What Next For Financial Services In The Era Of Uncertainty?

Macroeconomic uncertainty, AI generation, and ESG requirements are some of the issues and factors that financial institutions will need to consider throughout 2023.

Many of these challenges will undoubtedly carry over into the new year, but established companies and startups can expect that their priorities will continue to change.

To answer this big question, FinTech Magazine interviewed many industry leaders to find out their thoughts and expertise on the future of financial services.

They:

• Anurag Bhatia, Senior Vice President and Head of Europe at Emphasis
• Emma Bickerstaff, Managing Director of ESG and Sustainability at Apex Group
• Ash Boate, Vice President Europe at Tipulty
• John Stephens, Industry Director, Banking and Financial Services at Workiva

How difficult is it to predict the future of financial services given current geopolitical, economic and technological factors?

Ashes in a bottle

Predicting the future of financial services in a world of complex geopolitical changes, economic uncertainty, and rapid technological advances is a major challenge and a risky strategy that many companies fail to undertake.

Emerging technologies will continue to influence the way financial services companies operate in 2024. However, this may create unexpected market dynamics and new challenges for companies.

What we know is that companies looking to navigate the future of financial services in a dynamic environment need different strategies to remain competitive. They must focus on efficiency, modernization through technology and establishing sustainable growth in the years to come.

This allows them to better adapt and be agile enough to meet the challenges of a rapidly evolving and changing economic environment. This is especially important for finance teams, who need visibility and control to make long-term strategic decisions.

Juan Esteban

With the ever-changing environment and new macro trends impacting the financial services industry every day, including AI adoption, climate change, and a volatile geopolitical landscape, predicting the future is becoming increasingly difficult.

For example, geopolitical tensions tend to outpace economic growth in large industrial countries, which can impact various submarket systems such as commodity markets and credit systems.

There may also be downstream impacts, particularly on consumers. These conditions make predicting the development of the financial system increasingly difficult due to the large amount of uncertainty.

Anurag Bhatia

Given geopolitical volatility and its direct impact on commodity prices, the financial services sector remains resilient and does not experience a structural deficit. Therefore, if we look to the future, there is only one benefit.

The current wave of digitalization and the next wave of AI will only improve its prospects as financial services become more democratic, accessible and inclusive. The transition to digital financial solutions represents a move towards greater availability and inclusion, promising a future where financial services are not only robust but also more comprehensive and suited to a wide range of needs.

What comes to mind when you imagine the future of financial services?

Juan Esteban

The financial services industry will continue to grow. Let's take the case of banks: they will continue to collaborate with non-bank fintech companies to expand their reach and offer traditional banking products and services such as deposit accounts, payments and consumer loans.

A current trending topic is the use of third-party risk management, as this will bring potentially significant benefits to FinTech companies. This will pose additional risks in terms of security and health for banks and customers in the years to come

Looking ahead, the financial services industry will continue to show significant and growing interest in various uses of advanced data analytics and machine learning.

We will likely see banks use AI to improve their security and resilience, as well as improve customer protection and increase the efficiency of compliance functions.

Banks can use AI to improve customer service and banking products such as chatbots to direct customer inquiries, facilitate online account openings, and help with more efficient lending.

We see banks exploring new types of genetic AI that can be trained on large amounts of data and used to generate text, images, videos or other results from specific assessments.

In these organizations, audit and compliance departments will look for ways to manage their audits more flexibly to keep pace with change. It's also possible that they will start looking for ways to automate some of the control testing processes to ensure faster review and reporting processes.

Ashes in a bottle

The future of financial services will be driven by technological modernization undertaken by financial leaders, aimed at eliminating manual processes while increasing transparency and control, especially in tough economic times. The company has an AI charter, which means AI tools are now a competitive advantage for many finance teams.

As companies continue to digitally transform and rely on technology to drive their strategy, the future of financial services requires new recruitment profiles for finance teams. It's less about classical financial studies and more about analysis.

The appeal of working in a more dynamic environment will result in a new wave of strategic finance talent and the finance office will become a more attractive place for graduates.

Anurag Bhatia

The main concepts related to this currently are greater digitalization, centralization of services, and regulation of some obscure areas of financial services such as crypto.

The focus on increasing digitalization highlights the increasing reliance on advanced technology, while the centralization of services reflects the trend towards integration of financial operations.

At the same time, regulatory measures should be explored to address some of the unregulated aspects, especially in the field of cryptocurrencies.

How fast will the crypto market grow in the coming years?

Anurag Bhatia

Due to its dynamic nature, it is difficult to predict the exact rate of growth of the crypto market. But we know that crypto is a reality and needs to be integrated into traditional finance more quickly.

To achieve this, we need a strong regulatory framework. Due to its decentralized nature, these regulations require greater cooperation between countries to be effective. In my opinion, this is the only challenge that could hinder the widespread adoption of cryptocurrencies as an asset class.

However, given the increasing institutional interest, regulatory developments, and technological advances, cryptocurrencies are expected to experience significant growth in the coming years as cryptocurrencies continue to develop.

Emma Bickerstaff

The crypto market is a highly dynamic and uncertain field, and its future growth depends on various factors such as technological innovation, regulatory environment, consumer acceptance and market sentiment. Therefore, it is difficult to make accurate and reliable predictions about the growth of the cryptocurrency market in the coming years.

What does the future hold for financial services regulation?

Emma Bickerstaff

The focus on ESG has grown rapidly in recent years as a new generation of investors and consumers demand that companies do their part to protect our shared environment. Of course this is a good thing, but we are now seeing the consequences of a lack of global consistency, standards and regulations.

Regulations are necessary, but the diversity of regulations may be difficult for investors to understand, especially regulations that operate in multiple jurisdictions.

Over time, we will likely see some degree of regulatory convergence across jurisdictions, for example the European Union Sustainability Reporting Directive (CSRD). Although this regulation only applies in the EU, its impact will be felt globally as companies outside the EU fall under the scope of this regulation.

The best approach for companies looking to address this complexity is to develop their internal knowledge, establish an operational baseline for monitoring ESG data, set ideal goals and consider what initiatives they can take to improve their performance year on year.

Juan Esteban

The UK has implemented financial regulatory policies and implemented new types of regulations. Under the Financial Services and Markets Act 2023, there is a clear division of responsibilities between Parliament and financial regulators, helping to improve the transparency and accountability requirements of the Financial Conduct Authority (FCA).

Against this backdrop, the regulatory environment continues to evolve and greater regulatory involvement is expected not only in traditional areas such as capital and liquidity, but also in emerging areas such as innovation and financial technology.

We are already seeing this happen through US regulators, particularly the Federal Reserve Board (FRB).

Current focus areas through 2024 include bank-fintech partnerships, AI, digital assets and tokenization, and other new and changing technologies and business models impacting federally supervised banks.

Ashes in a bottle

According to the Federation of Small Businesses (based in the UK), 52% of small businesses experience late payments, with 37% of them forced to take out loans to manage their cash flow. This threatens jobs and harms the economy.

In recent years, the UK government has introduced a number of reforms to the Express Payments Code, an initiative to speed up cash flow, improve compliance and drive business growth.

But even though nearly 3,000 companies have signed the code, poor payment practices are still widespread. In 2022, there was an average of about $28,000 owed due to late payments.

Given the potential to boost the economy by $3.2 billion through timely payments to small businesses, future financial services regulation must address late payments. While these new, faster payment systems will help to some extent, ultimately the solution lies at the root of the problem: manual financial transactions.

Often, it's not because the large companies that pay small businesses don't want to get paid on time, it's because they can't keep up with the manual and workload.

20. Insecurity