Technological investment and banking innovation have always gone hand in hand. This article explores some of the most important technological advancements that have provoked changes in banking.
Banking was, once upon a time, something that had to be done in person. Brick and mortar banks had to be visited by consumers, and business banking had to be conducted via in-person consultation. This puts some people at a great disadvantage. Rural people, for instance, had less access to financial services before the popularization of the internet.
Online banking started further back in time than you might imagine. The first ‘distance banking’ computers were marketed by major financial corporations in the 1980s but did not catch on until the popularization of the internet in the late 1990s. Today, online banking is a ubiquitous feature offered by almost every bank that gives consumers access to checking or credit accounts. The internet allows for the provision of community personal banking, anytime anywhere banking and mobile banking. In the United States of America, around 61 percent of the population used digital banking services. This number was projected to rise exponentially when data was collated by Statista in 2018.
Modern online banking is incredibly straightforward. After logging into an account using unique passwords or biometric authentication data a consumer can access their savings, send money and set up direct debits without having to make the trek to a bank. In theory, this allows consumers to have more control over their finances.
Online banking might be convenient, but mobile banking takes the cake when it comes to offering consumers easy access to financial services. The ubiquity of smartphones has led to a surge in the migration of services of all kinds over to mobile platforms. Popular app stores allow banks to easily permit customers to download software. This means that a banking app can be easily downloaded in seconds. The technology incorporated into mobile phones can augment the security features that are necessary in banking. The cameras and fingerprint recognition sensors that are standard features of modern smart phones can be used for biometric authentication. Biometric authentication is far more secure than password or signature authentication and makes mobile banking potentially more safe than any other kind of remote banking.
A blockchain is a highly secure digital public ledger that is shared between many servers. In cryptocurrency networks, a blockchain is essential for the recording of transactions. The recording of transactions is essentially what gives a cryptocurrency worth, as it creates a virtual market in which value can rise and fall naturally. Unlike a traditional database, a blockchain is not centralized. Instead, data is stored in small ‘blocks’ that are decentralized and closed completely when filled. Each block is then linked to the next, unfilled block to form a decentralized chain that can, in theory, not be tampered with. Because each block is closed, it forms an irreversible chain that effectively secures previous transactions. Although blockchain technology was pioneered by independent financial innovators, it is being adopted by major banks that want to invest in digital currencies. It was first proposed in the 1990s as part of a research project on digital currencies but found widespread adoption in the 2000s with the emergence of Bitcoin – the first highly successful online currency. It has since become essential to any cryptocurrency that is taken seriously.
In order to validate a transaction, a network of computers needs to register the transaction input by solving a series of equations. Once these equations are solved, the transaction can be permanently entered into a block that is connected to all of the other decentralized blocks within a system.
NFTs are a more recent kind of blockchain based transactional currency that has seen a great surge in uptake in recent years. NFT stands for Non-Fungible Token. An NFT is essentially a unique digital ‘object’ that can be traded and accumulate in value based on desirability, rarity or a projected combination of the two. While this might sound like a complex way of describing a conventional object, the real value of an NFT lies in the confirmed unique nature of each digital artifact. Banks have started to cotton on to the NFT craze, and major investments are being made in the field by organizations with little connection to the art or crypto communities.
Like all aspects of finance that rely upon trading to create value, NFT investment is a rather risky business. Investors tend to lose money more than they gain it, although a select few have made absolutely vast gains through timely investment in digital artifacts.
There are many different definitions of Artificial Intelligence. Broadly speaking, Artificial Intelligence can be defined as the utilization of computers to perform the decision making and learning tasks usually associated with human beings. British computer scientist Alan Turing – who helped to decode German codes during World War Two – is considered to be one of the founding fathers of AI. His 1950 paper ‘Computing Machinery And Intelligence’ set out the parameters of Artificial Intelligence and helped to develop ways of testing intelligent decision making in machines. AI is only just beginning to mature into a practical technological solution for real world problems. It is being incorporated into innovative new practices within banking.
Artificial Intelligence allows banks to automatically make use of the huge amounts of historical data that they own in order to make sound investment and product development decisions. At an organizational level, banking is a business that deals with the leveraging of risk. Artificial Intelligence can theoretically allow a bank to make riskier decisions without putting the organization and its customers in hot water by weaponizing complex predictive analysis techniques that would be impossible to efficiently carry out using human banking staff.
Artificial Intelligence also has the capacity to increase consumer loyalty by offering bespoke rewards and interest packages to individual consumers without the need for a human led consultation.