Outcome-based investments and other fintech to watch

Technology is set to have a profound effect on the financial services industry, according to a report from the World Economic Forum, and executives who want their firms to remain competitive must monitor innovations from artificial intelligence (AI) to quantum computing.

“For executive teams, it’s really important to have a fluency all the way through the organization on all of these technologies as [the technologies] start to become more mature,” says Taryn Mason, senior consultant with Monitor Deloitte, which collaborated on the report.

Forging New Pathways: The Next Evolution of Innovation in Financial Services outlines technology innovations and how they’re likely to change the financial services industry. These tech trends include artificial intelligence (AI), cloud computing, the internet of things (IoT), quantum computing and digital ledger technology (DLT).

DLT is blockchain technology on which tokens (digital assets akin to Bitcoin) can be securely traded.

Embracing each of these technologies and finding ways to use them together will help financial firms — including investment management companies — remain competitive and adopt new services. For example, technologies such as IoT, cloud computing and DLT could help verify impact investments by creating and trading digital tokens linked to approved companies.

Impact investing refers to investment in companies that have a direct and measurable effect on society and the environment.

Another potential use for new technologies is the creation of “outcome-based investments,” according to the report. These investments would allow an investor to pay a financial institution for a specific product or experience to be received at a future date. Between the initial payment and the time of redemption, the money would be invested, and potentially traded, allowing for an investment return.

For example, an investor planning a vacation could place a down payment for the trip through their financial institution. The institution would book the trip using its travel partner. The client’s payment would then be invested in a portfolio crafted by the financial institution, says Luca De Blasis, co-author of the report and senior consultant, Monitor Deloitte.

Should the investor decide they don’t want to take the trip after all, the portfolio could be traded on a secondary market using a digital token. And if the value of the account is less than trip price when the travel time arrives, the firm is liable to fund the difference.

For these recommendations, and others, to happen, more partnerships will be needed with companies both inside and out of the financial services industry, Mason says, which will require regulatory participation.