6 technology accelerators shaping next-generation digital financial services

By: William Genovese

In 2019, Uber announced Uber Money, which includes a digital wallet, debit and credit cards. That same year, Goldman Sachs and Apple rolled out the Apple Card and, more recently, introduced a federally insured savings account. In 2022, Stripe Bank and DoorDash launched a prepaid business Visa debit card and mobile app where users can check account balances, pay bills, transfer money and find no-fee ATMs.

Whether or not these ventures have succeeded, they demonstrate an important trend in the financial services industry: using technology to disrupt traditional business models and reinvent business strategies and delivery methods.

In this article, I’ll discuss six accelerators causing industry disruption and suggest how they will reshape digital financial services.

1. Mobile-first experiences

The most transformative change in the industry has been a shift towards providing all core services digitally to consumers. Financial services companies are exploring how mobile experiences can substitute or eventually replace face-to-face services. Doing so will require advanced network, edge, cloud, AI/ML and data management capabilities, either organically or through partnering with technology companies or FinTechs.

The ability to connect with customers from the palm of their hands also increases the risk of cyber threats. That’s why it is crucial to adopt a zero-trust cybersecurity architecture to ensure the security of both the business and its customers.

2. Biometrics and adaptive security

Advances in biometrics enable organizations to put in place stronger controls to prevent fraudulent transactions and theft. Thresholds can stipulate controls such as, “If you are transferring more than US $1,000, than US dollars, then you need to use facial recognition, fingerprint and MFA to complete the transaction.”

To implement stronger security measures, organizations should take a unified approach to regulatory requirements and policy enforcement. For example, high transaction amounts that are associated with specific functions should mandate a tiered approach to security applications.

Organizations will also need to consider the privacy concerns of individuals. A good solution here is the self-sovereign digital ID, which is maintained by the individual and invokes the necessary security application depending on the specific task they are trying to perform. Customers manage their digital IDs and decide who has access to specific digital services.

3. Blockchain

Blockchain and distributed ledger technology offer a unique solution by enabling digital and alternative payment methods and supporting a new asset class. These technologies are the infrastructure for the new digital currencies and their associated use cases, which are not currently part of the traditional financial system.

These technologies create a bridge between the new financial infrastructure and the traditional financial infrastructure. I expect they will also create a bridge to a more secure, less risky, and regulatory-controlled environment for both consumers and financial institutions while enabling financial institutions to generate more revenue and profit. Additionally, consumers will be able to manage and control their finances all in one place.

Like any technology, blockchain should be fit-for-purpose, and financial institutions will want to consider downstream disruptions:

• Lack of integration: The on-chain integration and processing of public blockchains like Bitcoin and Ethereum lack integration with traditional banking systems and accounts, which can lead to a lack of transaction visibility and consumer protection.
• Interoperability and programmability: For rapid deployment and convergence of cloud-based services, blockchain solutions should use the same programming languages as new generation technologies to speed up adoption and implementation, as well as ensure converged integration.
• Performance and scalability: If the technology doesn’t perform and if it doesn’t scale, no one will consume or use it.
• Identity management and privacy: Across devices, industry networks, cloud instances and hosted infrastructure, organizations will need to secure and manage identity and privacy.
• Usability and applicability: Customers will want to use the service across industries with industry-specific and cross-industry use cases like digital identity, digital cash, digital assets, trade finance and insurance.                     

While addressing one or two of these criteria through a blockchain solution can be beneficial, it is essential to meet all of these challenges to effectively adopt, implement and achieve a return on investment from blockchain technology.

4. Open API

Open APIs have the potential to expand the scope and integration of digital financial services with other industries. Globally, newer business models have emerged, where non-traditional finance industry firms are venturing into the banking sector by building partnerships with banks and using Open APIs in integrated platforms.

There are potential security concerns with Open APIs and regulations from a data-sharing perspective. A robust cybersecurity posture and architecture, such as advanced cybersecurity and biometrics, combined with blockchain can further accelerate the execution of Open APIs safely and garner an accelerated return on investment.

5. Big data, AI and advanced learning

In the same way that the internet browser transformed how we access information, mobile applications and services now provide faster insights through AI technology.

Big Data, AI and machine learning have given financial service providers greater insights into consumer behavior and patterns. Banks and other institutions harness these technologies to understand how consumers use their services and to identify fraudulent and illegal activities. The technologies have also helped bridge the gap between the consumer economy and the market finance industry by leveraging data beyond traditional enterprise walls.

As with the other digital technology accelerators, organizations should not solely focus on this domain for implementation but look to combine this technology with the others discussed in this article.

6. Quantum computing in digital financial services

There’s a growing demand for more powerful computing to handle the vast amounts of data and analysis required for banks to serve customers and compete. As with any other emerging technology, financial institutions should carefully assess whether existing technologies and systems can solve their business problems and industry challenges overall. Quantum computing offers the following fit-for-purpose advantages over traditional technologies:

• Quantum computers offer compute power that is orders of magnitude greater than classical computers.
• Quantum computers can solve problems that can never be solved on classical computers.
• For optimization-based business problems, quantum computers can enable real business results today.

To assess potential applications and impacts of quantum computing, I recommend organizations prioritize by use case. Every organization’s prioritization will differ depending on their needs. Here are five use cases to consider:

1. Regulatory compliance: There is a regulatory mandate, and quantum offers an accelerated path to meet it.
2. Innovation speed: Multiple degrees of freedom through what-if analysis in real-time for interdependent and differing asset categories.
3. Product upsell: Quantum can identify optimization opportunities for product upsell for existing customers based on pattern recognition not identified before due to technology limitations.
4. Time to market: Quantum can help identify the faster routes to market for expansion and the likelihood of stickiness based on optimization analysis.
5. Product development: Quantum can provide faster time to market. For example, service and product development across asset classes.

The financial services industry is poised to evolve given the many opportunities presented by the six accelerators. Organizations that prioritize technology optimization through convergence,  digital transformation through modernization, and security will be best positioned to grow and enhance customer experiences.

William Genovese is CIO Advisory Partner at Kyndryl