The world of finance is set for a big change. Two disruptive innovations, Cognitive Computing and Blockchain, have attracted some serious attention in the finance world for the potential they have showed to revolutionize finance industry. There’s also pressure mounting on financial institutions to adopt new technologies for more competence, new customer experiences and efficiency savings.
Dutch bank ING, Dubai-based Emirates NBD and Deutsche Bank are among some financial services leaders which have already earmarked hefty amounts for strengthening their digital capabilities by using the power of cognitive computing and blockchain. The IBM Watson Platform has also created a lot of buzz to help remove the complexity of financial system by providing an “insight as a service.”
How Cognitive Computing and Blockchain are Shaping the Future of Financial Services?
Cognitive Computing, a term coined by IBM, simulates the functioning of human brain in a computerized model. The goal of cognitive computing is to use self-learning algorithms that use data mining, predictive analytics, pattern recognition and natural language processing that mimic human-like intelligence.
Deep learning algorithms and neural networks play a crucial role in development of cognitive systems that can acquire knowledge from the data they are exposed to by mining data for information. The system learns more and become more accurate as it gets exposed to more data over time.
Implications of Cognitive Computing for finance industry
Financial institutions have very large sets of data at their disposal, but they have not been able to take full advantage of them for years. “We all have mounds and mounds of data, but getting data to produce insight, that is the holy grail", said Cathy Bessant, chief operations and technology officer at Bank of America Corp, during the Fintech Ideas Festival.
Banks cater to millions of customers of different income, age, location and needs. However, customers often get fed up with financial institutions targeting them with products that don’t suit their requirements. Cognitive computing could play a big role here to end such stereotypical approaches for targeting customers.
Using cognitive technology, financial institutions can unlock the power of unstructured data, understand different requirements of customers and treat them as individuals, not faceless entities. Relationship building is another strong advantage that banks can pull using cognitive technology.
Cognitive computing provides a way to determine an individual's personality via historical data and analysis. Therefore, financial institutions can tell an advisor the type of engagement strategy they need to devise to interact and build relationship with a particular customer.
Having such an ability increases the chances by many folds to sell right products to different customers and drive value out of the relationship. Besides, cognitive systems do not require human efforts to interact, engage and advise customers on the investment options that are most likely to bring them good returns.
What Blockchain Holds for Finance Industry?
Blockchain is another revolutionary technology that could see high adoption rate across various sectors, not just financial services, in coming years. Blockchain was used to create the first ever cryptocurrency, called Bitcoin. It’s now widely believed that Blockchain will become the future of transaction processing in financial services.
Blockchain is a decentralized ledger of transactions that are cryptographically secured. Every transaction is stored in a block and each block is linked to the preceding one using advanced cryptography. As new transactions happen, new blocks are generated and linked to preceding ones in a chain of blocks that can’t be reversed or deleted.
“Blockchain is so profound it will do for trusted transactions what the internet did for information,” said IBM Corp's president and chief executive Ginni Rometty. Rometty also described blockchain as one of the most transformative technologies for finance.
Use cases of Blockchain in Financial Services
Cross border payment is currently an expensive and slow process. Blockchain has a great potential to expedite the international money transfer process and significantly cut remittance costs, from 5-20% to 2-3%.
Smart contract is another most promising application of Blockchain technology, allowing to execute commercial transactions and agreements automatically. Also, there’s no need to pay a middleman to provide products such as Letters of Credit and enforce the obligations of all parties in a contract. Smart contracts provide exciting opportunities for trade finance as well.
Blockchain also gives rise to identity management, removing the complex know-your-customer verification approach that banks follow to identify their customers. Currently, official identity documents and some form of face-to-face checking is required to avail a loan, buy a house, settle a car insurance claim, etc.
Once identity management moves to Blockchain, users will be able to choose how they identify themselves and and have a control over who all can see their identity.
User registration still needs to be done though to create a digital identity, but only for once. The user will not have to register again for every service provider who is also connected to the Blockchain. Digital identity saves a lot time and cost that goes into information and document exchange between multiple parties.
Narrowing down the gap between finance and technology has become the need of the hour for financial institutions to stay competitive and meet increasing demands of customers. Many financial institutions have already started to ramp up investments in Cognitive Computing and Blockchain technology development to offer innovative and effective solutions to customers. That said, it’s right to say that the finance industry of today will look very different by 2030.
Do you really think that the advent of Blockchain and Cognitive Computing will reshape the future of finance industry and eventually software development companies in India and around the world? Is there any fear associated with the adoption of the two disruptive technologies in financial services? As always, your views are vital for us, please get in touch with us and share them in the comment box below.