Description- The value of global investment in fintech grew by 75% to $22.3 billion. The sector of financial services that saw the most significant disruption from fintech was consumer banking.
Financial technology for short, FinTech, is one of today’s most exciting and fast-growing fields of global business. However, although the term may be essential, products and companies in the banking and financial services industries that employ newly established digital and online technology are far more complicated in their use and effect on customers.
In short, finance can be explained by linking it with marketing; some factories make goods like banks keeping interest-rate deposits, investment managers making investment funds, or lenders and insurers underwriting specific company risk with capital. Then there are stores selling the product like bank branches, financial advisors, insurance salespeople, or lending officers. Between these two extremes are complex human value chains, balance sheets, and machines, bound together by the patterns of regulation and industry. Yet consumers visit a store at the end of the day and purchase some financial stuff.
Growth of The Finance Industry
The global fintech industry in 2018 was estimated at around 127.66 billion dollars, which is projected to rise to 309.98 billion dollars by 2022 at an annual growth rate of 24.8 per cent. Growth in the digital payments industry drives the global financial technology (Fintech) market.
Fintech has made goods and services payments quicker, safer, more convenient and more cost-effective for consumers. Customers may now pay for different products and services by cryptocurrencies, reward points, and other alternatives to digital cash. The growth in the digital commerce market and the proliferation of mobile technology has contributed to the development of the digital payments sector. When more and more businesses embrace digital payment systems, demand for fintech solutions is growing and driving the market growth. As a result, the value of a global investment in fintech grew by 75% to $22.3 billion. The sector of financial services that saw the enormous disruption from fintech was consumer banking. This is likely because consumers are looking for new ways to transfer their money on the go and with as little friction as possible.
Major Fintech Developments
Some of the above phenomena showed significant growth and proved to be here for a few years to come.
Now let’s look at the latest trends in financial services technology.
1. Disruptive Innovations in Payments
Innovative payment systems have been replaced with physical currency, as digital wallets and contactless payment devices are the order of the day. Our vision of digital transactions is expected to transform in 2020 due to the exponential growth of cryptocurrencies, the critical driver of progress in payment systems. Improvements also impacted all facets of the funding transactions.
- Sending and receiving of payments
- Technology enhancements
- Automated payment services
- Innovative user experience
- Brand new ways of FinTech collaboration
The main benefit of using cryptocurrencies and payment tokens is from conventional banking and its inherent rules. Instead, individuals and companies prefer a more egalitarian way to handle funds which have become a reality thanks to innovative payment technologies.
2. Platforms As a Service
One of FinTech’s 2020 projections is the strengthening of PaaS applications heading into the cloud. New and robust PaaS focused on cloud infrastructure technologies helps companies extend their ready-made systems and incorporate innovations to suit their business needs.
Conventional PaaS worked well for the FinTech industry as providers took on configuring and maintaining applications that freed up developers’ time for coding tasks. However, PaaS vendors today take much greater responsibility for providing team collaboration solutions, implementation streamlining tools, configuration services, and resource management services. With these critical areas being turned over to PaaS providers, other financial-sector business processes such as budget preparation, credit risk management, payment processing, billing, and customer support will also be delegated.
The key advantages of using PaaS in the FinTech
- Fast Product Launch
- Post-Paid Service
- Agile approach
- standardised middleware and database management
3. Blockchain Movement
Blockchain is no longer news in fintech. While some experts are predicting the end of the blockchain era, at the same time, some people see the innovation merely as cryptocurrencies. Only a few members can recognise and understand the critical impact of decentralised technologies. The use of blockchain goes much further than only cryptocurrencies. It’s a flexible, innovative solution that solves the majority of modern fintech problems.
Let’s look at some examples.
⮚ Fraud Detection and Cyber Attack Prevention
Some of the Treasury Services uses a decentralised database to protect their customers’ personal and financial data. For example, all information about real-time payments and profile details is stored on multiple blockchain servers instead of the old-fashioned centralised system. As a result, there is no longer an open possibility of targeting a single database.
⮚ Market Research and Customer Analytics
Some of the banks use blockchain for storing KYC statements. KYC stands for “Know Your Customer”. The policy on getting and storing customer data is stringent in financial sectors each year. An average bank invests 40 million dollars per year in complying with privacy regulations. Blockchain databases correspond to governmental requirements and shorten the time needed for data processing.
⮚ An Innovative Payment System
Blockchain can substitute traditional money transfer methods like Swift money transfers, enabling much cheaper global transactions. Just recently, we’ve seen a release of a real-time gross settlement system to ripple. In addition, the service provides blockchain-based services of currency exchange and international payments.
The above picture depicts information about the number of consumers using cryptocurrency in some of the countries.
4. Conversational Banking
Chatbots have been a buzzword in the industry for a while, but in 2019 we finally saw some cutting-edge developments. Conversational banking assistants were implemented by JP Morgan, Bank of America and others. The industry leaders set high customer standards, and fintech companies will do their best to follow.
Challenges of Conversational Banking
⮚ Understanding Customers Needs and Intentions.
Chatbots are not yet completely capable of understanding a user’s message, primarily when using casual language. Grammatical mistakes, abbreviations and Slangs stand in the way of complete comprehension between a consumer and a digital assistant. In 2020, chatbots will solve these issues in more than 25% of B2B companies by providing examples, questions, clarifications, and multiple answer alternatives.
⮚ Time-Efficiency and Clarity
Even if a chatbot is capable of understanding a request, the next step is fulfilling it seamlessly. Developers are already adding maps, schemes, videos, and natural voice memos to their assistants.
Perhaps, by the end of 2020, the end-user wouldn’t be able to tell the difference between a chatbot and a human worker – that’s what all fintech companies should be aiming for.
⮚ Secure Online Transactions and Private Data Management
Online safety depends on multiple factors – the quality of the user’s connection, the protection of the bank’s service, and country regulations. In addition, Chatbots will use hashing mechanisms automated encryption which leaves the content entirely undisclosed even to the website’s creators. Another issue is finding the balance between PII and non-PII transaction data. Ideally, the chatbots have to keep the conversation going smoothly with a minimal amount of personal data, so social media websites’ targeting won’t use it.
5. Total Automation
In the FinTech industry, one of the latest developments is the complete automation of the leading financial processes. According to the research, “intelligent automation is a combo of continuous innovations in AI, robotics (RPA) and financial business processes automation.
Benefits of Automation
- Faster product and service delivery
- High returns
- More vigorous financial health in the short and long run
- Enhanced cross-selling
- Higher customer satisfaction
Limitations of Automation
- The requisite amount of data is needed for operations with AI and ML.
- Top management voicing hesitation in automating the financial system
- Difficulties in creating a detailed business case
- Lack of qualified experts and implementation tools
- Thus, few businesses are ready to move their operation to the automated base, discouraging other companies from pursuing this trend.