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Finance 4.0: The race to rebalance the world

Finance 4.0: The race to rebalance the world
January 23, 2019

Millennial technologies such as the Internet of Things (IoT), Artificial Intelligence (AI), Cognitive Process Automation (CPA) and public cloud are heralding what is popularly being called out as Industry 4.0 (IR 4.0), erasing the lines between the physical and the digital world. Industry 4.0 is disrupting everything, from utilities to healthcare and from media to mining. The financial services industry is no exception. It is also being reshaped by the forces of Industry 4.0—at the hands of technologies such as Robotic Process Automation (RPA), blockchain and biometrics. The strongest evidence of the impact of Industry 4.0 on financial services lies in the increasing use of RPA to eliminate human error and the experimentations around cyber-currencies and peer-to-peer transactions driven by a distributed ledger system.

The emerging multipolar environment, with the growth in tradable reserve currencies and a massive surge of regulations that is forcing the adoption of peer-to-peer shadow systems, is the perfect petri dish in which Finance 4.0 can thrive.

Think of the emergence of the first central bank in 1668 as Finance 1.0, the rise of credit and equity markets as Finance 2.0, the advent of the Internet spawning Finance 3.0 and now a new set of mobile, real-time, highly intelligent and autonomous millennial technologies creating Finance 4.0 for a world where economic and consumer power is globally distributed.

The fastest and most dramatic change in financial systems will be sparked by the new millennial technologies and Finance 4.0. These technologies will see fintechs upturn centuries of tradition by challenging legacy institutions, redefining the idea of trust in the banking system, bringing crowdsourcing, collaborative and self-serving processes to the center of a slew of new services, and delivering on highly elevated levels of customer service expectations.

The pace of change that is on the way is beyond normal comprehension. As futurist Ray Kurzweil, famed for his Law of Accelerating Returns says, “We won’t experience 100 years of progress in the 21st century — it will be more like 20,000 years of progress (at today’s rate).” Kurzweil, an authority of the quickening growth of technology and concepts shaping tomorrow, provides good reason for this: There’s even exponential growth in the rate of exponential growth.

This is great news for tech heads, geeks and nerds especially in the light of the fact that the 5 billion unique mobile subscribers in 2017 are expected to grow to 5.9 billion by 2025 (8.1 billion is the projected world population by 2025), but its bad news for many individuals and businesses that have already been left behind in terms of financial inclusion. The benefits of today’s digitization have not filtered down evenly. According to a 2018 study by Mastercard that is being used by the World Economic Forum to debate, guide and advance financial inclusion, one in five bank or mobile accounts are inactive. This means a significant part of the world, largely from the agriculture and small and medium business (SMBs) sectors, does not have digital access to suppliers, buyers, purchase history, market networks, electronic invoicing, faster payments, availability of capital, cheaper credit, affordable tax services, business and asset insurance, debt management or even basic services such as structured plans for savings that improve financial security. This means connectivity is meaningless if there is no access to financial services. With the new millennial technologies, the divide between those who have access and those who don’t will become sharper and deeper resulting in greater inequality. This is not how the story of Finance 4.0 is supposed to end.

With economic inequality comes social instability. The larger truth is that Finance 4.0 can certainly increase the volume and velocity of transactions and the availability of financial services but it remains to be seen if they will add to a financial crisis or help avert one. One of the early indicators of the shape of things to come rests in the fact that new technology, investments and innovation are being channeled to non-traditional financial services, away from the regulated environment. Should this be a matter of worry? There is no definite answer to the question. However, the trend will certainly give sleepless nights to regulators who must now think of ways to get ahead of the technology curve.

Finance 4.0 can certainly increase the volume and velocity of transactions and the availability of financial services but will they add to a financial crisis or help avert one?

There are undeniable upsides to Finance 4.0. A recent McKinsey Global Institute report suggests that adoption of digital finance could increase the GDP of all emerging economies by 6%, or a total of $3.7 trillion by 2025 resulting in up to 95 million new jobs across the world. We can’t afford to miss this massive opportunity to rebalance the world. Much depends on how governments, technologists and businesses work to ensure that the benefits of Finance 4.0 filter down to the lowest levels, across geo-political borders and over economic divides.

To meet Rahul Singh at World Economic Forum 2019, visit here.