The future of the finance profession will rely on technological competitive advantage, says Sean Gossel, senior lecturer in Finance at the UCT Graduate School of Business.
Finance has always been at the forefront of both the development and integration of technological progress. In recent decades we have seen the replacement of carrying cash with the adoption of credit cards in the 1950s, the replacement of bank tellers with ATMs in the 1960s, the rise of electronic stock market trading platforms in the 1970s, the widespread integration of computerised data processing and record keeping in the 1980s, and the explosion of e-commerce in the 1990s.
Since the dawn of the millennium, financial innovation has increased exponentially and is now radically changing the very concept of a banking-centred financial systems.
On the consumer side, payments are increasingly made with emerging mobile money solutions (such as M-Pesa in Kenya) and block-chain cryptocurrencies (such as Bitcoin). Buyers and sellers interact with each other more directly, facilitated by AI and machine learning, and these interactions can then be further refined using big data and automated data analysis, and more directly by removing third-parties using virtual exchanges and smart contracts (such as Etherium).
On the institutional side, asset management has started integrating traditional financial theory and behavioural finance with a range of new technologies such as algorithmic trading, social adaptive trading (such as crowd funding), and robotic wealth and retirement advice and management.
These developments mean that financial institutions are increasingly becoming more efficient, streamlined and transparent; operate seamlessly across varied societal levels and cultures; and rely on technological innovation and integration rather than merely on an established client base.
Unfortunately, these innovations also mean that labour in the financial services sector is likely to come under pressure from increased automation, starting with the lower-level administrative jobs (this has already started happening with robotic advisers and traders) but gradually moving up the skills value chain.
It is likely that the time of financial behemoths will soon be behind us as financial firms are going to have to become more dynamic and innovative to compete - because the focus will shift from returns to technological competitive advantage.