Fintech is a rapidly evolving development with the potential to disrupt many parts of the financial sector. The growth of financial technology companies in recent years has been astonishing.
There are now more than 26,000 fintech companies operating internationally, and collectively they employ around 500,000 people worldwide. About 30% of all banking customers use at least one financial service offered by a non-traditional provider.
In the world of banking, fintech is on everyone's lips. It has revolutionised several industries in the financial sector, from payments to consultancy services. To help you stay on top of all the latest trends propelling the fintech revolution, we have compiled a list of seventeen technologies changing the industry.
Distributed ledger technology is increasingly acting as the infrastructure of the digital world. It is the technology behind Bitcoin and other cryptocurrencies, but it can be used for many more applications.
The potential of blockchain technology has not even been remotely touched yet. Some new groundbreaking developments could emerge within this field over the next few years.
Decentralised finance (DeFi) and non-fungible tokens (NFTs) are only two examples of how blockchain might change the world of finance. There are countless other ways in which people can use this technology, and it is difficult to predict what new developments will appear within these areas over the next few years.
Blockchain has tremendous potential for growth and several challenges to be overcome before it becomes more widespread.
2) Sensors and Internet of Things (IoT)
The Internet of Things is changing the way financial services operate and the way we look at data. Sensors are frequently mentioned as a component of the fintech revolution. These sensors, which are becoming more and more commonplace, allow companies to collect data like never before.
According to research by Harvard University, “The ability to place inexpensive sensors to monitor the temperature, location and stress of almost any moving part opens up broad possibilities to monitor remote operations, whether simple household devices or systemic capital equipment.”
Examples of sensors being used in the financial services industry include ATM machines, which can detect how many people are lined up to use them. Sensors can also be used in micro-payment transactions to allow for small payments without a user having to enter their credit card information, as in the case of contactless payments.
3) Mobile Payments and Digital Banking Services
Neobanks are one of the most popular fintech services disrupting traditional banking. A neobank refers to a new type of bank operating online only and is built with mobile-first design principles.
Customers can open an account through an app on their smartphone instead of making the trip to a physical branch or filling out endless paperwork in paper format.
Such apps feel more user-friendly, and most of them offer a wide range of banking features, including savings accounts, loans for customers’ cars or mortgages, along with easy payments and remittances.
For example, the apps of neobanks like the UK-based Monzo or Starling Bank and Germany’s Number26 have been growing rapidly in Europe and often ranked higher than banks. According to a study by Forbes, $1 trillion (USD) has been invested by banks in digital banking across the world to remain competitive.
4) Augmented Reality / Virtual Reality (AR/VR)
The use cases of VR in financial technology are hitting the market slowly, with people able to invest in stocks or trade currencies through virtual reality. It provides an immersive experience to monitor real-time movements on the market and make quick investment decisions. It is an excellent example of how consumers can use fintech and modern technology for their investments.
While most experts agree there is still some time before VR has other viable use-cases, companies are already experimenting with the technology to explore its potential. According to Goldman Sachs Research expert Heather Bellini, virtual and augmented reality will be an $80 billion+ dollar industry by 2025.
In 2021, $10 billion (USD) of investment went into VR through Meta (formally known as Facebook). The tech giant is also behind VR-headset producer Oculus and plans to hire 10,000 people to build a ‘metaverse’. There is a high probability fintech will play a foundational role in such a grand scale simulation.
5) Smart Contracts
While its potential is yet untapped, smart contracts can provide numerous benefits for the financial services industry: improved security (e.g., eliminating third parties), increased efficiency (with faster transactions and lower fees), better transparency (increasing accountability), and reduced fees (eliminating overhead costs).
Examples of smart contracts being used in financial services include Compound Finance, which uses smart contracts to allow users to take out a short-term loan using Ether as collateral. Another example of a startup using smart contracts is called Agrello, which aims to develop smart contracts for enterprise customers, which execute when certain conditions have been met.
Most people associate smart contracts with blockchain technology; however, they deserve their own category since older examples include automated clearinghouses (ACHs) and central securities depositories (CSDs) used for bond issuance.
