In pursuit of providing services that are faster, smarter and safer, the financial sector is adopting and adapting to new technologies that allow it to transform the user experience. Constant innovation will continue to drive disruptive business models in the financial services industry in 2023 and beyond.
We have seen the slow demise of the high street bank, as brick-and-mortar branches close around the world. Customers are increasingly remote, looking for low/no-touch, digital access to their accounts and to ancillary products and services to manage their finances. Traditional banks have more to lose then, in this brave new world, than emerging, innovative fintech startups. However, new entrants into the financial services sector may lack the financial muscle of established institutions, and so above all, collaboration – not competition – between fintech companies and banks is the biggest single ongoing shift in the sector.
With the right partnerships in place, traditional FSPs are able to broaden their product offering and the platforms on which they operate and increase their potential client base. Financial services are, after all, a numbers game. More clients and more services equate to more revenue. This is the win-win situation banks and new fintech operators find themselves within.
What are the technologies shaping the future of fintech?
Artificial Intelligence includes processes such as voice and facial recognition, computers translating between languages and even decision-making capabilities. The introduction of AI functionality into banking and fintech services will result in greater operational efficiency and the elimination of human error. It can provide FSPs access to more relevant data on its customers such as purchasing patterns and credit risk profiles.
AI is already evident in the form of customer service chatbots which have reduced the costs of establishing and maintaining staffed call centres. According to McKinsey, a greater application of AI is set to generate up to USD$1 trillion in additional value for the global banking industry annually.
If AI gives FSPs more access to customer information, Blockchain is decentralising business models and operating processes and putting the control of data back in the hands of the user. Blockchain takes any mistrust out of the user/FSP relationship as it provides a fast, accurate and completely transparent and indelible record of transactions that can be accessed only by network members.
The impact of the introduction of blockchain technology in the sector cannot be underestimated. It is said that Blockchain will grow at a rate of 85.9% from 2022 to 2030 and will boost global GDP by USD$1.7 trillion by 2030.
Blockchain represents a service that benefits both user and FSP but the advantages of Cloud Computing accrue mainly to the fintech provider in offering a cost-reducing system that also liberates them from activities that do not form part of their core expertise including IT infrastructure, mainframe and data storage systems. Utilising Cloud Computing services reduces operational costs which go straight to the institution’s bottom line and/or can be passed on to customers. Cloud computing provides pay-as-you-go pricing and on-demand services which means that fintech companies can cherry-pick the basket of services that suits their needs at any given time, resulting in greater operational agility and higher responsiveness.
The Internet of Things (IoT) is one of the most transformative technologies of our time. It already exists in our homes where it is used to control music, heating, kitchen devices and appliances and home security systems and more remotely, using the embedded technology lodged in the ‘things’, of which there are more than seven billion in the world today. IoT’s importance in banking and more especially in the insurance sector is in its being a source of data to assess for example driver risk based on driving and speed patterns. Combined with blockchain technology it provides banks with the security of the knowledge that accounting records match.
Open Banking is perhaps the area in which most collaboration between fintech innovators and established banking institutions can be seen. Open banking refers to the use of open Application Programming Interfaces (APIs) that enable third-party developers (the innovators) to build financial products and services around a financial institution. This extends the offering that the banks have and gives the innovators a market for their platforms.
Open Banking offers increased revenue streams for banks and the elimination of manual processing. For the consumer, it translates into greater ease of opening and migrating accounts and applying for new products and services.
These technologies are more than trends. They and subsequent generations of their current iterations are the present and the future of fintech and are set to redefine the sector significantly going forward.