How Web 3.0 promises transformation in the financial sector

With the growing prominence of Web 3.0, practitioners in the financial services sector, you can expect radical changes to happen soon. A key step would be convincing lawmakers of the potential of a new digital revolution that’s over 10 years overdue.

Web 3.0 makes use of edge computing, blockchain and decentralized data architecture to create a system that is open, secure and transparent, with data ownership vested in the users. Progress will also yield efficiencies for people in the financial sector and give users a smarter user experience.

The recent Singapore FinTech Festival brought together industry veterans from the banking and insurance sectors to discuss how technology and innovation (specifically Web 3.0) will alter the ways we use and view financial services.

Enriching User Experiences & Interactions

With AI, financial and tech companies are even more efficient at interacting with their customers. Transitions are already underway, with functionality & the way companies interact with their consumers improving outright.

HSBC Holdings PLC has been making the most of the data available through Web 3.0- enabling a hyper-personalized storytelling in their work for an elite customer segment with sensitive information. HSBC immediately saw 10 times more client conversations when recommending clients what they should be doing to rebalance portfolios.

Leading tech players are also using Web 3.0 to create enhanced, all-the-senses experiences for their customer base. Using the Ethereum Blockchain, they are optimizing touchless transactions and frictionless commerce, while supporting peer-to-peer value exchanges between customers.

With an embedded finance solution, users can access financial capabilities from their mobile phone. In a recent meeting, Forest Lin from Tencent Holdings Ltd notes that the change is brought about by artificial Intelligence (AI) and Machine Learning on blockchain technologies.

Fundamental Changes On the Way

The insurance industry has made progress with real-time underwriting, claims processing and policy management as those advancements have improved the customer experience. Julian Teicke, founder and CEO of Berlin-based insurtech wefox Germany GmbH, sees as a groundbreaking innovation the use of contextual analytics on vast volumes of data to make insurance highly proactive and focus on risk mitigation and prevention.

One way Prudential has focused on longevity is improving the quality of health insurance. Mike Wells, group chief executive of Prudential PLC, said that many of the technology investments made by Prudential in the last five years focused on improving longevity. This has, in turn, brought down claim levels on health insurance, he said.

HSBC expects insurers to expand from a sick care provider, to a more preventive care and well-being provider. Nick Matos, head of Asia insurance for HSBC Insurance, plans on pivoting the industry by partnering with key players in Asia including Tencent, Alibaba and Baidu.

Banking veterans predict that in five years time, cross-border payments will be available day or night, and at a competitive cost. Both Philip Preston, the global head of product management for wholesale banking at Deutsche Bank, and Bala Rajaratnam, Deloitte’s global banking & capital markets leader share this opinion.

Tan Su Shan, group head of institutional banking at DBS Group Holdings Ltd., said today’s cross border payments are clunky and may take days to settle. With blockchain and smart contracts, Tan believes you can make instantaneous and friction-free cross-border payments.

JPMorgan Chase predicts that consumer payments will be 24/7 and invisible to the consumer. Even better, these new changes will happen with virtually zero costs.

Transformation in Phases

Web 3.0 has given much scope to decentralized finance within the traditional finance sector, which may resist it at first. While decentralized finance holds significant potential, financial sectors still governed by centralized structures will not embrace this new model at once.

As a result of decentralized systems, the cryptocurrency market is easily accessible and powerful with innovation continuously occurring to improve features. However, any initiative for change in the traditional banking system needs to “apply new technology to improve old architecture” via systems such as Distributed Ledger Technology (DLT) which applies DLT espoused values, innovation and technologies enabling banks to trade internationally seamlessly with full compliance.

“The need for financial institutions and regulators to find a happy medium between managing existing and future innovations,” Tan said in a Separate Session.

Getting policymakers on board

Regulatory hurdles remain for AI as Georgakopoulos noted that there needs to be greater clarity on regulations. Tackling those hurdles will require a collaborative and interdisciplinary effort and important first steps, which should include simplifying the regulatory environment and for policy makers and entrepreneurs to take ownership of the problems around AI.’’

FinTech is all about decentralized money, however, the current regulatory framework fails in enabling these new digital currencies. Successful regulation in FinTech means understanding what can be done to create trust in this environment. Many leaders from this industry suggested proposing ground up approaches -where policies are adjusted to work with technology- instead of innovating within the regulation.

Wrapping Up

In the age of Web 3.0, data from interactions between businesses, individuals and machines will allow AI to more accurately predict patterns and behavior. Data will be immediately accessible worldwide on a new market for enterprise apps, which is a wealth of opportunity with some guesswork left.

Financial services can be disrupted by the latest developments in technology, while other industries will experience upcoming changes. Abrupt changes like Web 3.0 mean innovators will have a foothold in relevant segments because of its novelty and worldwide impact. The advent of Web 3.0 will force companies to develop faster so they can keep up with innovations sweeping industries.