6) Robotic Process Automation (RPA)
RPA uses digital robots or programs (bots) to automate routine, repetitive activities humans previously performed. It is different from artificial intelligence because it does not require a human type of brainpower.
To free up resources and improve accuracy, many businesses have already implemented RPA technology. It is used for simple tasks, such as data entry and information processing.
RPA is a great way to reduce the operating cost of fintech businesses without sacrificing quality or productivity by automating back-office functions in an organisation so people can focus on more innovative and value-adding activities.
7) Voice-Enabled Payments
An older generation of adults used to watch television series like Star Trek and think those futuristic concepts only belonged to fiction in the 60s. Now they have become a reality, with voice-enabled smartphones being one of them.
Voice-enabled technology allows people to use their smartphone’s voice recognition software and a digital assistant like Siri, Google Assistant, or Amazon Alexa to hear their balance and make payments or money transfers.
Fintech startups looking to implement proof of concept (POC) projects on tight budgets can look to voice-enabled payments as an option. There is an opportunity for the technology to be used for payments in retail stores with no contactless payment terminals. It also aids those with visual impairments in gaining access to the cashless economy.
8) Virtual Cards
Virtual cards are based on VISA or Mastercard, and people can use them instead of physical cards for online transactions. There is no plastic involved, only a sixteen-digit card number, CVV code, and expiration date.
Some virtual cards also allow users to store loyalty programs on them and use the same account for both fiat spending and crypto transactions, making it easier to manage funds by creating one consolidated balance across all accounts. Virtual cards can also be used as a backup payment method in cases where physical cards get declined or cannot be found.
9) Autonomous Finance
How do you automate finance? In simple words, autonomous finance is a system of machines and devices that can automatically perform financial transactions without the involvement of humans.
Another example of autonomous finance would be using blockchain-based smart contracts to automate fund management and insurance premiums. Etherisc allows users or organisations to set up “flight-delay” insurance policies to automatically payout if flights get delayed by two hours or more, removing the hassle of filing a claim manually after something happens.
10) Biometric Security
Biometric technology is playing an increasingly important role in financial technology innovation as identity verification becomes more common. Biometrics are being used to simplify account access, authenticate online transactions and even replace passwords.
Authentication methods like facial recognition software, voice analysis, or fingerprint scanners will play a more prominent role in the future of banking security.
Other more advanced examples of biometric technology include palm vein patterns, iris recognition and retinal scanning. By using such novel security methods, financial institutions can eliminate the need for passwords and PINs, often proving to be unsafe.
11) Artificial Intelligence (AI) and Machine Learning (ML)
There is a wealth of research and use-cases when it comes to artificial intelligence in financial services. Applications include risk assessment, forecasting, data management, automation, and hundreds of other yet to be discovered use-cases.
One notable development is robo-advisors; they are now one of the most popular trends in fintech. These online platforms can independently manage investments and suggest a personalised portfolio best suited to individual interests. They use cognitive computing technology as well as big data trends to determine the most optimal investment strategy.
Other examples of AI in finance include chatbots used by banks to provide basic customer service queries or IBM Watson for financial analysis. With AI increasingly being used by these bots, they can learn from client conversations and customise future customer interaction accordingly. FinTech companies could achieve this thanks to machine learning, where bots use historical data (such as purchase history) and real-time inputs (like news) to learn and predict future customer behaviour.
Machine learning is a subcategory of AI used to learn and evolve from data in order to solve complex problems. Examples of machine learning in finance include fraud detection, compliance analysis and algorithmic trading.
12) Open Banking
Open banking allows banks to connect third-party APIs to their own banking platforms. Customers can share their financial data with third parties in return for new services and modifications to make existing information better. For example, customers may grant access to a utility company app to pay bills directly from their bank account instead of having one more login and payment method on file.
Other known use cases of open banking include third parties making payment suggestions based on transaction history or past spending habits, personalised offerings such as better loan offers from banks and investment advice from wealth managers or robo-advisors.
