Will 5G change the banking industry? Financial Technology – usually known as FinTech – definitely is. It's going to change how we spend, how we save, and how we buy financial services.
It’s a realisation among hundreds of start-ups that software and modern technology can be used to sell financial services such as payments, investments, loans and money transfers in a way that seems natural to millennials and other consumers used to doing everything on their phones and tablets. Fearing a huge disruption to their business by agile, flexible start-ups, the big retail banks are rushing to embrace all kinds of FinTech techniques fit for the mobile age.
Why does this new wave of natively mobile and digital banking needs super-fast 5G? Surely it would all work perfectly well on 3G and 4G networks?
5G's critical role in FinTech is not really about speed. When 5G networks go online in the early 2020s, we should see smartphones capable of super-fast downloads of over 1Gbps. As 5G spreads, that could rise exponentially, hitting download rates of 20gbps and upload rates of 10gbps.
However, 5G is as much about ultra-low latency as about speed. Defined as the time it takes for a device to send a command to a remote server and get a reply, latency looks set to reduce from 50 millisecond (ms) on a 4G phone to under 1ms in the 5G era. So at the very least 5G will bring a lightning-fast real-time user experience to mobile devices, so much so that consumers will experience banking and payment transactions instantly on their device. 5G will mean zero waiting time.
That will become more important in the short-term as the use of third-party application programming interfaces (API) within banking grows, with third-party apps gaining access to banks' databases to make transactions.
However, the two buzzwords in FinTech at the moment are cryptocurrency (peer-to-peer electronic digital currency) and blockchain (high-integrity databases whose contents cannot be tampered with without leaving evidence, and while both are of great interest to banks, neither cryptocurrency nor blockchain particularly need 5G's ultra-low latency or increased data rates. However, 5G is three different technology stacks, and all FinTech will certainly benefit from is 5G's primary use-case; connecting more devices at low power, at low cost, and with high reliability. This should lead to a surge in the number of connected devices, from smartphones, wearables and home appliances to sensors on all kinds of objects, public infrastructure, and even clothes.
This is the Internet of Things (IoT), and 5G is expected to supercharge its development.
With the IoT in place and growing, payment technology will surge on the back of wearables. As well as driving internet use generally, the IoT will enable not only a denser concentration of wearable devices in a geographical area, but will link them. Whereas we now have Bluetooth, RFID and many other short-range communications standards that keep devices disconnected from one another, 5G will bring unity. Phones, smartwatches, earphones, activity bands, virtual/augmented reality headsets, flexible sensors on smart clothes, and smart glasses and eyewear like Google Glass will talk to each other, and swap data. That will enable payments to be made from any wearable. Plus, since all of those devices capture biometric data, the sharing of that data among them and with the cloud will create a powerful feature for FinTech; multi-layered authentication of the wearer.
5G will also create a new ear of high-frequency mobile trading that will revolutionise stock market transactions. Speedy buying and selling is everything in the stock exchange, and fractions of seconds can make huge differences worth millions of dollars a year. Given today's computerised and automated trading, 5G's reducing of latency to 1ms will prove irresistible to brokerage firms, so much so they will likely be among the first to install 5G's microwave radio links.
That's not to say that there aren't potential use-cases for using 5G's super-fast data rates and ultra-low latency in FinTech for reasons other than creating faster user experiences. For now it's mere speculation, but with vastly improved download and upload rates, advanced security measures relying on more layers of data could be used, such as more in-depth biometric verification. Instead of a fingerprint sensor or face/gesture recognition taking place on the device, all smartphones and wearables will have a real-time link to the cloud, so much more finely-grained device security could take place there.
Furthermore, if future devices offload all of their data – including files such as apps, photos and documents, but also multi-app data on payments and even geographical location – financial institutions could make use of 5G's reliable connectivity and exponential cloud computing power to develop new products. For example, banks could use artificial intelligence, cognitive computing and machine learning to develop personal banking assistants that scan all data in the cloud about someone's life and financial behaviour to produce a daily spending limit. This kind of 'robo-advisor' service is already happening in a blunter way in areas like portfolio management and investment advice, but a properly personalised and private banking experience may have to wait until the 5G era.
With 5G network firmly established, micro-payments could be possible. This the notion of paying exactly according to what is used, rather than the blunt way we pay now. For example, drivers pay for a car parking space/entry ticket for a museum/use of a pay-for WiFi hotspot for a set amount of time, rather than exactly how often it's used for. It's the same for web pages, which are increasingly littered with adverts; couldn't the reader pay according to how much they read? With the spread of sensors and devices when 5G kicks-off, and 5G's real-time connection to the cloud – as well as more ubiquitous payment technology and cryptocurrencies – real-time micro-payments could become very big business.
While FinTech will continue to be disruptive in the 4G era, 5G will allow more connected devices, more automation and increased use of the internet. As the IoT mushrooms, ever more advanced FinTech will provide frictionless, personalised payment technology, and even a new era of micro-payments as 5G creates a new era of ubiquitous connected devices.