTP is the Executive Director of TreaSolution and a faculty member at Northwestern University. Dan regularly consults with large organizations pertaining to their fintech and treasury management strategies. Further, Dan produces the annual U.S. Fintech Symposium which will be held in Chicago on September 14th & 15th, 2020. At Northwestern University, Dan teaches a course pertaining to treasury and liquidity management. As a public speaker, Dan is regularly asked to participate in meeting and conferences to share his thoughts about fintech, finance, treasury and career development.