With a lot of different software and hardware needs on the part of financial institutions, the past few decades have seen entrepreneurs sprinting to innovate and exploit outdated process gaps for riches.
These four impending trends won’t just rewire the inner workings of the fintech industry, they’ll create space for further innovation on the part of agile startup entrepreneurs.
1. Quantum computing
Modern computers are based on binary code that is interpreted by the computer as ones or zeros — each binary digit represents a binary state (on or off). Quantum computers turn that notion on its head by leveraging quantum phenomena such as quantum entanglement and superposition.
Suffice it to say, they’re like supercomputers on steroids.
Where quantum computing has a potential impact on fintech is with processing and settlement of transactions, faster data processing, risk and performance modeling and better security. Even JP Morgan and Barclays have been dabbling with IBM’s quantum computing tools, according to Wired, looking to the future for practical applications. While quantum computers aren’t yet perfected, if they turn out to work like fintech giants hope they will, that will mean lower energy costs and vastly improved performance.
2. Artificial intelligence
AI is making big splashes in almost every industry. When robots can do the work instead of humans, the advantages are obvious: lower overhead costs, faster processing and more seamless user experience.
In fintech specifically, AI offers a highly practical tool for major financial organizations to manage portfolio risk and help institutions with regulatory compliance — a task which has become increasingly time-consuming and complicated over the past several years. One CNBC reporter, for instance, expected an impending wave of regulators to scare off investors altogether back in 2016. In the future, AI can likely help ensure that fintech companies are adhering to their vast network of boundaries and regulations.
Pacific Wealth Solutions is a perfect example of a fintech company that uses quantitative computing and AI to break down which investments in insurance and asset protection programs have high odds of producing strong returns. Nelson Lee, the managing partner of Pac Wealth, has released a new project using similar AI that gives consumers and institutional investors transparency as to which programs will provide a return versus those which will result in low value.
AI and other advanced tech such as quantum computing will reduce the need for salespeople and advisors in the financial industry altogether. Technology will continue to reduce costs and streamline access to information, providing improved returns for investors, consumers and firms providing more effective programs.
By example, the major exchange infrastructure on Wall Street is already almost entirely managed by automated machines. This is a continuing trend, as Wired explained this back in 2010. It is a trend that won’t be slowing anytime soon, and may eventually completely replace humans — why pay someone to do something when you could buy an equally adept robot to do it instead?
3. Cryptocurrency and decentralized finance
Decentralized finance (DeFi) is one of the prevailing narratives in the cryptocurrency and blockchain niche. Based on open protocols, DeFi projects such as MakerDAO on Ethereum for decentralized lending of the Dai stablecoin and insurance products such as Nexus Mutual provide decentralized alternatives to traditional financial institutions.