AI is already taking the mainstream markets by storm. It is, however, poised to revolutionise digital finance in profound ways. It will be the driving force behind a host of transformative changes, from enhancing customer experiences to improving operational efficiency and risk management.
AI-powered chatbots and virtual financial assistants will provide personalized, 24/7 support to customers. Initially, these are likely to be focused on low-level decisions offering instant responses to lower-risk queries and guiding customers through basic financial decisions. Once these smart systems have additional, robust internal data to train their AI bots further, these smart systems will become increasingly powerful and be able to analyze vast datasets to offer tailored financial advice, even making investment decisions more informed. For internal finance teams, risk assessments for loans are likely to become increasingly near-instantaneous, and over time increasingly sophisticated products will have faster automatic decision-making.
AI will also play a pivotal role in fraud detection and prevention, quickly identifying anomalies and security threats in real-time, and bolstering the security of digital transactions.
The Convenient Digital Currency Trend
The use of notes and coins has been fading away ever since the early days of the pandemic. Concerns over the spreading of the virus meant cash handling began its initial descent, making room for an easy transition to digital payments. Traditional cash transactions will increasingly diminish as digital wallets and currencies become more prevalent. This shift will usher in greater convenience, transparency, and security for consumers and businesses alike.
According to the ongoing CBDC tracker from the Atlantic Council, 130 countries across the globe are already exploring CBDCs. These countries currently represent 98% of global GDP. CBDC’s are digital currencies issued by governments, for example, the digital AUD which is currently in the pilot stage with the RBA. CBDCs, through their ability to be digitally, programmed have the potential to provide governments with the ability to manage economies in near real-time if deployed across a digital landscape.
Often, CBDCs will link directly to your identity and, in time, almost certainly your governmental records. While the issue of privacy will be an inhibiting factor in the rollout of CBDCs, in principle, CBDCs will enable governments to manage economies, leveraging our various digital identities. For example, different interest rates can be offered to different demographics – eg to encourage Zoomers to save by offering higher rates of interest rates, and offer negative interest rates to boomers to encourage spending.
CBDCs will tend to make payments more secure and will play a pivotal role in the global financial landscape. These government-backed digital currencies will be integrated into everyday transactions, both domestically and internationally easing the ability to do business internationally.
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The Rise of Instant International Transfers
The international banking system has been slow to adapt to the digital environment over the past 10 years with international transactions still taking days, and even weeks, to be processed today. The legacy international banking systems are outdated and can still even involve manual transactions. With the advent of CBDCs, new international payment rails, typically backed by blockchain-styled technologies, will see international transactions undergo a digital revolution. Cross-border transactions are likely to progressively become instantaneous and more secure. This will reduce inefficiencies and significantly reduce the costs of doing international business.
Mobile Payments as the ‘New Norm’
Payments via mobile phones will become the global standard, especially in developing countries. The increased use of smartphones will drive financial inclusion, enabling even the current unbanked population, estimated by the World Bank at 1.4bn people, to access and participate in the global economy, creating rafts of new opportunities and delivering empowerment to disenfranchised populations.
Fighting Financial Crime
As financial transactions become increasingly digital, financial crime will surge exponentially. Cybercriminals are already adapting to exploit new vulnerabilities. With easy access to AI tools scammers can now more efficiently craft their scam emails; and leveraging voice-cloning they can create fake audio calls. The ongoing game of cat and mouse will constantly shift and increasingly AI-driven security measures will be at the silent forefront of the first line of defence for us all.
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Blurring Lines Between Banking and Technology
The lines between banking and technology companies will become increasingly blurred. Banks are already beginning to transform into technology companies, leveraging AI, blockchain, and other digital technologies to deliver innovative financial services. Conversely, technology companies will want to leverage their extensive customer bases and venture into banking services, striving to provide seamless and integrated financial services to their customers. We first saw this in 2019 with Facebook’s attempt to create a global digital currency with Diem.
Banking Sector Consolidation
The banking sector will undergo consolidation as banks adapt and fail to adapt to the evolving landscape. Those banks that fail to embrace technological advancements are likely to face challenges, leading to failures and acquisitions. Those with enhanced technology will win the ongoing battle.
International Regulatory Cooperation
International regulators will increasingly collaborate to combat cybersecurity threats and will work closely together to establish global standards for regulation. In an interconnected digital world, unified efforts are vital to safeguarding the entire financial system and the data of all involved.
Conclusion
The future of digital finance promises a dynamic and transformative landscape, driven by the ever-increasing power of AI. As digital currencies, CBDCs, instantaneous international transfers, mobile payments, and increased financial inclusion take centre stage, the role of AI will become even more critical in ensuring security, efficiency, and innovation.
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