Every single day, billions of people in every corner of the globe access their money through a variety of digital platforms. Applications and other forms of integrated technology have revolutionized the world of personal finances, taking what was once a 9 to 5 industry plagued with waiting times and restrictions and helping it blossom into a 24-hour reality. For the first time in human history, people have access to their money whenever they want it, and it is all down to Fintech.
But first, to the beginning. What exactly is Fintech? A portmanteau of finance and technology, it is a coverall term used for any business that uses technology to breathe new life into and enhance financial services, not to mention the increased automation that comes with that. It is a broad term, admittedly, but it is an industry that is growing rapidly, becoming ever more influential in the day-to-day lives of business and individuals alike. It covers everything from applications to cryptocurrencies, via insurance, investment applications, and modernized lending along the way.
Brief History of Fintech
Fintech has benefited greatly from the positive attitude and behavior of traditional banks, the majority of which have actively supported Fintech app development and the improvements of banking software. It doesn’t take a soothsayer to understand why. We live in a time of unprecedented competition between banks - at the end of 2019, there were 5,177 commercial banks and saving institutions in the US - and staying ahead of the curve is a matter of life and death for many. Staying relevant is of paramount importance to many banks and that means staying aware and involved with Fintech industry trends.
The marriage of technology and finances is nothing new. 1950 saw the invention of the credit card (itself a real-life take on a concept noted in the 1887 novel ‘Looking Backward’), and less than 20 years passed before the first automated teller machine (ATM) was introduced in London, England. This was the match that lit the torch paper, and there are now thought to be more than 3.5 million ATMs in use around the world. The 20th century saw personal finance become an ever more common theme, and that trend has been guided and shaped by concurrent developments in technology. The rise of Fintech is no surprise as a result.
The term itself is relatively new, but by its very nature Fintech is a constantly evolving innovation. Each new development brings new challenges and new opportunities, and the very ways that Fintech has transformed the banking industry often see Fintech itself transformed. Not a moment passes without a breakthrough in data science or a baby step taken by machine-learning algorithms, and these are almost immediately put to use in the financial sector. The banking industry’s digital transformation is no longer a case of ‘if’, only of ‘when’, and the answer is now.
The Rise of Mobile Banking
The clearest indication of this transformation is the rise in mobile banking. Most banks now offer a simultaneous application of some kind, to the point where it is unusual if one is not available. Customers increasingly need easy access to their financial records and the incredible spread of smartphones has facilitated this like nothing else. Banks have learned that they are no longer able to survive purely on in-person banking and the opening times of physical branches. Money no longer sleeps.
The rise of neobanks has also exacerbated the desire for mobile banking applications. These are banks that eschew the idea of a physical branch entirely, preferring to conduct 100% of their business in the digital world. Banks like Chime, Simple, N26, Revolut, and Monzo have become household names in the financial world without breaking a single inch of physical ground. Neobanks is a Fintech trend that is likely to continue growing exponentially very shortly, just as the number of banks exploded with the deregulation of the many financial markets in the 1980s.
Trading with Cryptocurrencies
It isn’t just banks that have seen incredible changes due to the rise of Fintech. The development of cryptocurrencies could well be the most notorious Fintech trend of modern times, another example of science fiction coming true in the 21st century. Cryptocurrencies trace their history back to 1983 and David Chaum’s experiments, but it wasn’t until 2009 and the advent of bitcoin that the world’s first decentralized cryptocurrency came into being. Throw in the development of Blockchain and the increased transparency and security it provides, and the world is in previously unchartered waters when it comes to an individual’s banking independence and the decentralization of finances. The future of Fintech could well be personal.
Fintech has also revolutionized the way we approach investments and trading. While we aren’t quite at the point where technology can accurately predict where markets are heading, Fintech can run colossal amounts of data through various algorithms that can identify risks and trends in the markets, which in turn allays the treacherous nature of investments and trading. The digital world is practically flooded with applications that break down previously erected barriers to investment, opening it up the wider world. The positives and negatives of this can be debated at length, but you no longer to be in a select place at a select time to chance your arm on the stock market. Trading is now a truly global endeavor, and that is entirely down to the Fintech.
While developments in banking software have allowed people new ways to see money coming into their accounts, payments and lending have also undergone incredible transformations thanks to the Fintech app development. The days of waiting lists and lengthy risk assessments are over, and it is now possible for loans to be approved in minutes, all from the comfort of your own home. People can also request credit reports multiple times a year without seeing their credit score disrupted, meaning more people have more understanding of their financial situation than ever before. The entire industry is becoming increasingly more transparent with every new Fintech trend, be it cashless payment companies such as PayPal and Stripe or free credit platforms like Credit Karma, not to mention HTEC-developed companies such as Ingenico and Zest.
