Technology to transform coming decades

New technologies such as artificial intelligence, data analytics, blockchain and the internet of things (IoT) are set to radically transform and disrupt markets and economies.

That's according to the latest research from KPMG and the Australian National University, who together, compiled a list of 20 predictions of the trends that will shape our lives over the next 20 years.

KPMG Innovate national lead James Mabbott told Financial Standard that there would be two key drivers of disruption in the financial sector over the next two decades.

"The first is technological advancements such as blockchain, the growing adoption of AI, and the use of real time payments infrastructure," he said.

"The second is entrepreneurial innovation coupled with evolving customer demands that together will see the sector face a need to rapidly enhance and increase its capabilities."

Mabbott argued that today's financial businesses needed to experiment with these new technologies to combat disruption.

"Be prepared to experiment - form a hypothesis and identify the lowest cost lowest risk experiment to capture evidence and data to test the proposition - you cannot prepare through analysis and planning alone, there needs to be testing and experimentation to determine what is and isn't feasible," he said.

Mabbott said digital currencies and blockchain technologies represent the most transformative opportunity areas over the coming 20 years. He argues the uptake of these new technologies will reshape the global economy and disrupt established financial institutions.

"There is clear and mounting evidence that AI, blockchain, IoT and big data are the building blocks of our future economy and these are the pillars that underpin the Fourth Industrial Revolution," Mabbott said.

"For the financial services sector they will enable changes such as real time transactions and new forms of value store, which radically differ from the existing form of fiat currency.

"We will also see artificial intelligence embedded within financial services in ways we cannot yet image. What is certain is that we will see new entrants to the sector with technology at their core and potential to truly challenge and disrupt established financial institutions."

One of the report's predictions was the boom of a new global payments system, which in recent years, has already started to flourish but remains fragmented.

"This will change over the next two decades as the global payments infrastructure is finally standardised. Market fragmentation will ease, enabling companies to fully leverage the potential of global payments," the report said.

"Non-traditional fintech players, which have already disrupted the market in many ways, will find new ways to continue to do so, this time on a global level.

"This will bring about better collaboration on a global scale - and business-to-consumer global trade will become more open, faster and increasingly democratised."

The report says the uptake of a standardised global real-time payments system will take globalization to "the next level", opening up new markets to businesses and increasing global trade, while also providing consumers with more competitive products.

KPMG said the digitalisation of these payments will require countries to implement digital ID leveraged on biometric data, including facial recognition, fingerprints and implants.

Despite Australia being well placed to work with other sovereign nations in developing a new real time payment system, Mabbott says we are lagging behind when it comes to blockchain.

"When it comes to the opportunities of blockchain, we are yet to see a major Australian business experiment with alternatives such as its own currency, suggesting this may be an area we are likely to follow rather than lead," he said.

KPMG and ANU also predicted the birth of a new circular economy, arguing the current linear economic model, dependent on the constant production, usage and disposal of products is no longer sustainable.

"This will become non-negotiable in a world where resources are finite and the climate emergency is pressing," the report said.

"In a linear model, the impact of waste caused by business processes and product disposal, including greenhouse gas emissions and waste plastics, grows as the economy grows."

Instead, we will produce new, more efficient products that do not deplete natural resources while aiming to reduce our environmental impact, waste and energy use.

KPMG said new recycled products could mean big business for the Australian economy.

"Internal KPMG analysis estimates that a circular future in food, transport and the built environment industries together represent a potential economic benefit of over $210 billion in GDP, and an additional 17,000 full time jobs for Australia by 2047-48," it said.

Increased investment in renewable energy technology will lead to a global transition towards renewables, with both individuals and big business considering energy consumption and environmental sustainability in decision making.

Despite this, KPMG predicts that Australia will continue to burn fossil fuels.

"Australia will have a smaller fleet of coal-fired generation facilities. Fossil fuels will still be around but the low cost of renewables, carbon prices and a desire for positive ESG investments will displace its prominence and it will only be used in a limited number of legacy industries," it said.

