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Emerging technologies in finance

This blog is the second in the series of thought leadership briefs in the weeks ahead of the release of the book “Transforming Financial Institutions: Value Creation through Technology Innovation and Operational Change” by Wiley in its Finance Series. After introducing the analytical framework, it discusses the role of technology innovation in finance and its transformative impact on the financial industry.

Financial technology innovation

Technology management has become a critical success factor in financial services. The topic had up to the Global Financial Crisis (GFC) a shadow existence in many institutions. A smaller number of financial institutions such as Goldman Sachs with SecDB and J.P. Morgan with Athene followed a different approach by pursuing multiyear technology transformation programmes in response to specific business and operational requirements. Most other banks relied on core systems that were often developed more than 30 years ago, leading to a patchwork of different system applications. These legacy systems provide stability but are inflexible to adapt to new requirements. They add unnecessary complexity with time-consuming processes and high processing costs. After the GFC when revenues in many previously profitable areas tumbled and the cost–income ratios increased dramatically, the real operational costs of many of these outdated systems became transparent. Investments of several billions of US dollars have been required to modernise the platforms.

Emerging technologies, often subsumed under the term “Fin-Tech”, created unseen momentum in innovation over the last 10 years. It seems that the industry’s previous emphasis on financial innovation prior to the GFC switched to technology innovation. FinTech is the shortened version of the phrase financial technology and became a synonym for the initiatives of a dedicated start-up community that developed new services and solutions outside of incumbent financial institutions. In the book, FinTech is used more broadly, applying the abbreviation to the entire financial technology universe in an industry-specific focus. The book further refers to it as emerging financial technologies which can be defined across three building blocks. The first is artificial intelligence (AI) with focus on data and advanced analytics; the second is software and infrastructure development with open architecture, automation and interoperability at its core; as well as the third distributed ledger technology (DLT) with blockchain as its main industry application.

The transformative impact

The importance of these different technology applications is assessed across the core functions of financial institutions. These include i) augmented decision making that drives analytics and research, underwriting and lending, securities trading, and marketing, investment advisory, and risk and capital management; followed by ii) operational efficiency and performance improvement with emphasis on system integration, workflow optimisation and cloud computing; and finally iii) technology-enabled or digital financial innovation that has been driven by crypto assets and decentralised finance (DeFi). DeFi is still at an early stage but has the potential to fundamentally reshape the financial market infrastructure in the next five to ten years. These three areas of impact form the core of the financial industry’s transformation agenda and are the core focus of our analysis.


This change agenda led to a dedicated discipline of technology replatforming. It replaces old with new systems while integrating the emerging technologies in the design of operating platforms. While profitability pressures drive the different change initiatives to augment decision making, increase operational efficiency and redefine product innovation, complex system architecture and large budget requirements have challenged the execution of targeted replatforming programmes. Changes to financial institutions’ systems are cumbersome and expensive, requiring specific skill sets that are often scarcely available. The innovative FinTech entrants have begun to disrupt segments which were in many cases dominated by groups of large incumbent players. These start-up companies are often portrayed as a principal threat to financial institutions and the potential end of the traditional financial industry. However, when we move from pure technology service provision to actual client-facing services, many start-ups struggle to attract profitable customers and manage the regulatory complexity effectively. It remains an open question if the incumbents’ market positioning remains untouched within their respective business areas and/or if new digital players can create commercially successful and sustainable service offerings. Financial institutions seem to be looking to start-ups to innovate and transform their commercial and operational models. Their objective is to preserve and defend their own positioning. The incumbents must specialise and consolidate to regain profitability. Technology is the major value driver of this transformation agenda.

The target operating model

A new target operating model (TOM) is required that implements the transformation agenda by combining both worlds. It is based on the design principles of open architecture and straight-through processing, delivered through a group of technology innovations. These innovations fundamentally reshape the commercial and operational models under which the industry operates. Platform solutions with core software applications connect through application programme interfaces (API) and facilitate specialised best-in-class service provision. These services are defined by differentiating sets of capabilities, and do not include utility-like product and services. The risk, regulatory and compliance requirements are managed centrally by the platform provider. An incumbent bank may take on this role while offering a broad spectrum of best-in class services to its targeted client base. The combination of technology and speciality service providers drive the commercial offering. It leads to a differentiating market positioning. The combination of operational restructuring and technology innovation drives the industry’s strategic roadmap and go forward operating model design.

Chapter four of the book on “Technology Management and Innovation” covers the emerging technologies in more detail. The third and final blog before the book release in early February 2022 will cover how specialised financial businesses in an open architecture framework can integrate themselves in the ecosystem of incumbent financial institutions. After the book launch, a second series of three blogs will cover in detail operational efficiency, augmented decision making and digital financial innovation. Further information to the series can be found on and to the book on


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