The financial services industry is no stranger to disintermediation. Ever since marketplace shifts in 1967, where consumers began investing directly in securities instead of leaving money in savings accounts, disintermediation has become synonymous with cutting out the middlemen in the financial services industry. The term undermines comfortable profit margins and market share and forces innovation and competition.
The late Stephen Hawking is credited with saying that “intelligence is the ability to adapt to change,” and the financial services industry has certainly been able to adapt to the competitive marketplace and regulatory changes that have been thrown its way. Disintermediation is a great example of this. However, one might add that markers for advanced intelligence included purposely making changes in order to avoid having to react to externally initiated changes. With this as a backdrop, ISACA’s 2018 Digital Transformation Barometer researchtells the story of organizations that are actively looking to embrace digital technologies to reduce bottom line expenses, increase customer engagement and plumb new sources of revenue growth, with the financial/banking sector identified as the industry showing the most leadership in adopting emerging technologies. These technologies are brimming with promise and fraught with peril – particularly if security and institutional credibility are at risk - , but beneath it all is the ability for thoughtful rationalizing of the tradeoffs of these emerging technologies and appropriate risk taking.
The research found that global business technology professionals strongly believe that burgeoning technologies like big data, public cloud, artificial intelligence and the Internet of Things (IoT) can result in significant value creation for their firms despite the risky scenarios they may demand these firms accept. These technologies are modern and represent significant shifts in the way companies operate, so, to admit that they are valuable endeavors in spite of the potential downfalls is noteworthy. Consider for a moment the remarkable amount of intellectual property enterprises possess on their information systems. To purposefully export the storage, processing, and transmission of this information wholesale to another organization vis-a-vis cloud computing is an exceptional marker of two things: the relative abilities of these firms to maintain their own computing technologies at an acceptable level and/or the striking cost of doing so.
There also is an unprecedented amount of data that these organizations are capturing (and in many cases monetizing) about all aspects of their business, such that they are investing in big data operations (often done in the cloud). This shows us that the very nature of business in the information age has shifted to data collection, processing and analysis.
This transformation of data as profit center for organizations also is reflected in the fervor for IoT and AI. IoT technologies have the promise of ubiquitous data collection and monitoring, and the creation of more cyber-physical systems. AI can be combined with this mountain of data to help understand and make sense of hidden patterns and respond to customer queries. In the financial services industry in particular, AI has been adopted at record speed to create robotic process automation (RPA) to help answer customer queries and give support personnel the answers they need to do their jobs better. This gives these firms an advantage in two ways: it reduces the need to expand their human capital expenditures and gives younger generations the computer-intermediated interaction they desire with their banks. These kinds of win-win scenarios are ripe targets for these emerging technologies to take hold and serve as a hedge against the future.
Certain emerging technologies, however, are still proving difficult to find a place in the modern financial industry. Jamie Dimon, CEO of JPMC, famously said in September 2017 that Bitcoin is a fraud that will eventually blow up. Whether time will be as kind to this proclamation as it was to IBM President Thomas Watson’s 1943 prediction of a worldwide market for five computers has yet to be seen. However, his sentiment is shared by many survey respondents and their organizations, where cryptocurrency uptake is nearly universally eschewed.
However spurned cryptocurrencies may be, the underlying blockchain technology has fascinated the financial services industry, where there are many experimental projects underway to solidify public and private ledgers, disintermediate reconciliation, and expedite quote to bind using smart contracts. Industry consortiums such as R3 are working with private financial organizations to agree on the particulars of operating an advanced economy underpinned with blockchain technologies. What will come of this and other blockchain initiatives is yet to be seen, but the risk professionals surveyed are of the opinion that risks outweigh benefits, although R&D efforts are underway in most organizations.
The future is synonymous with the unknown, and nothing is riskier than that which we do not yet fully understand. The risk and security professionals ISACA surveyed have an abundance of caution at their disposal, such that they can effectively keep their organizations out of trouble and protect the public from the dangers of careless implementations of these emerging technologies. Time will tell which of these technologies will bear fruits, but regardless of outcomes, responsible risk-taking is the key to adapting to the changing future.