How digital innovation is transforming banking
A new wave of technologies – such as blockchain, digital wallets and robo-advice – is revolutionising the way we manage, control and distribute money. Gone are the days where you had to enter a bank to carry out a transaction. Just whip out your smart phone with your mobile banking app and you’re set. In fact, today you can even seek financial advice courtesy of automated computer programs – no human interaction required.
Almost every area of the finance industry is being disrupted by these new technologies, forcing the traditional banking sector to re-evaluate and invest in digital innovation, and changing the face of money as we know it.
According to Alan Tsen, founder of Block+Labs, a thematic innovation lab that aims to develop new ventures in the blockchain technology sector, blockchain has had the biggest single impact so far.
Blockchain is a public digital ledger with a complete record of transactions, which is shared among a network of computers worldwide. It can be used to transfer anything of value, from money and bonds to house titles and contracts. The most common products currently using blockchain are digital currencies such as bitcoin.
For example, blockchain provides people with access to cryptocurrencies (such as bitcoin) where tokens can be traded online like physical cash to make instant and secure payments anywhere in the world, without third-party taxes and fees. Blockchain technology can also be used by sectors other than finance, including travel and media: to support loyalty points programs and newspaper websites, which can charge readers per page or per article rather than per month.
“The financial technology landscape is definitely changing,” Tsen says. “In fact, many factors are coalescing to form a tectonic shift in how the industry is structured. At the forefront of this change is blockchain technology.
“When this ‘peer-to-peer electronic cash system’ was first proposed, it wasn’t clear that the underlying piece of technology that made it possible – a blockchain – would be as impactful an idea as it has been. The core idea of moving the role of trusted intermediary away from ‘middlemen’ to a network has been a revelation to both incumbent banks and start-ups alike.
“In fact, it’s been so impactful that we’ve seen it being experimented with by almost every bank in the world and across a broad set of use cases. In finance, this has included everything from settlement to trade finance.”
Indeed, ING is one of a number of banks that have joined a global consortium called R3, whose aim is to develop a common infrastructure for blockchain technology and its applications in the financial system worldwide.
“Banks in general have recognised that something that is publicly available, accessible and secure is potentially disruptive to the current banking model,” says Jonah Cretser-Hartenstein, Manager of Digital Innovation and Emerging Channels at ING DIRECT Australia. “We need to be exploring how we can leverage this technology to enhance our value proposition and potentially find new ways of delivering value to customers as the technology evolves.”
Cretser-Hartenstein says the big benefits of blockchain technology are that it offers secure, fast and efficient transactions – doing away, for the large part, with the current cumbersome and expensive paper trails.
“Basically, technology has made transactions more convenient, more secure and faster,” he says. “It’s also breaking down borders. International remittances and payments, and even just sending money to family overseas, is becoming much cheaper as well as being more accessible and secure.”
While the ripples of blockchain have been felt far and wide in the finance sector, other emerging technologies are also having an impact.
