How Emerging Technologies are Shaping Finance

Emerging technologies are transforming the way we do business from enhancing routine operations, speeding up day-to-day tasks and identifying and managing risks.

One area in which these technologies are particularly having an impact is our finances. How we carry out transactions, take payment and even think about money is changing.

As the fintech industry evolves as quickly as the technologies that drive it, we take a look at three key trends that are set to revolutionise it: 

• Autonomous financial ecosystems
• Universal digital currencies
• The virtual economy

Autonomous financial ecosystems

The next decade could see artificial intelligence (AI) evolve from a supporting role in financial decision-making to autonomously managing entire financial systems.

Vickie Wall, EY Ireland Financial Advisory Services (FAAS) Leader, says: “Many finance leaders now looking beyond automation are considering the implementation of autonomous systems that can not only carry out tasks but make or at least suggest decisions without the necessity for human intervention.” 

Currently, AI assists with tasks such as risk assessment, fraud detection and customer service. However, by 2034, we may see these functions integrated into comprehensive, AI-driven systems which can predict and react to market movements, customer behaviour and regulatory changes in real time.

The potential benefits for businesses are substantial.

Autonomous financial ecosystems could dramatically reduce operational costs by minimising human intervention in back and front-office services. 

Wall notes the immediate impact this could have: “This can be applied immediately to time-consuming, recurring processes like month and year-end close. 

“In most cases, these are highly manual processes that deal with huge numbers of journal postings and have a high potential for human error. Automating them will both save time and effort and reduce costly errors.”

Moreover, these systems could offer hyper-personalised services to customers based on an intimate understanding of their individual circumstances, potentially increasing access to finance for underserved segments of the population.

However, this evolution is not without challenges. Ethical privacy concerns, data protection and the potential for systemic bias in AI systems will likely become more pressing. 

Striking the right balance between innovation and regulation will be crucial as these autonomous systems become more prevalent.

Wall also points out that the journey towards autonomous finance is not uniform across all organisations: “The Irish business landscape, for example, is extremely varied. It ranges from Irish plcs overseeing vast global operations, subsidiaries of global multinationals that are carrying out a range of finance and business services in global business service centres to both large and mid-sized private organisations with often relatively small finance teams and scarce technology resources.”

While diversity in the business landscape means that some organisations are further along in their automation journey than others, recent technological advancements are making automation more accessible. 

Wall explains: “The advent of generative AI [Gen AI] and the near-simultaneous retrenchment in the tech sector has brought both the technology and the ability to use it within reach of just about all organisations, regardless of size.”

Looking ahead, it’s clear the increasing regulatory burden on finance teams may accelerate the adoption of autonomous systems.

Universal digital currencies

Elsewhere, ongoing experiments with cryptocurrencies and central bank digital currencies (CBDCs) look set to culminate in the widespread adoption of universal digital currencies by the mid-2030s. But, whether this will be an evolution of existing cryptocurrencies such as Bitcoin or a new form of blockchain-based currency remains to be seen.

Jorge Lesmes, Senior Director & Client Partner, Banking at NTT DATA, highlights the current focus of digital currency innovations: “Recently, most digital currency innovations have focused on regulatory compliance, enhancing security and improving stability. 

“However, innovations to help integrate these currencies, like Central Bank Digital Currencies [CBDCs] and crypto, with financial systems are also gaining momentum.”

The potential impact on businesses is significant. Universal digital currencies could enable seamless peer-to-peer transactions without intermediaries, reducing transaction costs and increasing efficiency. 

Moreover, they could pave the way for “programmable money” powered by smart contracts, automatically executing transactions when preset conditions are met.

According to EY's 2019 Global FinTech Adoption Index, two-thirds of consumers already utilise at least two or more fintech services. As universal digital currencies become more mainstream, this adoption rate is likely to increase, creating new opportunities for businesses to innovate in payment systems and financial services.

