Emerging Technologies in Fintech
The financial services industry has rapidly adopted new technologies, especially since the pandemic. Here's what's happening in the Fintech Industry right now.
New Fintech, financial technology, innovations are allowing financial institutions to serve customers in unexpected ways. Experimentations with predictive analytics, automation, blockchain, digital-only banking are aiding institutes to provide higher quality services at lower prices. More than 45% of customers in the US use at least one fintech service. Fintech emphasizes creating better digital processes that consumers can customize, creating a positive user experience.
Fintech services provide unlimited opportunities to startups, but established businesses are also getting more aware of the possibilities and importance of these new services.
Fintech sectors and trends
The fintech sector has seen exponential growth and significant change during the pandemic. The absence of physical contact has highly impacted the ways companies conduct business.
77% of conventional financial institutions aim to expand their attention on innovations to enhance client retention.
"When the COVID-19 pandemic hit the world, the majority of the businesses declined. Only a few businesses showed the upward trend, and the FinTech industry was one of them."
Here are a few sectors leading the way in driving Fintech's growth.
Embedded finance is the integration of financial services in non-financial areas. For instance, Amazon is offering on-demand financing at the time of purchase.
The benefits of embedded finance offerings are:
- Opens up additional revenue streams through new services
- Lets organizations control and oversee more of their customer experience
- Aids in streamlining processes
- Delivers valuable customer data
Open banking allows third-party organizations to access customers' banking data through APIs. This provides the consumer with multiple offerings like flexible high-income-generating investments, credit cards, etc. Its benefits include greater access to customer data and the ability to provide insights based on that data.
Open banking is expected to reach $43.15 billion by 2026 at a CAGR of 24.4%. It will benefit FinTech workers, banking institutions, API industry figures, consumers, and underserved communities.
Banking as a service
Banking as a service allows financial institutes to incorporate Fintech services into the existing system. Due to the pandemic, the traditional banking systems rapidly expanded their digital services. This acceleration has impacted consumers positively.
Fintech emerging technologies
Fintech services have surely changed the financial ecosystem within a decade. The eagerness of users to try new computerized finance services is one of the major reasons for speeding up innovation in the financial sector. Here are some emerging technologies that directly impact the relationship between consumers and financial institutions.
"A new generation of banks is going all digital to reach mobile-first consumers."
Mobile payment made significant progress from SMS banking (1999) to present smartphone banking applications. Mobile banking lets consumers perform digital payments, manage banking services from anywhere and provide the end-user interface.
Mobile banking has reduced manual operations, providing a smoother and easier user experience. 89% of all consumers use mobile banking to eliminate market entry barriers. Companies like Venmo and Interac allow customers to make transactions with minimal fees.
The main reason for familiarity with blockchain for many people is cryptocurrency. Blockchain provides a secure and transparent ledger to report agreements, transactions, and records. Blockchain technologies make inter-bank and intra-bank transactions easier.
Blockchain doesn't require third-party access, ensuring end-to-end data and payments security. Banks are now readily leveraging the potential of blockchain to enhance the Fintech future due to its advanced security features. The global blockchain market is expected to grow from $3 billion in 2020 to $39.7 billion by 2025.
Many of the largest financial institutions like JP Morgan, Wells Fargo, Bank of America, Agricultural Bank of China Limited, Russian Bank are trying to use blockchain technology for providing various financial services.
Blockchain is a new wave in the finance world, focusing on minimizing threats and enhancing future financial technologies.
For fintech companies, customer data is of great value. Predictive analytics can be developed by observing consumer preferences, spending habits, and investment behavior.
The collected data also aids in formulating marketing strategies, fraud detection algorithms, and risk management. The big data insights also help banks understand user behavior to provide them with a better experience.
Artificial Intelligence is one of the most used technologies in Fintech, playing a major role in developing the finance industry. Applications of AI include credit scoring, fraud detection, wealth management, etc.
