The last decade has seen a surge in technology-driven innovation in financial services. Leading the way have been FinTechS—a catch-all term for companies that leverage technology to seamlessly deliver financial services to customers. Across the spectrum of financial services—from lending technology and payment technology to regulatory technology, from crypto wallets to full-scale digitally native neo banks, we have over 6,000 FinTechs in India and growing. They rub shoulders with established banks on the digital journey (such as HDFC, ICICI, SBI, etc.) and global digital players such as Google Pay and WhatsApp payments. The ecosystem is thriving, and this is not an “India only” pattern. Similar trends exist across the world—in the US, Europe, China, Africa and other countries.
What will the next decade look like? Is technology-fueled transformation plateauing or are we heading into the next wave of disruptive transformation in financial services? These are key questions especially as the FinTech industry sees a slowdown with valuation reductions and downward corrections.
Looking at the macro picture, my view is that the current slowdown is just a short pause—technology will continue to transform the financial services space with innovations like Embedded Banking, Banking-as-a-Service, Digital Banking, etc. accelerating in the coming decade. This next decade of faster transformation will be driven by a host of factors, key among them being next generation technologies led by Web 3.0.
What is Web 3.0?
Web 3.0 is the next evolution of web-driven technologies—it will transform how users manage their digital footprint, make customer experience more immersive and will also impact how financial services leverage technology. But first, what is Web 3.0?
- Allows users stronger data ownership: Web 3.0 will enhance the individual user’s autonomy by giving them true ownership of their data. Today, an individual’s digital footprint is monetized by web content providers. Web 3.0 aims at providing end-users ownership of their data. Users will decide how to compartmentalize their data—decide what and when to share and monetize it using solutions that leverage a mix of distributed ledger technology (DLT) and smart contracts to enable the same.
- Decentralization: Web 3.0 also aims to decentralize content ownership. Currently web content is managed by large-scale enterprises who govern, authorize and manage content. Web 3.0 envisages content being owned and shared by a web of P2P (peer-to-peer) community of users, reducing the influence of a single entity in controlling the flow.
- Intelligent or “Semantic web” that is AI driven: Semantic web was a term originally coined by Tim Burns Lee, the inventor of the internet. Semantic web is a state where machines leverage AI to understand content and contextualize it using metadata and vocabularies. The knowledge search tool WolframAlpha that combines searching as well as contextual calculation of information or the voice and AI driven intelligent capabilities of Apple Siri, Amazon Alexa etc. are some initial examples of technology that will become more pervasive and mature in Web 3.0.
- Trustless system with no central intermediary: One of the key components of today’s Web is its community model. The community model is based on an intermediary that validates, authenticates users, permits users and provides a community platform for users to engage. In the process of providing the community, the intermediary also monetizes the data and cross-sells capabilities. Web 3.0 model aims at removing the intermediary and focuses on being trustless and permissionless, ie, it will allow users to directly connect with each other without an intermediary who validates the interaction.
- Significantly use blockchain, DLT, smart contracts: Decentralization of Web 3.0 and its trustless, permissionless capability will be driven by technologies such as blockchain, distributed ledger technology (DLT) and smart contracts for execution.
- Ubiquitous and immersive: Web 3.0 shall be ubiquitous with richer integration with voice, facial and spatial recognition technologies. It will have contextually aware systems that provide richer interactions for users through the use of AR/VR platforms that build a seamless integration with the metaverse.
With these technologies driving Web 3.0, financial organizations shall also transform how they offer services. Banking services are already beginning to become more immersive, non-intrusive and embedded in the customer journey. From Web.30 technologies like voice, facial authentication for banking, AR/VR based digital branch banking, robo-everything, smart contracts for execution with trustless, non-intermediary based systems (DAOs) – financial services will see significant transformation. Regulatory technology will have to keep pace with this change as well. We will also have customers who will demand greater flexibility and transparency to manage their data. These aspects, driven by Web 3.0 shall drive technological transformation in financial services in the coming decade.
Views expressed above are the author’s own.
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