Technological perspectives for financial industry


Yoana Miltenova, business expert of CODIX, discusses technology and its importance to the financial industry.

In recent years, technologies have become increasingly important to businesses. Technologies reveal enormous potential and are a method of improving the quality of financial services, which is why huge investments are being made in this direction. At the same time, customer demands are apparently never ending, with expectations that services are available to them in the preferred channel at the time they need. In the Era of the Customer, companies are racing to implement new and flexible technological and business solutions to meet the constantly growing customer expectations and remain competitive.

On this background, cryptocurrencies have attracted a lot of attention and have become very popular. However, there are still many unknowns and a certain ambiguity about the virtual currencies and the related technologies. One of the most commented is the blockchain, which many companies, analysts,and investors around the world believe has a great potential.

Companies in almost each industry are in a hurry to take advantage of the blockchain phenomenon, many of them seeking to deploy their own versions of the technology and their own cryptocurrency. Furthermore, data shows that the financial sector already holds more than 60% of the global blockchain market.

The question is, how does this technology align with the needs of the financial industry; what are the difficulties and challenges in this regard?

On one hand, blockchain means decentralisation and financial institutions find this difficult to accept. For blockchain technology to be widely used, there must first be regulations that support it. Quite rightly, most organisations do not even dare to think of using any new technology for which there are no clear regulatory frameworks. No company is willing to invest millions and end up with a technology that is not allowed and losing everything.

Regulations are under development even in this moment, but as we know, it is a difficult and slow process. New opportunities and technologies are constantly emerging. For example, the Internet has existed for many years and even today there are still no clear regulations, and new developments are constantly appearing. For blockchain, all this must now be done from the beginning, taking into account new developments in the sector. The European Union is currently preparing a separate report on the legal and regulatory issues around digital assets, which is to be published by the end of the year.

On the other hand, no matter if blockchain will turn into something commercially usable or not, at the moment there are too many competing initiatives and what has been achieved is rather different proofs of concept, at different levels of complexity, without clear and comprehensive solution that meets the real needs of the business.

Financial companies will always need that flexible and, at the same time, stable backbone linking together financiers, shippers, customs, etc. This backbone would give the traceability and visibility of the commercial transaction from order to last mile delivery and would bring much more comfort to financiers to develop their offering in the order to shipment period – a period so important to the business, especially in significant period of growth. So, blockchain may be the next technological era or not, but it is now pretty clear that for the foreseeable future Distributed Ledger Technologies (DLT) are the key component of what answer technology shall bring to this complex business need.

At the same time, the generalisation of RFID in the tracking of goods from the rack to the final destination, through all steps of transformation and (re)packaging, will also play an increasing role in securing the transactions and providing more trust to the financiers. As well as the use of an electronic signature to validate more and more operations from contract to funding, the facial recognition as an authentication mechanism, will contribute to make commercial funding more safe and fluid.

Finally, of course, one thing we cannot miss mentioning is the expansion of Fintech companies, which should be seen as partners to traditional banks rather than competitors, who are able to complement the banks’ offering on products that cannot enter the banks compliance scheme, but are nevertheless products the SMEs and even larger business need. Thus, the strategy of white labelling the services/products offered by some fintechs is probably the way to go now. Moreover, nowadays the open APIs technology allows the modern ERPs and CBSs to connect or integrate with the systems from the fintechs.

In brief, financial institutions have two ways of applying financial decisions to be able to withstand the fierce competition. They can either choose to partner with fintech companies or develop their own solutions. Whichever way they choose, they must follow the trends identified by the fintech industries and global digitalisation.

In any case, it is time for the financial sector to get rid of the stereotype of an industry that has no tendency to digitise. It either has to start accepting the digital transformation or get used to losing its customers.

Meet Yoana Miltenova at BCR's Alternative & Receivables Finance Forum on 14th of Nov in London, where she presents "Flexible, comprehensive, versatile technology for commercial finance" and participates in a pannel about "The future of digitalisation and blockchain initiatives and their impact on alternative and receivables finance".