The potential for financial technology (fintech) and bank collaboration is endless. Emerging technologies and innovations such as crypto currencies, voice-activated banking and the application of artificial intelligence to financial services are likely to transform banking in the future.
This was a key message from Henri Arslanian, founder of the fintech Moven, who addressed AMP’s recent Amplify event.
There is enormous work being done within banks and also within fintechs right now to develop new tools and technologies. The superannuation and investments platform space is a great example of Australian firms driving innovation in fintech, with Netwealth and HUB24 capturing significant share in the local market.
Robo advice is an emerging trend which has the potential to be adopted by the financial advice industry in the future. This software is currently able to deliver simple and broad based financial advice, but over time sophistication levels will increase and cater to more individual needs. The main hurdle to adoption is the consumer and regulator gaining comfort with the technology, given most people require individual advice suited to their unique circumstances.
Voice-activated banking is another evolving area, facilitated though devices such as Amazon Alexa. This device operates as a virtual assistant and can respond to simple queries. But there are substantial risks that also need to be addressed before tools such as Alexa become widely adopted for banking purposes.
It’s already possible to ask Alexa about the price of a share, for instance. But this becomes trickier when it comes to private banking information. For instance, asking Alexa or other similar devices such as Apple’s Siri function to perform transactions such as transferring funds is fraught with risk.
Banks must be certain the person performing the transaction is the person who owns the account. This will be difficult to resolve without putting the user through an additional layer of security checks which potentially negate the time saving benefit of using voice technology in the first place! It may be that a middle ground is found, whereby voice-activated technologies can be used for low-value transactions in the same way payWave technology is used now.
Distributed ledger technologies, or blockchain, are already being adopted in financial services. For instance, the Australian Securities Exchange (ASX) is planning to use blockchain-based technologies to replace its CHESS transaction settlements system. This is a huge project spanning many years, but the potential to increase efficiency and reduce errors makes it a worthwhile endeavour. While many associate blockchain with crypto currencies, investors should focus less on crypto and more on the technology that enables it.
There’s much for investors to absorb and understand about many of these new and largely unproven technologies. Many fintechs are still at a very nascent stage and investing in them carries substantial risk. This was evidenced recently when small business lender Prospa postponed its ASX listing after queries from the regulator. There are also a very limited number of fintech companies in Australia of a meaningful size that have made it onto the ASX. Examples include Netwealth, HUB24, OFX Group and EML Payments.
It’s important for most investors to understand early stage ventures such as fintechs carry more risk than proven businesses. While some will do exceptionally well, many will fail, and there is usually a long runway between a fintech starting up and profitability. It is however, still an area for investors to keep watch over to understand emerging technologies and how they are likely to contribute to the financial services sector over time.
Source: AMP Capital 16 August 2018
Author: Matt Griffin, Co-portfolio Manager, Small Caps
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