Fintech has brought a variety of services under one umbrella with digital banking and other growing technologies. Since the last decade, Fintech has observed evolution because of access to the internet by billions of people. The emergence of cryptocurrency, mobile wallets, online payment apps among other advancements brought the inclination of fintech towards new technologies and to restructure its business models.
The services of banking systems went online with a growing number of smartphone users and several digital banking services started using open banking that allowed third parties to access financial data. This period also saw a boom in startups that were embracing innovations and attracting investors. All these advancements in technology and change in Fintech is termed FIntech 3.0. Now is the era of Fintech 3.5 which observes blockchain and open banking that are continuously changing fintech operations.
Technologies taking Fintech to New Height
With growing new trends in financial services, providers take responsibility for making customers aware of what technology is being used and how it governs all services. When blockchain technology grew and acquired different sectors, financial service sectors also changed as it provides safe and stable transactions. Apart from safety and stability it also removed third-party intervention hence providing a strong reason for its adoption. According to the FinTech Blockchain Market report, the fintech blockchain market is expected to reach $ 6,228 million by 2023.
Advancements were seen with AI & ML as well, these technologies served to automate the financial service processes and prevented any online fraud quite effectively. The ability of AI to work rapidly even with large amounts of data made it an important part of integration in fintech software as well. Not limited to intelligent technologies, several new trends in fintech have started disrupting the various segments especially consumer-service oriented segments.
Following Industries Embracing Disruptive Nature of Fintech
It’s often thought that Fintech consists of banks or financial institutions only as it is a portmanteau of “finance” & “technology”, which automates financial services and processes. There are several units that comprise fintech like incumbents, companies facilitating financial services like MasterCard; accountancy and business advisory firms, etc. These categories collectively contribute to the expansion of fintech along with growing technological advancements like the use of mobile sites and apps.
Fintech is causing disruption in the following industries:
- Crowdfunding Platform: Fintech broadly refers to the influx of technology tools, platforms, and ecosystems that make financial services more accessible. Initially, crowdfunding was done mostly by a large group of individuals but modern crowdfunding involves project proposers, investors, and technological platforms. The world’s leading fintech companies have started supporting crowdfunding to strengthen their relationship with customers. With the growth in Fintech, most of the service-based industries brought investors in their vicinity and started raising funds.
- Mobile Payments: Mobile commerce or mobile transaction has grown over the past decade and saw tremendous growth post-COVID-19. Bank payments are done mostly through mobile with an increasing number of mobile users. So fintech companies are not behind in providing mobile services. Fintech industries developed compatible methods of payments that were both compatible with android and iOS.
- Insurance: The inclusion of Fintech in Insurance is also termed Insurtech which has brought insurers in partnership with product makers and distributors. Insurers are now more aware of measuring and tracking the usage of products.
- Investment & Savings: Fintech brought the number of investments and saving apps among customers. Acorns, a mobile-first and banking app, provides creative funding options, round-ups, and purchases connected with cards and simplified other processes.
- Budgeting Apps: Initially, consumers had to keep track of their investments & budgets. Fintech prompted the development of budgeting apps that keeps track of income, monthly expenses, expenditures, etc.
“Intuit Mint”, is one of the oldest and best-known budgeting apps helping to track money from banks, credit card issuers, and other financial institutions.
Top 5 Trends in Fintech Shaping Future of Financial Service Industry
Fintech has already revamped various aspects of service-based industries and is now moving ahead to restructure its business model with new technologies to simplify customer-centric services. Technological advancements like AI, Blockchain, Digital Banking, RPA, and others have embarked on the exploitation of financial services in better ways. Other financial industry trends that are disrupting fintech are:
- Software Defined Network (SDN): SDN is a network architecture approach that enables networks to be controlled intelligently and securely through open APIs. For most financial service companies, the network is a question. Such firms adopt the SDN method for intelligent and agile operations and make their transactions secure. Some financial firms store data in the cloud while some use on-premise data storage, SDN makes both types of storage secure and responsive.
- Regtech in Fintech: The financial service sector has been burdened with vast regulatory terms and is asked to bring changes according to current modernization. In an attempt to reduce the increasing burden of these regulations, financial service firms have started to rely on Regulatory Technology (RegTech). RegTech extends the engagement of firms with regulators to test and scale solutions faster.
All smart technologies like blockchain, AI, ML, Big data, Cloud Computing, etc. support RegTech solutions. It serves in real-time data reporting, data analytics and decision making, and fraud & risk management.
- Fintech-as-a-Service: As many banks & financial institutes are focusing more on developing financial software, various Fintech companies have started offering their APIs to others in the financial market who allow their developers to build financial apps with security and tested functionality. The fintech-as-a-Service platform allows merchants to route their transactions through multiple service providers according to their choice. This allows them to leverage lower rates of transactions.
- Open Banking: This approach allows sharing of financial data electronically and securely under specific guidelines. Data sharing is done only with licensed partners through an open API where they work together for the development of apps and services.
Another trend that seems similar to open banking is Banking-as-a-Service (BaaS) which also allows fintech startups to run finance operations, build new financial applications, and allows digital banks & third parties to connect with bank systems through API. But the difference between BaaS and Open Banking is that the former allows the banks’ functionality through API whereas the latter allows only consumer data by API without allowing any banks’ functionality.
- Data Analytics: Financial service sectors contain huge amounts of data and most of the companies are unable to protect it because of an unstructured approach. Data analytics enables better classification of payment records and analysis of customer behavior across different channels. Also, the creditworthiness evaluation of customers requires analysis of large amounts of data, so the more robust a data analytics is, the better is the evaluation.
New Fintech Trends Upsurge Innovations
Financial institutions need to evaluate the technologies and try to uplift their services. Enabling technology with services will let them compete globally and fulfill customer expectations. Fintech companies must formulate certain baselines to adopt new trends and must be adaptive to customers’ needs.
Being Open Banking for open access of banking functionality, Fintech-as-a-Service providing shared API to broaden the accessibility of services or Blockchain for security, all are disrupting the Fintech and banking institutions. There are a lot more trends in Fintech like Cloud Computing, Decentralized Finance (DeFi), IoTs among others, that are working to enhance the performance of institutions and make operations seamless to meet customers’ expectations.
To take innovation and adaptability parallelly, it’s significant to foster an innovative culture in companies and build strong teams. A common problem among incumbents and Fintech companies is that they struggle to hire and retain skilled teams. Such companies can also opt for partnering with IT companies for improved services. Nothing is great than taking innovation and learning hands-on-hands for a better customer experience.