A study by PWC notes open banking “is likely to cause significant disruption to how consumers (personal and particularly small businesses) think about banking, who should provide banking services, who will inform and guide us, how, when and why will we allow organisations that are not our banks to have access to our financial data.”
As hackers discover new security flaws in systems, experts must devise ever more creative ways to safeguard sensitive data. Even with the best data protection measures in place, hackers constantly find new ways to access sensitive information. For example, the Equifax breach occurred when attackers used a known vulnerability the organisation had not patched.
Fintech startups are using cybersecurity technology in ever more innovative ways, such as blockchain, to create a more secure form of holding information. Multi-cloud data storage, secure access service edge (SASE), and decentralisation are other noteworthy cybersecurity advancements in the fintech sector.
As cyber threats are on the rise, especially with the growth of online transactions and digital processes, so are threat security measures. Additionally, fraud management, KYC/know your customer, AML/anti-money-laundering, and passwordless authentication are only a few of the many challenges fintech businesses continue to tackle.
14) Big Data
Large market datasets and additional granularity are required to feed predictive models, forecasts, and trading for businesses and individuals throughout the day. Big data is also becoming increasingly important with the rise of IoT devices. Even traditional data warehouse systems are being rebuilt using sensors to accommodate the increasing resourcefulness of data.
Traditional data management systems do not have a place in this brave new world. Unstructured data, which is increasingly difficult to handle and record because it is often generated on the fly, requires organisations to transform traditional data solutions into mobile applications, tablets, and smartphones if they want to be competitive.
Regulations, such as the EU's General Data Protection Regulation (GDPR), are making it more difficult for organisations to scale their solutions across borders, with data privacy and analytics becoming an increasingly important consideration. Compliance departments are under pressure to expand their Big Data initiatives while maintaining client loyalty - particularly given increasing competition from international companies taking advantage of global trade agreements.
15) RegTech (Regulatory Technology)
Using technology to keep track of regulatory compliance is known as regtech. Regulatory technology solutions automate the monitoring and reporting of data with tools with the capability to handle large datasets or unstructured information. These technologies are also designed to help financial institutions keep up with changing regulations in various jurisdictions around the world.
The prominence of regtech may help to preserve fintech security as political governments change and governments increasingly seek to promote increased cybersecurity laws. To fulfil regulations, these tools are designed to manage large data transfers.
According to research by Thomson Reuters, “Regtech applications continued to provide popular, embedded solutions for firms in areas such as compliance monitoring, financial crime, AML/CTF, sanctions and regulatory reporting.”
Financial institutions have started to gamify their products and services. Gamification is a design-based solution with game mechanics in mind, such as personal scorecards or badges, to engage users in doing specific tasks. These games encourage customers to track spending habits through events or progress bars while providing positive feedback for healthy financial decisions.
For example, Acorns is a mobile investment app designed to round up transactions made with a linked credit or debit card and invest the difference into ETFs (exchange-traded funds). The company has over 8.2 million users who have invested $2 billion through its platform since launching in 2012.
Another fintech gamification startup called Flourish Savings even gives rewards to users that can be cashed out later on. A study by Apis Partners noted, “Gamification is about customer centricity: it helps customers achieve their goals in a way that emotionally engages them.”
17) Quantum Computing
The application of quantum computing in the financial industry is not a pipe dream; it's happening. Several banks are already using the technology. As computing speeds increase, it becomes easier for financial companies to predict market movements and identify patterns in financial data.
Financial technology companies can also use quantum computing to make the issuance and verification of digital signatures much more efficient. Additional use cases of quantum computing include improving security along with privacy, increasing the speed of trading algorithms, and reducing the time to settle transactions.
According to research by Infosys, “In financial services, quantum computing would exponentially increase the speed of transactions powered by algorithms. It would provide significant advantage in areas such as cybersecurity, trading, asset management, AI, risk analytics and predictive capabilities and help in scaling up with much lower cost and resources.”
Fintech is a rapidly evolving industry with new trends popping up each year. Uncovering these top seventeen fintech trends could give you new insights and help you stay ahead of your competition by making educated business decisions for your organisation's future growth.
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