Insurance companies have been slower than banks to embrace Fintech, but this is also starting to turn. Many traditional insurance companies are beginning to shadow innovation alongside Fintech’s impact on banking software, allowing for greater automation and flexibility when it comes to creating a financial safety net. Mobile car insurance is now the norm, and many health insurance companies have partnered with wearable devices to allow people to track their healthcare and changing requirements. The insurance industry has taken its time but it is a case of better late than never.
Innovative uses of Artificial Intelligence and Data Technology in the Banking Industry
So far, the term Fintech has been bandied about with gay abandon, a catch-all umbrella portmanteau that shapes the future of finance, but what technology is being used exactly? Technology itself is often a term used with a large brush, but this is not a case of anything digital being applied to anything financial. At the heart of all Fintech industry trends is a specific technology that compliments the banking industry.
Itself a blanket term in many ways, Artificial Intelligence (AI) often finds itself at the heart of new developments in Fintech. As mentioned earlier, it is AI algorithms that are eating away at that financial holy grail - the ability to predict changes in the market. Outside of stocks, AI helps providers understand and track the spending habits of customers while fostering a tighter relationship between banks and the people who use them.
The latter situation would not be possible without modern developments of Big Data technology. AI and Big Data combine to sift through mountains of data in a heartbeat, identifying trends and consumer preferences and evolving as required. The hyper-analytical mindset of the modern world has made its presence felt in the development of banking software, as banks and credit providers look to understand their customers on a more personal level. Big Data makes this far easier than ever before.
While many technologies used in Fintech have been adapted to suit the demands of the industry, Blockchain is unique in that it was created with financial institutions in mind, thus it has become an integral partner in the development of Fintech industry trends. By definition, Blockchain has removed the need for the middle man, decentralizing the industry to a point where a third party is no longer needed for transactions, bridging the gap between consumer and provider. Despite its importance Blockchain is still in the relatively early stages of its development. The continued growth of Blockchain may well end up being the most exciting aspect of the future of Fintech.
Finally, Robotic Process Automation (RPA) has streamlined the way we approach various aspects of the finance industry, taking monotonous and time-consuming tasks out of the to-do lists of people and entrusting robots with their completion. These tasks include data collection and analysis, transaction management, and even communication, although the widespread use of chatbots for customer engagement is likely to decrease as more people around the world grow ever frustrated with its inherent restrictions. RPA has opened a lot of doors for the development of Fintech, but there remains much work to be done.
All of this makes the future of Fintech look particularly rosy, but there are a wide number of challenges that it faces as the 21st century continues to throw new problems in our path. The first is the potential backlash mentioned previously, and the possibility of human frustration with digital limits can curb the innovation needed for Fintech to thrive and grow. With the flow of efficiency, it is easy to forget that people still desire security and privacy, and there remain a certain cynicism and fear of an entirely digital industry. As banking software increases its share of the financial market, many people may reject it in favor of more old-fashioned methods of managing their money.
New regulations challenging the Banking Industry
A preference for the way things were might lead some to give Fintech a wide berth, but it is the ever-changing world of banking regulations that arguably poses the biggest threat to its future development. Regulatory risk is a constant shadow in the banking industry and always has been, but it is a fear felt more keenly by Fintech than by more traditional methods of banking, for several reasons. The very freshness of Fintech means that many of the streamlined processes for staying on top of changing regulations simply aren’t in place, and it only takes one transgression for customer trust to be eroded entirely. Throw in the problems caused by having to train new staff in quick time and you have the potential for major problems. Customer trust is everything in banking, and it only takes the slightest chink for armor to become entirely obsolete.
Changing of banking regulations are the great inevitability of finance, as the world looks for ever-tighter ways to stop criminal activity before it can be born. The most recent examples are PSD2 (which impacted payment services) and the arguably-iconic GDPR laws, introduced to tighten security around data usage within the EU, but these are just two notable examples of a much wider net. Saying compliant with banking regulations isn’t just recommended for Fintech, it is of optimum importance. The relatively swift and rapid nature of Fintech’s processes also means that scrutiny on the industry is tighter than it might be on more traditional banking, as the opportunity to juke the system strikes fear into the heart of regulators worldwide. The combination of efficiency and a widespread lack of understanding has made Fintech an easy target for new regulations, and failing to comply is often the death knell for many start-ups.
The challenges are obvious but don’t expect Fintech to take a back step any time soon. There has never been a more fertile time for the industry, with investments in Fintech start-ups booming. Some $33 billion was invested into Fintech start-ups in 2018, and the value of the market is expected to grow to $309.98 billion by 2022. This remains a small fraction of the wider financial industry but it is a number that is moving in only one direction. Fintech has made financial awareness a 24/7 reality, and the best is yet to come.