8 Fintech Trends
Will advancements in financial technology help your company navigate risks while cutting costs? From the services you use to the ones you provide, these cutting edge fintech trends may change the way you do business.
As chatbots move to mainstream and digital-only banks make waves, regulatory requirements, and customer expectations fuel innovation. The need for speed, security, and convenience are well-known but difficult to implement in the financial sector. However, this is changing as more organizations invest in technologies that give them an edge in the market. Plus, an increase in venture capital (VC) funding for fintech startups is spurring a new wave of services.
According to PwC, “global investments in fintech have more than tripled since 2014 to over $12 billion” with no signs of slowing down. The funding combined with industry pressure will advance tech adoption more rapidly than in previous years.
Discover the eight fintech trends that’ll help your company save money while meeting customer expectations.
1. Platform as a Service (PaaS) Offerings Expand
Customers crave convenience. However, financial institutions struggle to meet their demand while safeguarding information. As banks comply with evolving regulations, customers will benefit from the opening of APIs to customer data. With PaaS, institutions can adapt to changing needs with customized infrastructure that allows them to embrace cloud platforms fully. Statistica data shows, competitive public cloud PaaS revenue will reach 22.602 million in 2019, up from 13.872 million two years ago. These services provide the infrastructure to perform a variety of tasks, including:
- Team collaboration
- Resource management
- Payment processing
- Credit risk management
Yefim Natis, research vice president at Gartner, says, “the trends we see in PaaS both reflect and drive the trends in the continuous transformation of cloud computing and digital business.” Plus, with Fintech as infrastructure, McKinsey suggests that more companies will “sell services to financial institutions to help them digitize their technology stacks and improve risk management and customer experience.”
2. Non-Traditional Banking Services Gain Credibility
The fall of banks in 2008 led to a distrust that many consumers haven’t recovered from. This provides room for plenty of business opportunities since digital-only banks use transparency as a selling point. However, slow adoption rates have plagued the industry.
A survey by Cornerstone Advisers finds, “fewer than 10%” of those surveyed would consider a digital bank. Instead, virtual institutions look to boost profits by offering supplementary services like financial tools developed for new voice technologies.
This uptick in neobanks will challenge traditional institutions to improve their offerings and deliver more value to consumers. Plus, as virtual banks embrace new regulations and demonstrate flexibility, consumer confidence will grow. While it’s unlikely digital-only banks will replace brick-and-mortar institutions, they’ll pressure the industry to provide a more transparent customer experience.
3. Increase In Dependence on Intelligent Technologies
From traditional establishments testing robo advisors to advanced algorithms assessing credit profiles, we’ll see companies expand their use of intelligent technologies. The mixture of artificial intelligence (AI), machine learning (ML), and robotic process automation (RPA) provides multiple benefits to those in the financial industry, such as:
- A decrease in risk from loan defaults through the use of alternative credit decisioning models (ACD) that use ML.
- Smarter risk management that uses predictive and proactive models instead of reactive processes.
- An increase in operational improvements resulting from data collection and analysis.
- Better customer experience through the adoption of virtual customer assistants (VCA).
Technologies that deliver, manage and analyze data help financial services reduce the time and cost associated with workflows. As use grows, customers expect conventional institutions to keep up with the pace. Gartner data suggests that chatbots or VCAs “will take over 25% of customer assistance and maintenance services” by 2020 to meet that demand.
4. Mobile Payment Options Go Mainstream
According to G2 Crowd, “the worldwide volume of mobile payments will grow by 60% over the next two years.” Mobile banking puts control into the customer’s hands while breaking down barriers to access. However, this Fintech trend covers a range of payment options, including virtual currency and blockchain. The Fintech Times calls these technologies an “Internet of Payments,” and all of these choices change how consumers view mobile banking and fund transfers.
- In the US, consumers feel comfortable with wallet-less options and rally behind big players, like Google and Apple.
- On a global scale, access to payment options allows a greater number of people to interact with companies and complete everyday transactions without a traditional bank account.
- Payment options use blockchain technologies to verify identities for greater financial inclusion.
While customers embrace smartphone payments, those in the financial services industry worry about how their technology stack will handle increased transactions. However, the upcoming 5G technology ensures that networks can handle higher quantities of transactions and provide a reliable experience. As more consumers leave behind their credit and debit cards, conventional institutions that adopt digital payment features will attract and retain customers.
5. New Benefits From Cryptocurrency And Blockchain Innovations
The move towards blockchain’s use in financial institutions has been slow but is still a very important fintech trend. However, a Greenwich report finds, “The financial services industry currently spends $1.7 billion each year on blockchain technology.” Blockchain investments aren’t expected to slow. Data from PwC shows, “77% of officials in top management positions expect to adopt blockchain as part of a production system or process by 2020.”
In fact, we see more blockchain-based fundraising for startups in the financial industry and increased use of crypto technologies across sectors. With a move towards Blockchain as a Service (BaaS), both institutions and consumers will have increased access to this technology.
Blockchain For Security
New technologies help companies predict and detect problems. For example, blockchain’s use in digital identity management provides additional security for both institutions and consumers. Plus, blockchain will integrate with more devices in the world of the Internet of Things (IoT). Going forward, more organizations will turn to blockchain to decrease fraud and manage both regulatory and audit concerns.
