Finance innovation is powered by technology.
The banking industry has always been at the cutting edge of technological advancement. It wasn’t long after telephone was invented or even the first telephone call that bankers were using new technology to analyze prices, lend and borrow as well as settle ledgers and find new ways to better serve their clients.
Technology and finance are always interwoven to enable global commerce. As the world gets increasingly smaller, and digital there is an ongoing desire to make the exchange of value faster, easier and more affordable.
Nowadays, the flow of value, whether it’s assets or funds, whether loans or assets is blocked by frictions, such as intermediaries that are layered and old platforms. This hinders straight-through processing, adds manual overhead, results in stagnant liquidity, and increases the cost for customers. The most significant innovation is blockchain technology with the potential to solve the issues mentioned above.
Blockchain technology can be used to create an immutable, shared ledger that is shared between untrusted and decentralized parties, as opposed to the necessity of multiple central ledgers that work in a serial fashion. Blockchain technology also allows to transfer value within this decentralized environment. Smart contracts allow for programmability and more complicated data states – similar to the concept of a distributed database.
One way to look at smart contracts could be that they extend our vocabulary of verbs , permitting funds and assets to be personalised in their actions. Smart contracts are the basis of many breakthroughs, such as the capability to tokenize assets. This is an electronic marker that could represent real tangible assets such as real properties or commodities. Central banks, as an instance are looking into the potential use of blockchain to make digital currencies that are tokenized (CBDCs) to facilitate cross-border wholesale payments.
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The news cycle of today is dominated with market turmoil in cryptocurrency assets however, crypto assets are just a tiny fraction of the global market for digital assets built by using blockchain technology. Similar to the dotcom crisis the digital assets market is going through the curve of innovation diffusion from exuberant hype to mature offerings that offer the real benefit and are backed by strong regulatory oversight systems.
It’s not clear what new services and products will be created after the excitement and the hype wears off as well as how entire industries will be transformed and what new fields will be created. The companies that emerged following the dotcom era have revolutionized the way we play, work and purchase food, pay bills, and keep in touch to family and friends across the globe.
They developed marketplaces and platforms that can handle electronic payments, supply chain and network effect. They also used data to drive services, products and experiences.
Another significant innovation to be noted that could revolutionize the world of finance is the renewed interest in AI & ML that is caused by breakthroughs like deep-learning neural networks as well as the recent emergence of Generative AI that is producing remarkable results for speech as well as image and text recognition.
Innovation in finance driven by technology https://t.co/WemHAywFMS
— TOI Opinion & Blogs (@TOIOpinion) February 8, 2023
In many situations, AI & ML models are providing results that can match or even surpass the human expertise. Today , we have a perfect fusion of forces that allows companies to get more value out of the data they possess as well as AI & ML models that produce expert-level outcomes as well as big data platforms to handle huge data sets required and computing power to train models, and cloud computing for increased flexibility and scale.
The most important thing to remember is the necessity for ethical innovation and responsible AI since trust is the greatest asset. A few of the potential opportunities include the improvement of the risk and fraud models as well as decreasing operational friction points, such as automated payment repair as well as improving resilience and cyber security through anomaly detection and in reducing costs , whether they are the use of liquidity or operational.
Innovation will continue its unstoppable progress – changing into disruptive, disrupting and inventing completely new industries. It will have winners as well as losers. As companies concentrate on their digital and innovation initiatives, they must look at ways to improve their relationships with clients and foster innovative thinking; what their operating model should be in order to encourage agility and a mindset of engineering and, lastly, how they can expand their innovation efforts, whether through platforms, people or by collaborating with startups.
It is certain technological advancement will never cease to develop and finance will continue to be the leader in investigating and implementing new technologies in order to build trust and provide benefits to clients.
