What FinTech has got for 2023
Fintech, a portmanteau of "financial" and "technology," refers to companies that employ technology to improve or automate financial services and operations. Fintech provides technological solutions and novel ideas, making financial responsibilities and transactions less cumbersome, safer, and more effective. Fintech applications range from mobile banking and insurance to cryptocurrencies and investment apps.
The industry is growing rapidly and has various applications for consumers and businesses. Many established financial institutions now invest in, acquire, or form strategic partnerships with fintech companies, demonstrating their enthusiasm for the sector's rapid growth. To meet the needs of their native digital consumers, traditional banks have to opt for technologies propelling the banking industry forward.
One phrase that summarizes fintech innovations' impact on the established trading, banking, financial advice, and product industries is "disruption." For example, financial products and services, formerly the purview of branches, sales associates, and computers, are now increasingly accessible via mobile devices, further shifting power away from massive, entrenched institutions and toward the hands of the people.
The Growth of FinTech
Financial decisions will no longer be based on intuition or experience; credit goes to innovations like machine learning/artificial intelligence (AI), predictive behavioral analytics, and data-driven marketing. Apps with "learning" capabilities will track users' patterns and encourage them to play games that improve their natural, subconscious financial choices. The fintech industry is also an early adopter of AI-powered chatbots and user interfaces, which help with routine customer care issues while reducing overhead. Technology in the financial sector is also being used to combat fraud by using data on previous purchases to identify unusual economic activities.
Do you know
The global fintech technology market was valued at $110.57 billion in 2020 and is foreseen to reach $698.48 billion by 2030, expanding at a CAGR of 20.3% from 2021 to 2030.
The growing trend among consumers to use savings tools for immediate and long-term goals has made digital users, members of Generation Z, and the Millennial generation value fintech.
Reasons for Fintech growth
1. Economic Inclusion
Over the past decade, the World Bank estimates that 1.2 billion formerly unbanked people have gained access to financial services due to advances like artificial intelligence implemented by fintech companies.
Financial software development has come a long way toward a more equitable distribution of wealth worldwide.
2. Contactless Transactions
The payments business is the frontrunner in Fintech and has seen the most development in recent years. And the recent shift in this cutting-edge industry is the prevalence of contactless payment methods, which is now happening and will increase in importance in the coming year.
Contactless transactions on a digital payments company's platform increased dramatically during the pandemic's peak, suggesting that widespread adoption of the technology occurred then.
Meanwhile, cash purchases dropped from 49% to 38%. However, this cash drop will be very important to Fintech and eCommerce over the next year and beyond.
3. Venture capitalists
The venture capital industry will resume its investment activities next year. However, there will be many fewer businesses available for funding. This should raise some eyebrows in the venture capital world. There will be many people trying to make money but few opportunities in the summer of 2023, which should be exciting.
You can see from this proof that Fintech is at its highest point and a good place to put your money.
Technologies and Services Shaping Fintech
Numerous Fintech offers new payment platforms that process payments more quickly, intelligently, and affordably. For example, there are fintech companies that facilitate global charges, which are typically delayed and incur hefty commission fees. In addition, further businesses offer innovative payment channels to boost client conveniences, such as mobile wallet payments, SMS services, and payments integrated into utility bills. Most of these payment services rely on the latest technologies, such as mobile computing, payment gateways, omnichannel transaction platforms, smart contracts, and blockchain technology.
- Blockchain is a decentralized database that stores data among nodes in a network. Blockchain also enables smart contracts, which utilize code to execute agreements between parties such as buyers and sellers autonomously. Digital cash, digital tokens (such as NFTs), and cryptocurrencies (Bitcoin, Ethereum, Etc.) are the future of the financial world.
Blockchain technology could greatly affect the fintech industry by improving privacy and lowering risks during financial transactions. If there are no middlemen, buyers and sellers can do business for less money.
RegTech is an abbreviation for Regulatory Technology. It refers to a particular segment of Fintech that leverages technologies to enhance legal and regulatory compliance processes. For instance, financial institutions can uncover hidden patterns of non-compliance that go beyond typical regulatory requirements using machine learning algorithms. In addition, modern AI tools like Natural Language Processing (NLP) automate document inspection and present possibilities for expanding regulatory checks (e.g., Anti-Money Laundering controls) to unstructured data sources like news and social media content. Additionally, Regtech provides real-time, granular processing of financial transactions, i.e., it is feasible to audit each financial transaction for compliance. This is a substantial improvement over current regulatory systems, which tend to examine transaction batches.
