The rapid growth in technology has led to the evolution of a plethora of different industries and the financial services sector has been no exception. The ease of access to technology, pushes towards democratization and the predictive capabilities of technology have become an essential part of large organizations finding the right investments at the right time for respective clients, surfing from pools of huge amounts of data. Automation has resulted in more niche and soft-skill based requirements such as subject expertise, an ability to analyze financial data from differing perspectives and a strong technological aptitude.
A study by Opimas, a research consultancy firm found that by 2030, approximately 400,000 full-time jobs in capital markets will be lost to technology and especially, Artificial Intelligence (AI). The same research also predicted that 66,000 new technology and data science jobs will be generated by the same date. This begs the question; what does the future of financial services look like and also, how will roles and responsibilities differ accordingly?
Source: https://abc7news.com/nyse-new-york-stock-exchange-trading-floor-market/6212400/
Operational Changes
While the financial services sector has traditionally operated through face-to-face interactions, the COVID-19 pandemic and the development of new technologies have moved operations remotely and automated processes within the industry. For instance, the rise of technology has created a range of opportunities for investment bankers, with global technology M&A contributing $634 billion in 2020.
Additionally, a survey done by Business Wire in June 2020 concluded that 15% of firms in the financial sector are regularly using AI technologies within their organization, but 86% are planning to increase the usage of artificial intelligence in their operations by the end of 2025. Interestingly, investment banks in particular were driving this adoption, by implementing and creating technological synergies at a significantly higher rate than other financial service firms, with 63% using machine learning and 60% adopting predictive analytics within their business.
While technologies have improved the performance of operations within the business, retail and investment banks have also recently looked at providing their services on a wider variety of platforms, including mobile applications and digital interfaces. By delivering these services online rather than in-person, investors can access financial services from their own homes, and banks can operate with a reduced amount of staff. This allows banks to provide greater customer service and satisfaction to their clients and also saves costs and time for employees. Moreover, the usage of blockchain could also see decreased costs for investment banks, as a report released by Accenture in March 2020 mentioned that these technologies could reduce costs in compliance and business operations by up to 30% and 50% respectively.
The development of cross-platform technologies such as Flutter has made app development more efficient, by making it easier for banks to create applications on both iOS and Android devices, and is estimated to reduce development time by up to 70%. At the same time, the development of Application Programming Interfaces (APIs) has created new opportunities which can provide access to real-time market data and generate personalized analyst reports for their customers.
The evolving nature of the operations within financial organizations has also meant that its employees have had to adapt to meet the different skill sets required of them. While the core nature of certain roles may have remained the same, there is no doubt that many roles have undergone significant change as the industry embraces the new technological advances. For instance, MIT Sloan School of Management professor Heidi Pickett has stated “Computer programming skills are becoming a must-have. Don’t bother putting Excel or Powerpoint on your resume. Financial institutions are looking for R, Python or another programming languages.”
Response to Changes in the Market
Perhaps one of the most interesting changes is the differing way financial institutions have reacted to the rise and volatility of cryptocurrency. While many leaders within the industry, including the likes of JP Morgan CEO Jamie Dimon, have been heavy skeptics of cryptocurrencies, many of the traditional financial organizations within the industry have begun to steadily accept these changes. For instance, last year, despite their CEO’s skepticism, JP Morgan began offering access to new bitcoin funds to their clients. Therefore, as a result of those changes, even conformist institutions from Wall Street have begun to take steps away from their conservative perspective on capital management and introduced new forms of investments. It is important to note, however, that the rollout came without much of a salute, as managers were not allowed to recommend new funds but only able to provide them upon the client’s request.
JP Morgan CEO Jamie Dimon has been widely skeptical about cryptocurrencies Source: cnbc.com/ Andrew Harrer, Getty Images
Yet, this came as no surprise to those who followed regulatory committees. As the topic of virtual currencies and the changes that they can bring to financial markets turned from speculations in the late 2000s to an actual commodity in the 2010s, it became necessary to bring rules to the playing field. An example of it came in 2017 when U.S. Securities and Exchange Commission stated that the DAO token is an investment security that can be used in funds and recognised as a commodity but not an actual currency. With that said, NFTs or anything else that can come up in a fast-growing tech world has a real chance to eventually become an element of the everyday financial markets. In order to navigate them, it has become vital for financial institutions to adapt quickly and embrace the evolution within the sector.
Overall, just like many other industries, the financial services sector has witnessed considerable change due to technological advances. These changes have come in various forms, whether it is transformation in operations, the range of services provided or perhaps as a combination of both. Regardless, there is no doubt that the financial industry will continue to change as technology continues to evolve and becomes, perhaps, an even bigger part of our lives.
The CAINZ Digest is published by CAINZ, a student society affiliated with the Faculty of Business at the University of Melbourne. Opinions published are not necessarily those of the publishers, printers or editors. CAINZ and the University of Melbourne do not accept any responsibility for the accuracy of information contained in the publication.
