Information technology advances unabatedly; the cost to process, store and transmit information continues to drop 15-20% annually. The focus of IT has shifted from institutional to consumer markets. As a consequence, services industries are transforming rapidly, particularly on the retail side, and barriers to entry in many businesses are dropping. Mass individualization replaces mass production and social networks change the way opinions are generated and spread.

These three drivers are leading to emerging hotspots in the financial industry - areas which will demand heightened management attention for both institutions and vendors to stay competitive and exploit new business opportunities. Three of these stand out as areas requiring not just attention, but a renewed focus on innovation:

1. Data management will change dramatically. The dream of centralized, cleaned and controlled data supporting all operations endogenously is being washed away by the data avalanche and ever-decreasing storage costs. Regulators will push for more data standards to increase transparency and to harmonize operations internationally. More systems will automatically publish  the data they contain and generate, and standards will make data analysis tools more pervasive, powerful and user-friendly.

2. We will see the emergence of algorithmic operations. We have already witnessed a revolution in trading – more equity trades today are being initiated by algorithms than by human traders. The idea of using algorithms to continuously optimize operations is emerging and will spread. Expensive and slow human intervention will be focused on changing the decision rules and adapting to changes. Like industry has automated supply chains, finance will automate its middle and back office service chains. There will be  significant advances in business process management and service definitions, and the use of tools to measure and monitor operational efficiency will become common.

3. Participatory business models are on the rise.  The increased global specialization and resulting need to bundle services over networks from multiple providers will lead to more collaborative business models in which participants don’t get paid for the cost or value of their service per se but for a share of the total result. Some software licenses will move to services paid for with shares in outcome, taking the definition of partnership to a new level.

To support these and other priorities for the industry, we will see innovation accelerate and disperse. As technology and transparency lowers barriers of entry, smaller entities with an appetite for composite solutions will foster innovation.  The effect will be more pronounced in emerging markets as there is less systems legacy. Social networks will become more important to stay abreast of new ideas and to find the jewels in the sand.   It will be up to industry participants to intelligently embrace innovation within their organizations and across the financial and technology ecosystems to ensure their continued success by 2020.