Lesmes emphasises the importance of moving from planning to action: “To move forward, the most critical step in the adoption of digital currencies is to turn plans into actions. 

“Considering how digital currencies will impact everyday banking users, traditional banking processes, regulations and financial literacy education is important. However, it's equally important these considerations are followed by concrete activities.”

The global landscape of digital currency adoption is diverse, with several countries taking the lead. Lesmes notes: “The US, with its strong financial infrastructure and status as a global tech and finance leader, is well-positioned to facilitate the development and adoption of digital currencies including Tether [USDT], MakerDAO [DAI] and USD Coin [USDC]. 

“China has introduced the First Digital USD [FDUSD], backed by the US and recognised as one of the world's largest stablecoins.”

Despite positive steps, the path to widespread adoption is not without challenges. As Lesmes points out, “several concerns must be addressed for CBDCs and other digital currencies to be successful and gain public acceptance. 

“A lack of financial literacy, education and proper guidelines around cybersecurity across the financial sector, as well as the pressure on banks to innovate quickly, are just a few lingering issues that require attention.”

The regulatory landscape is, however, evolving to keep pace with these innovations. 

“Switzerland is excelling in the regulatory space,” notes Lesmes, “by combining technological innovation with a solid regulatory framework to ensure the secure creation and adoption of digital currencies.”

In the next decade, the integration of these currencies with existing financial systems, coupled with regulatory frameworks that ensure security and stability, will be crucial for their widespread adoption.

Virtual economy

The rise of digital currencies may start to play into something much larger over the next decade, with the emergence of virtual economies. 

By 2035, we may see fully-fledged virtual economies complete with their own currencies, financial systems and regulatory frameworks. This trend is closely tied to the development of the metaverse, which, despite some fluctuations in public interest, continues to attract significant investment.

Franklin Templeton Investment’s Head of UCITS ETF Product Strategy, Rafaelle Lennox, emphasises the scale of this emerging sector: “It's too big to be ignored. In the first half of 2022, over US$120bn has been invested in the metaverse, double that of 2021, from start-ups to large tech companies, venture capital & private equity.”

This trend is already visible in the growing popularity of virtual assets and currencies in online games and platforms. For instance, the in-game currency Robux has become as coveted as pocket money for many children. 

As virtual and augmented reality technologies advance, the line between physical and digital assets may blur further.

Monavate's CTO, Mat Peck, explains the natural fit between cryptocurrencies and the metaverse: “Cryptocurrencies will absolutely be the preferred method of payment as the metaverse grows. 

“In a completely virtual environment where all goods provided are non-physical and the transfer of ownership is instantaneous, everything you might want to buy, is technically a non-fungible token.”

However, cryptocurrencies face competition from Central Bank Digital Currencies (CBDCs) as potential payment methods in the metaverse. 

Paysafe's SVP of Vertical Growth, Elbruz Yilmaz, suggests: “CBDCs may play a greater role as a payment method in the metaverse, in combination with cryptocurrencies and stablecoins, depending on their respective strengths and market dynamics.”

Indeed, companies may need to adapt to operating in virtual environments, potentially creating new revenue streams through virtual goods and services. The virtual economy could also drive innovation in areas such as blockchain-based transactional systems and collaborative, immersive user experiences.

Publicis Sapient's Senior Director of Financial Services, Zack Michaelson, highlights a key issue: “Scams and theft are real concerns, especially given the current state of security practices, which are yet to mature. 

“Balancing innovation while ensuring security will be an ongoing juggling act. Add to this the serious matter of data privacy. With the metaverse churning out vast amounts of detailed user data, it's a dance on a tightrope of ethics and privacy.”

Despite these clear challenges it does not mean the potential for growth in the virtual economy isn’t significant. 

Monavate's Mat Peck concludes: “The potential is enormous and global, but the metaverse isn't what people currently think it is. For the metaverse to become what it needs to be, people need to be able to exchange something of value – so until that properly exists, it won't be utilised in the correct way.”