It assists banks in enhancing decision-making and quality solutions. Shortly, AI chatbots will be able to perform activities like:
- Performing small transactions
- Giving financial guidance to clients
- Creating personalized experiences
- Improve customer retention
- Speed-up loan approvals
Now, it is possible to create a specific financial solution for a specific customer with the help of AI.
Businesses in the financial sector are using AI to deliver content effectively. For instance, Capital One is letting consumers pay bills using Alexa Skills. Savings of $1.3 billion are expected by 2022 with the help of AI in the insurance sector.
Although quantum computing is still in its infancy, it attracts huge research efforts. Financial institutions have recently adopted quantum computing for backend computations. It adds power to trading, asset pricing, risk analysis, etc.
JP Morgan Chase and Barclays have already joined the IBM quantum computing network. According to a survey by IDC in 2021, investments in quantum computing are expected to rise in the next two years.
The quantum computing market is expected to reach $1.76 billion by 2026. IBM believes that quantum computing is on the edge of sparking a paradigm shift.
Companies, mostly startups, use regulatory technology to improve their ability to monitor, report and comply with requirements. RegTech helps startups to automate compliance tasks, reduce the risk of fraud, perfect authentication and identity management.
Regtech also helps banks increase transparency and consistency and reduce expenses of compliance. The RegTech market is anticipated to reach around USD 33.1 Billion by 2026. What makes RegTech an emerging fintech service is the fast and cost-effective management of a large amount of data.
As biometrics is one of the most trusted innovations of all time, financial systems around the globe are rapidly adopting it.
The biometric security system has brought security to the next level, offering users and banking institutions the confidence that their important data is secured at all times. Recent reports say touch-based verifications will soon be eliminated, shifting towards a contactless biometric solution.
Open Banking Application Program Interfaces or APIs impact the traditional banking system more than any innovation. By open APIs, banks provide clients with more transparency and empower the making of new value chains and administrations.
It permits banks to give curated different third-party financial services to clients and allow them to hold control of client information and guarantee the best quality services on their platform.
Augmented Reality (AR) has proven more practical than VR, aiding fintech institutions to enhance and enrich services for consumers.
"AR banking expands the opportunities an interface can provide to ensure the fastest and most convenient banking experience of the future."
Insurance can also utilize AR technology to straightforwardly analyze the environment with instant data collection.
Plenty of collaboration opportunities can be seen by enhancing remote work with AR. 78% of customers expect to use augmented reality (AR) app in the next ten years.
An AR-based system created by Wells Fargo allows users to interact with bank tellers in an augmented reality environment, combining experiences of digital and physical worlds.
P2P transaction tech
P2P digital payment methods are growing their market shares, signifying that consumers are ready to adopt these fintech technologies for daily use.
The target audience for peer-to-peer transaction technology is age 50 and below, but the older crowd seems to be interested also. Some of the major benefits of the P2P transaction technique are bringing down middlemen and bringing down transaction costs.
The P2P transaction technologies have significantly increased during the pandemic as people often needed to transfer money to their relatives urgently.
Robotic Process Automation is surely one of the fintech trends taking the finance industry storm. It utilizes digital robots to automate daily routine tasks and cuts operating costs.
Although many fintech companies are not utilizing IoT currently, there are numerous opportunities to explore. For instance, companies can deploy IoT devices to collect insurance telematics and use the information to provide customized insurance coverage. IoT-based insurance services mean consumers can take advantage of cheaper rates and get faster services.
According to World Bank, 1.7 billion people around the globe, mostly in developing countries, have no access to banking facilities. Fintech solutions play a major role in improving financial inclusion in these regions.
An app in the Marica neighborhood in Brazil ensured that basic income was distributed among the Mumbuca digital currency residents.
The pandemic was a great test for all the industries. Fortunately, the finance industry has realized the importance of digitization.
Existing companies and startups are focusing on incorporating financial technology into their business to attract more customers.
As Fintech covers almost everything from payment, banking, digital lending, insurance, capital markets to wealth management and real estate, progress will bring significant shifts and a smoother user experience.