Today’s users expect more individualisation and personalisation of their experience in the field of financial services pushing companies to expand and improve the financial services market.
FinTech startups take the first place among financial innovations. Here’s our take on FinTech trends like open banking, RegTech, and platform-based banking.
The Fintech Revolution is not a fairy tale or science fiction, it’s reality changing the shape of the global financial system.
P2P loans at a fingertip, conscious crowd investing, cryptocurrency payments, automated financial advisors — these things have appeared thanks to the close collaboration of FinTech startups and traditional institutions.
While the former get funding for their out-of-the-box projects, the latter take advantage of digitisation. Undoubtedly, the results of this alliance are beneficial for both parties.
But what if the FinTech industry continues developing at breakneck speed? Does it mean the end of traditional banking?
In today’s article, we’ve tried to find the answers.
What you will learn in this post:
- The current state of the FinTech industry
- Breaking down the impact of FinTech on financial services
- The impact on the future of banking: what experts predict
The current state of the FinTech industry
Let’s start with a few facts about the state of the market before we dug deep into how FinTech driving financial services innovation.
Fact #1. Traditional financial institutions are believed to be one of the most likely entities to undergo disruptive changes in the next few years.
Fact #2. The largest investors supporting FinTech startups are financial institutions: Citigroup, Banco Santander, and Goldman Sachs, which proves their interest in the evolving field.
In the US, for instance, FinTech firms gained 63% of total investments poured into the financial industry.
Fact #3. The majority of FinTech “Unicorns”—startups with a valuation of over $1 billion—are based in China and the US.
Fact #4. The most used features of financial applications all over the globe are:
- money transfers and payments;
- savings and investments;
- financial planning;
Fact #5. The most preferable technologies for the financial business are Data Analytics, mobile development, Artificial Intelligence, and Blockchain.
Fact #6. Areas that lack the legislative coverage are Data storage, Digital authentification, AML/KYC, crowdfunding, and cryptocurrency.
Breaking down the impact of FinTech on financial services
Originally FinTech startups and traditional banks were rivals fighting for every client but now everything has changed because of the FinTech disruption of financial services.
Better client service, enhanced financial security, more opportunities for individuals and businesses, and many more other things are the fruits of the creators and incumbents partnership.
So how did this become possible?
Big Data and risk assessment
All the personal records kept in gadget storages refer to Big Data and if applied appropriately can reveal behavioural patterns of existing and potential clients.
AI and ML algorithms deployment helps FinTechs and investment firms build strategies aimed at a more personalized portfolio, superb client service, and less risky transactions.
What is more, advanced technologies can be used for fraud detection by identifying unusual user activity based on behavioural patterns.
Fintechs have recently started experimenting with Big Data for compliance purposes. They’re developing tools and solutions which help incumbents meet the established requirements.
Security and client experience
Another example of the impact of FinTech on banks is positive changes in private data protection and customer experience.
Several data breaches that occurred in different parts of the world not so long ago have forced incumbents and their younger partners to take notice.
As FinTechs mostly rely on mobile applications for banking and financial services, the risks of unauthorised access to personal financial records, accounts, and digital wallets have increased in times.
Better cybersecurity and, hence, customer experience can be achieved by strengthening the infrastructure of applications and usage of firewalls.
Cloud services require special measures and techniques for detecting automated attacks, protecting each kind of services separately, developing a robust architecture.
Total digitalisation in transactions
The next point in our list “how FinTech impact on banks” is progress in transaction banking.
Despite the fact that every transaction is now accessible 24/7, there are still a good number of customers who prefer traditional methods for paying utility bills, making money transfers, or repaying loans.
Innovations in digital transactions are going to attract even the most conservative clients.
The first trend that deserves special attention is omnichannel banking enabling users to make transactions in every environment – web platforms, applications, social networks.
Other positive changes refer to decreased transactional fees, better transparency, and lower error risk, which has been achieved thanks to the blockchain deployment.
Products and services of the new generation
Having embraced the sense of innovations, banks are now competing for the most sophisticated products or services.
Below you will find the best practices of how FinTech is disrupting banking services.
- Digital-only banks function without physical branches delivering solutions online. Among the best-known neo-banks are N26, Penta, and Chime.
- Joint current accounts such as Monzo deal with various currencies, card types, and user categories allowing clients to track their expenditures and manage savings.
- Voice and face recognition techniques are applied for providing access to users’ accounts. Atom Bank is one of the institutions deploying these methods.
- AR/VR gives a chance to financial entities to gain an advantage over competitors. For instance, the Commonwealth Bank of Australia has already developed an app delivering the immersive experience for real estate buyers and sellers.
Great shifts in human resources
FinTech in not only modifying business models and infrastructure of high-street banks, but it also triggers considerable shifts in their human resources.
New FinTech departments created in banks raise the demand for specialists with skills and expertise in both finance and development.
As a result, a lot of innovative positions for cybersecurity analysts, product managers, compliance experts, data specialists have flooded the labour market.
On the one hand, it stimulates the younger generation to pick a career path that will be relevant in the upcoming years.
On the other hand, it forces companies to put efforts into training the existing staff, arranging educational events, improving the tech expertise of human resources.
The impact on the future of banking: what experts predict
Obviously, the FinTech industry doesn’t intend to slow down and will only continue surprising with brand-new models of collaborations between young startups and established banks.
If you’re in this topic, you just need to know the influence of FinTech on the finance industry in years to come.
Trend #1. Open Banking will offer more choice for bank clients.
The new concept was initially offered in the UK and then spread to the rest of European countries.
The initiative implies that banks will partner with third-party companies by handing over users’ data to the latter via application programming interfaces.
It is expected that open banking practice will boost competition, drive innovations, and deliver better users’ experience.
Trend #2. Small banks are willing to jump on the bandwagon of FinTech.
In the aftermath of the financial crisis, lots of local banks were left behind the rest of the competition.
And it’s high time they took action to revive and found their place in the sun.
Several US banks, Evolve Bank & Trust, Cross River, Sutton Bank, have established strong relationships with startups.
While young companies reach out to their client base and gain regulatory protection, incumbents conquer the mobile banking app market.
Trend #3. Traditional lending will become faster and more accessible.
The underserved categories of bank clients can breathe a sigh of relief as the lending process is going to become less painful and time-consuming.
The FinTechs and incumbents tandem is working hard on enhancing current credit score assessment patterns and risk management systems, which will lead to faster decision-making.
Trend #4. Regulatory Technology is to eliminate compliance efforts.
The RegTech is already here to improve current regulatory flows with the help of advanced technologies, Big Data analytics, and cloud computing in particular.
The RegTech is to help financial institutions easily and painlessly adapt to ever-changing law systems.
This trend especially concerns compliance issues, transactions tracking, trading, and reporting systems.
Trend #5. Banking as a Platform (BaaP) continues gaining momentum.
Platform-Based banking is evolving by leaps and bounds gradually replacing the traditional product-centred approach and vertical business models.
The idea is to allow third-party providers to develop banking solutions having full access to the inside information of incumbents.
In this sense, BaaP resonates with the Open Banking concept as both are intended for yielding benefits to all parties – FinTechs, clients, and banks.
These were only a few movements we’re going to observe in the nearest future. The FinTech has an enormous potential that will be unleashed very soon.
Date: April 11, 2019