The ongoing rise and growth of digital technologies like AI, ML, IoT, and Blockchain several industries around the world are withstanding a significant disruption. Even the financial sector is ready to transform with the escalation of investment in financial technologies
In the world of the financial sector, financial technologies are the innovative breakthrough which has given the industry an opportunity to offer personalised financial services with increased security. In simple terms, the idea of digital transformation in the financial sector revolves around transforming traditional financial services to more simple and straightforward digital financial services.
Digital transformation of financial services sails on the financial technology development efforts made by financial institutions to meet the customer expectations. The digitisation of financial services not only makes the delivery of financial services convenient, but also it streamlines the entire process which results in a reduction of operational costs and strengthening security.
Rise of FinTech Application Development
Financial technologies have evolved over the years and made it possible for developers to develop secure and convenient fintech applications. Now, it has become possible for fintech businesses to stay compliant with the fintech regulations. Fintech services like eWallets, UPI payments, digital banking, online trading, and many others are reshaping the world of finance.
What are Financial Technologies?
Before we dive further into the world of financial technologies, let’s understand what these are. Financial technologies are advanced technologies that help financial institutions deliver their services with ease and convenience. The financial technologies have even introduced new business models and financial services.
The modern customer looks for the services that are easily accessible and offer them quick responses promptly without making them wait for long. Thus, the traditional model of delivering financial services will go into oblivion in the coming times as the fintech business model will gain its momentum.
According to a recent report by Statista, China holds the top position in the fintech market with overall transactions valuing at USD 1,596 billion in 2019. Another report states that the fintech market will grow to USD 381 billion in 2022 from USD 151 billion in 2017. The statistics indicate that it is a multi-billion dollar industry and will continue to grow rapidly.
PWC Global held a survey on fintech and the following are the outcomes that they derived:
- 75% of business leaders believe that financial technologies will increase their focus on customers.
- 83% think that part of their business operations can be captured by fintech businesses.
- 20% of the business leaders think that fintech businesses will take over most of the financial services.
All of these facts indicate that fintech companies have a very bright future and will play a significant role in transforming the traditional financial business model across the world. This may explain why there is expected to be a continued rise in financial application development. Also, the financial giants have shown their interest in adopting financial technologies to create fintech applications that enhance the customer experience. Companies like Citibank and UBS are spending heavily on implementing financial technologies.
Financial Technologies For 2020
After analysing the fintech solutions and innovations in 2020, I’ve summarised a list of technologies that will revolutionise the fintech industry in the upcoming times.
1. Regulatory Technology
The recent groundbreaking software innovations in the financial sector have made the regulatory technology a mainstream in the fintech space to create automated solutions to ease out regulation monitoring, compliance, and reporting. Keeping up with the regulatory compliances is very difficult for fintechs and thus having a single database for regulatory compliance management is a blessing for fintech institutions.
Benefits of RegTech
- Inexpensive, quick, and easily manageable way of controlling a huge pile of data sets.
- Automated yet precise research for every regulation.
- Connecting fintechs, regulators, and customers together to protect the interest of all three.
At this moment, there are more than 150 RegTech companies all across the world. Non-compliance with the government regulations results in fines or even worse and when the compliances total to 300 million pages, it is more likely to miss some of them. The financial institutions will do anything in their power to avoid such a disaster.
Financial institutions in collaboration with governments are working on developing such RegTech solutions to eliminate the risk of gap between compliances and their implementation. For example, the Monetary Authority of Singapore (MAS) is working with the Financial Conduct Authority (FAC) to provide banks with assistance in developing RegTech solutions.
It is evident that the fintech market is in need of RegTech solutions. The increasing number of compliances in the financial sector requires extraordinary efforts from the fintech companies and we are expecting to see a large number of development happening in the RegTech space.
2. Artificial Intelligence and Machine Learning
It has been more than five years since the Artificial intelligence and Machine Learning technologies have been exerting their influence on the fintech industry. While the popularity of these financial technologies is high, the efficiency is still questioned in many use cases. Let’s have a closer look at the AI-powered solutions for the fintech industry and find the perfect way to approach this innovation.