Blockchain For Speed
Seamless transactions benefit businesses and consumers. Financial institutions use blockchain to expedite asset and money transfers, payments, and investments. Plus, this technology eliminates processing mistakes that cause delays.
While Facebook’s Libra holds public attention, plenty of other organizations are busy figuring out how to leverage cryptocurrency to withstand future markets. In upcoming years, experts expect to see more interest in:
- Stable coins. These can be flat-backed or backed by commodity and have a set price.
- Digital asset management. Look for banks to offer more options for managing cryptocurrencies.
As financial institutions look to diversify across the globe, we’ll see virtual currencies, and the availability of crypto lending continues to gain traction.
6. Use of Regulatory Tech (RegTech) Grows
RegTech uses AI to automate risk assessments while delivering insights on big data. As data collection grows, the number of regulations increases. With increased oversight, those in the financial industry feel the burden of compliance with various new regulations.
Traditional organizations face pressure from upstarts requiring further investment in technologies to track crucial information. RegTech companies offer solutions for institutions. Advancements in the arena improve systems for managing:
- Customer identification processes: Know Your Customer (KYC) and Anti Money Laundering (AML).
- Regulatory and compliance issues.
- Ongoing data privacy and storage concerns.
When looking at growth in Fintech funding, Mastercard points out that the “concentration of enterprise AI deals go to regulatory technology startups.” Smaller, more agile companies have the upper hand due to their lack of complex processes and legacy systems. With less barrier to entry, financial startups like peer-to-peer lending and crowdfunding platforms can thrive.
However, don’t dismiss the capabilities of big enterprises as they shift into automated processes, AI, and blockchain to manage regulations and data. In its Banking and Capital Markets Outlook, Deloitte advises, “banks should buckle down and make compliance modernization a priority in 2019, focusing particularly on making regulatory systems already in place more efficient for business strategy.”
7. Automation Differentiates Financial Services
According to McKinsey, “a second wave of automation and AI will emerge in the next few years where machines will do up to 10 to 25 percent of bank work.” For the consumer, this means an improved (and faster) banking experience. Whereas, financial institutions value the cost savings and reduction in errors.
Tech like RPA software, machines make quick work of tedious and repetitive data entry. This allows companies to focus on customer service improvements instead of being bogged down by data collection.
Although startup costs for robotic process automation software are hefty, G2 Crowd says, “companies typically see 40–100% ROI within 3–8 months. The annual cost of running a robot to help with automation is nothing compared to the cost of paying someone to do the same tasks much less efficiently.”
By delegating common tasks to AI, companies can shift their attention to satisfying customer needs with significant results. Information from Capgemini shows, “65% of retail and commercial banks improved customer satisfaction by more than 60% using intelligent automation.”
8. Conventional Institutions And Fintech Blend Services
With a need for agility and an increased reliance on tech, traditional institutions continue to invest in and acquire Fintech technologies. The rise of RegTech and insurance tech (insurtech) along with smart contracts give conventional organizations a way to update their infrastructure and cut long-term costs. Plus, Fintech startups capture more of the market through strategic partnerships and consolidation.
Traditional Acquisitions and Partnerships
Data from PwC finds, 82% of decision-makers expect to increase Fintech partnerships in the next 3-5 years. Partnering with tech companies allows financial institutions to pursue cutting edge business solutions.
As banks adopt policies to align with Open Banking regulations, more integrations are possible. Each has the opportunity to enhance and build upon the interconnected relationships between financial institutions, tech companies, and other types of service providers.
Plus, institutions feeling the threat from digital-first startups will leverage acquisitions to satisfy their customers’ needs without a dramatic shift in operations.
Fintech Partnerships and Consolidation
However, Fintech players also merge to position themselves as direct challengers to conventional systems. In Bloomberg, Deloitte’s Zachary Aron says, “it’s quite possible to see Fintechs looking to continue to combine, to both create scale and a deeper and richer set of capabilities.”
The bottom line is that consumers want access to almost, if not all, of their financial services in one spot. If customers aren’t satisfied with their banking features, then newer companies using emerging technologies can transform the space.
Advantages for Consumers Rise
Each of these trends gives consumers the upper hand. The push for a seamless customer experience delivers new technologies that up the levels of convenience and security. Customers benefit from improvements that provide:
- Access to bank reps through remote services.
- Kiosks that provide user-friendly options.
- Enhanced security measures that deliver better peace of mind.
- Voice biometrics give consumers more options for accessing financial information.
- Faster payment and fund transfers speed up transactions.
- More apps that put all of your financial data in one spot.
Plus, Fintech technology trends help small to medium business owners gain better access to financial support and lending. However, as those in the financial industry begin to see returns on their Fintech investments, that balance may shift.
Fintech Trends Speed Up Adoption of Tech
Although in the past, the financial industry evolved slower, business organizations are moving more rapidly towards agile workflows and systems. This stems from a need to adapt for changes in consumer behavior and regulations while facing threats from non-traditional competition. In the World Retail Banking Report by Capgemini and Efma, “bank executives said non-banking players are affecting the financial service (FS) value chain across all lines of business.”
Delivering what customers want requires a total digital transformation in the industry. Going forward, consumers benefit from improved user experience. However, the rapid pace of Fintech innovations means more institutions can realize advantages, like cost savings, sooner than later.