Robot investment advisors, or robo-advisors, are software programs that offer automatic and customized guidance to anyone looking to invest in the stock market. Following the customer's risk profile, they provide optimal investment options by applying powerful analytics algorithms to vast amounts of consumer and market information. In many cases, they also look at alternative data like open data and data from social media to learn about the market (like how the market feels) and customer risk appetite. In most cases, robo-advisors automate data analysis using BigData and AI. The scope of robot advisors has increased recently to include real-time choices intended to facilitate high-frequency trading, such as Forex.
Increasingly, chatbots and voice assistants are employed in the front office of banks and financial institutions nowadays. Thanks to NLP technology, modern chatbots can precisely comprehend and successfully answer client demands. This allows clients to communicate with their bank using popular messaging platforms, where chatbots are frequently embedded. Moreover, several financial institutions are employing voice assistants to automate and humanize consumer interactions. Voice assistants give people a conversational way to talk to their bank, just like popular voice assistants like Siri and Alexa in smartphones and smart homes.
Credit Risk Assessment & Underwriting
Today, techniques from machine learning are used to create a new way to use statistics to judge the creditworthiness of people and businesses.
Instead of relying on traditional credit reports, statistical approaches evaluate a larger variety of relevant client data. Thus, fintech methods to credit risk assessment have the potential to overcome the limits of current credit risk assessment systems, which are extremely severe and prohibit small and medium-sized businesses from accessing capital. Similarly, AI and ML technologies can automate and improve credit underwriting operations' accuracy and speed.
Personalized Financial Management
There are fintech companies that give customers digital assistants for financial management and planning. These instruments are apps for personalized financial management (PFM). They look at things like incoming payments and credit card transactions to figure out how to help customers reach their financial goals, like investing a certain amount of their income and making sure they have enough cash to pay their bills. From a technological standpoint, PFM software uses extensive data management and analytics capabilities.
KYC Use Cases
Numerous fintech banks employ AI technology to facilitate and accelerate the crucial KYC procedure. For example, AI techniques automatically detect regulatory changes and seek new KYC information from customers. Also, most fintech companies use customer onboarding processes that are highly automated and don't require the customer to be in a bank branch. Along with biometric authentication, several technologies recognize documents automatically, such as passport photos.
Using newer cybersecurity measures like two-factor authentication has decreased fraud like credit card theft.
However, fraud detection remains mostly rule-based, which hinders recognizing and managing complex financial fraud, such as Anti-Money Laundering (AML) and capital markets manipulation. Numerous fintech companies aim to eliminate these limits. They apply machine learning (ML) and statistical learning techniques to reveal latent fraudulent behavior patterns. Most crucially, they can do so with precision and in real-time.
Financial institutions have greater access to client information than ever before. For instance, they can access and combine information about consumers' payments, loans, credit card activities, and investments. In addition, the introduction of Open Banking and Open APIs enables banks to supplement this information with additional data from other banks, with the customer's approval. These data give a solid foundation for constructing accurate consumer profiles. Consequently, they offer a variety of customized products and services to customers using customer-centric analytics. This procedure increases client satisfaction and income for financial institutions. Mint is an example of an all-in-one financial management tool.
There are fintech companies that assist banks and other financial institutions with brand and reputation management. This is done by combining several advanced analytics and machine learning techniques. These techniques are used to find fraud, collect and evaluate customers' feelings about the brand, and find strange or suspicious customer behaviors.
Users of Fintech
Fintech customers fall into four basic categories: 1) B2B for banks and 2) their business clients, 3) B2C for small enterprises, and 4) consumers. Mobile banking, enhanced information, data, more precise analytics, and decentralized access will create chances for all four groups to collaborate in ways never before seen.
As with most technologies, the younger the customer, the more likely they will be aware of and appropriately characterize Fintech. Given this much-discussed demographic's massive size and expanding earning potential, consumer-oriented Fintech is primarily aimed at millennials. Some observers of the fintech industry argue that the focus on millennials has more to do with the size of the millennial market than with Gen Xers' and baby boomers' aptitude and desire to use Fintech. Instead, Fintech has little to offer older consumers due to its inability to solve their problems.
Before the introduction and widespread use of Fintech, a business owner or startup would have approached a bank for finance or startup money. If they desired to accept credit card payments, they would need to connect with a credit provider and install infrastructure, such as a card reader connected to a landline. With the advent of mobile technology, these obstacles no longer exist.
Finally, 2023 will be pivotal due to the proliferation of financial software and the numerous emerging fintech advancements. Because the market is just starting to take shape, there are a lot of uncharted territories to investigate.
Despite the world's problems over the previous three years, Fintech has helped consumers. Customers assert that the future will provide a stable, flexible, and opportunity-rich industry as the system plots its course.
Fintech can't advance to the next level until there's more collaboration throughout the ecosystem to guarantee an open, equal, and accessible financial system for all users- which we see transpiring across the economy in the coming years.