So far, the standalone AI-powered fintech solutions haven’t shown groundbreaking progress. However, the case is not the same for smaller AI-powered fintech applications. There are banking solutions that successfully use AI and ML technology for modelling techniques and data analytics.
The AI and ML technologies are still in their early stage and hold a lot of unexplored potential which will keep attracting startups, fintechs, and investors. In the current scenario, the AI implementation in fintech works best if done with the combination of big data management solutions. The solutions are used to analyse the performance of financial institutions by creating insights and to automate necessary organisation processes.
An example of AI implementation in the fintech space is the Alpaca Forecast AI Prediction Matrix which is a price-forecasting solution. The software platform is capable of processing millions of financial dealing records, recording demand movements, identifying patterns, and predicting the price changes for the future.
Another element of financial technologies, Machine Learning (ML), is one of the prime AI components. The applications of ML in the current fintech space can be categorised into three main categories. First is Fraud Prevention where ML tools analyse existing fraudulent cases, identify patterns, and check whether a business does or doesn’t have similar activities. Second is Risk Management where the ML-powered fintech software analyses the company’s performance and identifies potential threats. Third is Fund Development Prediction in which the ML tool suggests the most probable future developments by scanning the company’s investment records.
Blockchain technology has been in popularity since 2018, and even if the technology doesn’t make headlines very often now, the innovation is still happening. Many Asian banks have already implemented blockchain to secure their financial transactions and the European and American institutions are very likely to follow the trend.
With blockchain technology in fintech, every transaction is encrypted, making it impossible to penetrate. The transactions only happen when each and every stakeholder in the network approves it. Moreover, the tokenisation allows international businesses to make transactions in universal currencies. The blockchain-based transactions are happening all across the world and Australian CommonWealth Bank and Russian Alfa Bank are the two perfect examples of it.
4. Robotic Process Automation
To reduce the heavy dependency on human resources, fintech institutions have an option to introduce RPA (Robotic Process Automation) to their business management solutions. The applications of RPA in financial businesses range from simple tasks (such as sending emails) to complex work (such as creating reports or organising databases).
Most common processes for RPA implementation are:
- Statistics collection
- Calculation of numerical values for evaluating the company performance
- Customer communication
- Transaction management
- Summarising large documents
- Managing regulatory compliance and documentation
- Controlling, replying, and managing emails and attachments
The AI and language processing technologies will make conversational banking a mainstream in the technology implementation in the fintech industry. We already are witnessing the implementation of chatbots in the financial sector. The chatbots are saving fortunes for the fintech businesses by responding to the customer’s frequently asked questions like where is the nearest ATM, how to block my lost card, or how to reset my internet banking password.
Up till now, the financial institutions have been responding to such queries via either their in-house team or by outsourcing the process to a BPO. The conversational banking apps will save this cost for the financial institutions. Not just for queries, but the chatbots are also capable of walking the customer through the process of registration or making a transaction.
Biometrics technology is the perfect answer to the concerns of compliances and security with fintechs. With time, biometrics has become a very prominent part of everyday technologies, and it is hard to replace. The financial industry has been using biometric identifiers with a strong password mechanism, as well as two-factor authentication, which offers a very secure system that is easy for the customers to operate.
Financial Technologies Summary
With ever-changing demand of the financial market coupled with the growth of technology, the changes in the fintech space are inevitable. Each year transforms fintech businesses in a new way and the way businesses incorporate these changes determines the companies’ success.
Combined AI, ML, RegTech, Blockchain, Conversational banking, and Biometric technologies will play a vital role in making the financial operations efficient and improving customer satisfaction in 2020. Enterprises don’t require to implement all of these financial technologies simultaneously as it would require huge investments and tougher commitments. Implementing one or two financial technologies at a time would be our recommendation for all financial institutions.
If you are interested in implementing one of these financial technologies within your company, or if you want to discuss fintech application development in general, then get in contact with us.