The report also predicted the privatisation of currencies with the emergence of new digital solutions.

"While the conversation about cryptocurrencies has often focused on volatility and regulatory concern, there can be no turning back. And over the next 20 years, innovation, customer demand and collaboration with the regulators will lead to stability within the digital currencies space," it argued.

"The global take-up of these currencies will increase considerably, given their ability to ensure fast, real-time global payments.

"Once businesses accepting these currencies as payment for goods and services become commonplace, national currencies will lose their dominant position, both domestically and - in some instances - globally too."

It argued that central banks will launch their own digital currencies, triggering competition between private sector and the state.

Just two weeks ago, the RBA revealed that it had been considering a central bank digital currency, a digital version of the Australian dollar, with the potential to disrupt traditional financial players.

This comes despite the fact that cryptocurrencies plummeted from a peak market capitalization of US$833 billion in January 2018 to lows of US$102 billion in December that same year.

KPMG argued this growth in digital currencies would have major implications on our workforce.

"Employers will get paid in digital currencies, which will mostly depend on their employer. This may lock-in talent to a particular company, as employees may not want to move due to concerns of the impact of changing the currency in which they are paid," it said.

"It may also determine talent attraction - a currency with high volatility may attract employees who want to take risks for high returns. As corporations that control the currency may also sit on significant customer data, we may see targeted advertising going onto the next level - with tailored adverts based not only on interests but also on means and wealth."

The report also outlines massive disruption to the agriculture and transport industries, with new technologies like IoT changing the way we produce food and travel.

The regulatory environment too will undergo significant change, with KPMG and ANU predicting that regulators will focus on an organisation's activities and outcomes rather than the entity itself.

"Rather than a 'one-size-fits-all' regulatory approach, where regulators focus on compliance with detailed rulebooks, they will look at the outcomes of the activities that regulated companies undertake; their role will be to ask whether these activities are safe and generating benefits for customers," it said.

They argue that this shift in approach will drive competition and innovation.

"Regulators will continue to prioritise consumer safety and security, but this shift in approach will help drive innovation and transformation in industries that are currently heavily-regulated - itself a consumer benefit," the report argued.

"It will enable both new and existing players to launch new products and services in markets ranging from financial services to aged care."

The climate crisis will also play a major role in regulation, with environmental regulation rigorously enforced.

"Environmental impact will become the key regulatory factor across all industries - from the pollution emitted by the transport industry to the activities of financial services in investing in non-sustainable environmental activities - and this will transform our economy," it said.

Perhaps the most frightening and science fiction-esque prediction coming out of KPMG and ANU is a rise of genetic manipulation and brain computer interfaces over the next two decades; computer-chips implanted in our brains that will transform the way we communicate.

"Brain computer interfaces (BCI) will significantly transform how we communicate, both with other people and with technology capable of accurately interpreting, storing, actioning and sharing thoughts and emotions," KPMG said.

"Computer-chips in our brains will allow us to download knowledge and skills; these chips will be connected to the internet and linked to a broader personal profile that facilitates daily tasks such as payments and access to public transport."

They argue too that disabilities will be a thing of the past.

"Exoskeletons will become commonplace. These will assist in rehabilitation, helping paraplegics to walk, but also supporting employees with their daily tasks. Medical nanobots will be able to extend the immune system leading to longer and healthier lives."

These biological improvements will disrupt the insurance and superannuation industries.

"Current superannuation and insurance business models will no longer be appropriate as people live longer and healthier lives - and as human biology becomes largely quantifiable and is able to predict more and more health risks," it argued.

With so many unpredictable advancements and changes in the last 20 years, it's exciting to think what could come in the next two decades, as we stand on the precipice of the Fourth Industrial Revolution.

Read more: KPMG InnovateJames MabbottAustralian National University
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