The digital age
Technology is a major talking point in the financial services industry. While many are adopting a wait-and-see approach, there is no doubt that the future of the industry will be driven by machines and machine learning.
We are already seeing examples of this in the way that telematics is exerting more control over the industry on a daily basis. It is driven by Big Data which is becoming such a driving force in the industry that some life insurers are looking towards dry underwriting which is the process whereby the decision to accept or reject an applicant of a life policy is based on big data rather than medical examinations.
Artificial intelligence (AI) is also impacting the financial services industry not only in South Africa, but globally. A recent report by research company Accenture – How AI boosts industry profits and innovation – shows the effects of AI and predicts what various industries will look like in 2035.
The volatile playing field
According to the research, the steady decline in business profitability across multiple industries threatens to erode future investment, innovation and shareholder value.
Fortunately a new factor of AI is emerging that can help kick-start profitability. AI consists of multiple technologies that can be combined in different ways to sense, comprehend, act and learn.
Accenture research shows that AI has the potential to boost rates of profitability by an average of 38 percent by 2035 and lead to an economic boost of US$14 trillion across 16 industries in 12 economies by 2035.
But this will only happen if organizations adopt a people-first mindset and take bold and responsible steps to apply AI technologies to their businesses.
Reinvigorating profit potential
Corporate profits are now in decline. In the United States, after reaching their highest share of national income in the post-war era, the growth of profits dropped from 25% in 2010 to -3% in 2015.
Furthermore, Accenture points out that this phenomenon is evident across most industries, from manufacturing to financial services. Declining profits are a cause of concern in themselves; even more worrying is the effect of decreasing investment, innovation and long-term shareholder value.
Dialling back investments not only erodes a company’s ability to grow, but also freezes resources to innovate in an increasingly disruptive environment. Together, low investment and innovation efforts can drag on shareholder value as investors question a company’s ability to meet market expectations.
This is particularly evident in the financial services industry where clients are expecting brokers and insurers to up their game and engage with them over technology based platforms offering advice on a 24/7 basis.
Accenture points out that driven by a massive increase in data, soaring computational power at decreasing costs and breakthroughs in technology, AI is becoming a commercial reality.
More than a productivity enhancer, Accenture views AI as an entirely new factor of production that can reverse the trend of falling profit growth in three ways: by optimizing processes with intelligent automation systems, by augmenting human labour and physical capital, and by propelling new innovations.
AI’s value to industry
As Accenture’s yardstick, the company used growth in gross value added (GVA) as a measurement which is a close approximation of GDP. GVA is an output measure that accounts for the value of goods and services produced in a certain sector. It can be thought of as the contribution of different sectors to economic growth.
The financial services industry can capitalize on AI technologies to relieve knowledge workers from mundane, repetitive tasks such as generic customer queries, mortgage reviews and market research. Overall, this sector will benefit from $1.2 trillion in additional GVA in 2035.
What could the increases in economic output generated by AI mean for corporate profitability spanning multiple industries? Significant improvements to the bottom line.
According to Accenture’s research, AI has the potential to boost rates of profitability by an average of 38% by 2035 across 16 industries.
Accenture has identified three channels through which AI can reverse the cycle of low profitability across industries: intelligent automation, labour and capital augmentation, and innovation diffusion.
Editor’s Thoughts:
Technology can also be seen from the point of the haves and the have not’s. Those who have technology will increase profits significantly as the Fourth Industrial Revolution gains momentum; those who don’t have technology may suffer. Can you afford not to be an early adopter? Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts [email protected].
