While rising inflation rates, the Silicon Valley Bank crash, CBDCs, were some of the highlights in the financial landscape of 2023, Ram Gopal, Director of the Gillmore Centre for Financial Technology at Warwick Business School and Professor of Information Systems Management, shares some of his insightful predictions for the year 2024.
As we stand at the threshold of the New Year, Ram Gopal, Director of the Gillmore Centre for Financial Technology at Warwick Business School and Professor of Information Systems Management, offers a glimpse into the trends that will shape the finance industry in 2024.
Data science and AI impact the world of finance
Through sophisticated algorithms and machine learning models, data science has empowered financial institutions to analyse vast datasets with unprecedented speed and accuracy. AI plays a pivotal role in automating complex tasks, from risk assessment and fraud detection to algorithmic trading. Personalisation of financial services has been elevated as AI algorithms analyse customer behaviors and preferences, enabling tailored investment recommendations and financial planning.
Gopal foresees a significant impact from advancements in data science and AI, ushering in a new era of personalisation and customisation in financial services. “Digital wealth management platforms will leverage algorithms to analyse client behaviours and to recommend tailored investment portfolios aligned with individual risk appetites. Generative AI holds promise for making complex financial concepts more understandable for mainstream audiences, promoting financial inclusion“, he says.
However, Gopal also highlights potential risks, emphasising the looming threat of flawed AI implementations. A major fund or institution is likely to grapple with significant AI or data-related challenges in the coming years.
“This will underscore the importance of governance, education, and experience in leadership roles during AI adoption. In light of security and privacy concerns, we expect financial institutions to emphasise development of open source, customisable language models tailored to their specific needs rather than reliance on large proprietary systems“, he explains.
Digital transactions will persist globally
“The steady march towards digital payments will continue globally, led by traditional platforms but supplemented by new decentralized account-to-account transaction channels and central bank digital currency pilots“, says Gopal.
In 2023, both traditional and decentralised channels of payments facilitated cross-border and domestic transactions. The improved services and applications ensured enhanced security and reduced transaction costs.
Governments and central banks worldwide also actively explored CBDCs as a digital form of official currency, combining the advantages of digital currencies with the stability associated with traditional fiat currencies.
Blockchain technology will be a welcome
Recent statistics indicate a rapid assimilation of blockchain technology into the global financial industry, notably within the banking sector. Several banks across various nations, including Japan, the United States, Belarus, Switzerland, and more, have initiated the integration of cryptocurrency transactions into their operational frameworks.
The adoption of cryptocurrencies is set to rise, propelled by increasing regulatory clarity in jurisdictions like the EU, where landmark legislation on digital asset markets is set to take effect. This enhanced legal certainty is anticipated to bolster trust and drive increased investment in the crypto market.
“Financial institutions will further warm to blockchain technology as major banks transition from expensive, siloed private blockchains to interoperable public solutions that promote efficiency and unified standards“, predicts Gopal.
Governance and risk monitoring for financial stability
With the evolving integration of advanced technologies such as artificial intelligence and blockchain, financial institutions face new challenges that necessitate robust governance frameworks. Effective governance involves establishing clear policies, procedures, and oversight mechanisms to guide the responsible adoption of these technologies, ensuring compliance with regulatory requirements and ethical standards.
Comprehensive risk monitoring, on the other hand, is essential to identify, assess, and manage potential threats that may arise from technological advancements, market fluctuations, or unforeseen events.
“While technological change brings both promise and some peril, the dominant trends point towards better personalised services, transparency, efficiency, and accessibility going into 2024 across the financial system. But these potential gains require vigilant governance and risk monitoring to ensure financial stability during transition“, says Gopal.
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