Finance executives, including those in the institutional investor community, should monitor trends to see how they might provide investment possibilities
Data and emerging technologies such as generative AI (GIA), alternative data in investment management, and climate hardtech will likely have a significant impact on the financial services industry over the next few years and, as a result, have an impact on society and the economy, says a report from Deloitte.
“The reality is that emerging technological changes could be more pervasive and impactful going forward in ways that can be scarcely imagined today,” says Jim Eckenrode, managing director of the Deloitte Center for Financial Services.
“Technology, regulation, and consumer preferences are combining to influence the longer-term direction of financial services and the broader economy and society. Financial services executives, including those who are, or serve, the institutional investor community, should monitor these developments in order to not only understand how they may impact their firms, but also how they might provide investment opportunities.
“For example, in climate hardtech there is a significant gap in funding for technologies that are conceptual, some of which could have a big impact on CO2 emissions. And GAI could impact investment banking, but some of the same areas (like compliance, investment decisioning, and manual, document-intensive processes in general) could see greater efficiency across the investment value chain.”
Some of Deloitte's predictions for the financial services industry over the next decade include:
GAI is expected to boost productivity
GAI is expected to have a significant impact on the investment banking industry and the financial services industry as organizations explore ways to harness the power of the technology to improve productivity. Deloitte predicts the top 14 global investment banks could boost their front-office productivity by an average of 25% by using GAI, thereby earning potentially an additional revenue of $3 million per front-office employee in 2026.
Alternative data in investment management
Deloitte estimates the revenue for alternative data providers, earned from all industries globally with the majority coming from investment management firms, to grow 29 times between 2022 and 2030. The new data largely consist of novel types and forms of data such as satellite images, social media posts, geolocation data, credit card transactions, and mobile application data that are starkly different from the traditionally structured financial data.
Funding for climate hardtech
An additional US$2 trillion in private hardtech investment is predicted to be needed to help effectively slow global warming. Most of total climate funding will likely need to come from the private sector – but so far, there isn't enough. Financial services organizations can play a lead role in bridging the funding gap.
Demand for carbon credit offset financing
Global consumers will purchase $115 billion of carbon offsets a year by 2030. Carbon credits will likely be embedded in many of the purchasing decisions that consumers make in their day-to-day lives. The surge in demand for these credits could produce new trading networks that offer tailored, localized, and niche options for climate change mitigation projects. Banks and investors could be instrumental in developing and supporting the back-end infrastructure that connect brands' payment processes to the carbon credit market. They can play an instrumental role in developing and supporting the carbon credit market.
Rise of embedded insurance
Embedded finance, and particularly embedded insurance, is expected to continue to expand. Execution may not be easy for insurers, though, and it could take the rest of the decade for embedded finance to fully shake out.
Increased spending on quantum computing
Spending on quantum-related capabilities will likely grow quickly over the next few years as indicated by the increased capital investments and patent filings for the hardware technology. Globally, the financial services industry's spending on quantum computing capabilities is expected to grow 233x from just US$80 million in 2022 to US$19 billion in 2032, growing at a 10-year compound annual growth rate (CAGR) of 72%.
“Ultimately, across financial services, we expect to see potential changes to revenue streams and/or growth opportunities that could be of interest to both retail and institutional investors,” says Eckenrode.