The Fintech industry is upscaling by leaps and bounds through modern technologies and advancements in financial services. Trends like voice payments, robotic processes, and open banking have taken over this market to help finance companies and customers engage in smarter transactions.
With the latest technologies, the financial services industry enables people to manage finances better and in a risk-free manner. This has been made possible with the developments in the software industry and by bringing in automation to optimize workflows.
Statistics say that 65.3% of Americans will use financial technology and digital banking services in 2022. Additionally, 66.7% of bank executives believe that Fintech will take over wallets and mobile payments around the world eventually.
This goes to show that banking and financial services are increasingly relying on modern technology to improve offerings and create state-of-the-art platforms and applications.
Developing technical fields like artificial intelligence (AI), machine learning, cloud systems, etc., have integrated into the financial services sector to create a disruption in the global market. But before we get into the revolutionary emerging technologies, let’s quickly emphasize Fintech and its ongoing trends.
Fintech, or financial technology, as you may have guessed by its name, is an amalgamation of finance and technology to create advanced and innovative business solutions for financial service providers. It helps the financial services industry make banking and transactions shorter, smarter, and less complicated.
This is achieved with the use of modern technical areas like AI, biometrics, blockchain, software as a service (SaaS), advanced automation, and so on. Fintech is a collective name for all these trends that can be applied separately or in combination to create a better product.
Fintech aims to increase business efficiency, make relationships with customers more transparent, and streamline operations by eliminating slow and manual processes as much as possible. For instance, a digital ERP solution can achieve in seconds what manual processes may take days to complete.
So, it only makes sense to adapt these technologies for new-generation finance apps that help accomplish routine banking tasks like making payments, getting bank statements, paying bills, building investment portfolios, exploring credit options, and receiving invoices and alerts.
How fintech is using technology to innovate financial services
The finance industry has moved online to a great extent, with innovations in financial technology to create new revenue streams and enable digital payments. In the United States alone, the total transaction value of digital payments in 2022 is projected to be $1,765 billion.
To support such a booming industry, investments have pooled into the global market, and new technologies are being adapted to develop financial solutions. We’ll discuss seven of these emerging technologies and what they imply for the future of the financial services industry.
1. Blockchain technology in banking
Banks have been actively implementing blockchain technology to record data and prevent fraud. Blockchain helps record the details of each transaction, which makes it easy to identify hacking attempts.
This technology supports international payments and conducts transactions quickly with minimum commissions. Blockchain’s Distributed Ledger Technology (DLT) aids in recording and sharing data across multiple stores and a distributed network.
Additionally, cryptographic and algorithmic methods synchronize data across the financial network. This is a huge step as it allows the storage of transaction data in multiple locations. It paves the way for blockchain interoperability and data transmission across industries.
Some blockchain technologies that have disrupted the financial services industry are smart contracts, digital wallets, digital assets, decentralized finance (DeFi), and non-fungible tokens (NFTs).
Gradually, traditional financial institutions are dabbling with digital assets and using blockchain and DTL to tap into new markets.
To understand how blockchain technology is set to affect the Fintech industry, you can enroll in the Finance and Financial Technologies program, designed by Hero Vired and MIT, covering technological innovations in the world of financial technology.
2. Artificial Intelligence (AI) for finance applications
The role of global AI in the Fintech market is expected to grow from $1,337 million in 2017 to $7,305 million in 2022, with a compound growth rate (CAGR) of 40.4%. This growth is fuelled by the use of big data, improved finance applications, and industry collaborations.
AI is set to create huge value in banking and financial services through factors like automated identification, machine learning, and smart virtual assistants. Since AI studies customer behavior to identify patterns and generate predictions, any anomaly or fraudulent activities can be easily detected.
Additionally, AI chatbots offer personalized help to users by analyzing their habits and preferences and offering customized financial solutions. AI applications like graph computing and knowledge graphs will become more prevalent in identifying patterns and associations across a network. This can have great implications for the future of Fintech.
Decentralized machine learning also addresses privacy risks and data usage patterns by using advanced encryptions, zero-knowledge proofs, and privacy-based data analysis tools.
Overall, AI applications can be integrated further in front and back offices in the finance sector in the form of customized apps and UX, intelligent service robots, chat platforms, market analysis apps, fraud detection, and alternate credit ratings to create a fast and digital-first ecosystem for businesses and users.
3. IoT for risk management
The Internet of Things (IoT) is a system of physical objects with sensors, software, processors, and other advanced technologies that enable data exchanges over the internet or other networks with other systems and devices.
IoT systems in financial services have three layers:
- Smart sensors with RFID labeling for automated identification and logistics management.
- Wireless communication networks for connected endpoint devices and centralized control management.
- Application and operations support in the form of smart technologies and embedded systems for smarter communications.
IoT helps in complying with regulatory policies and determining risks during customer engagement. It simplifies the claims management process with technology such as auto insurers for automated insurance processing.
In the banking sector, IoT-based financing integrates IoT and Blockchain to ensure accounting records are authentic and risk-free. It matches records with customer data and behavior to analyze risks in transactions.
Another projected application of IoT is embedding banking services like digital payments into wearables for more accessibility.
4. Cloud computing in application development
By 2025, businesses are expected to deploy 95% of all new workloads of cloud-native platforms, with the global cloud computing market predicted to reach the $800 billion mark. In financial services as well, cloud technology is helping boost the efficiency of application development and maintenance.
Cloud systems reduce infrastructure costs, migration downtimes, and platform dependencies. Technical risks can be avoided with cloud DevSecOps in financial organizations.
Public, private, and hybrid clouds drive new platforms of interaction through AI, IoT, and other internet-based technologies. Implementing cloud containers allows multiple workloads to run on one operating system instance to reduce overheads.
The cloud, integrated with AI, helps create applications with high-value outputs and saves financial companies from establishing and maintaining an expensive IT system in-house. Emerging cloud applications in this sector include open financial technologies and banking as a service.
The relevance of cloud computing is set to increase further, with more institutions relying on cloud technology for agile capabilities and high scalability. Banks are expected to adopt cloud microservices architecture at scale in the near future to build core applications.
5. Hyper automation for increased efficiency
Hyper-automation reduces turnaround types and optimizes workflows in the finance sector. Technologies like Process Automation (RPA) integrate automation and smart decision-making into existing company processes.
Examples of automation at scale can be chatbots and payables applications. Chatbots are already a major part of finance servicing, and they will become more advanced with features like voice transactions, customized suggestions, and platform-independent support.
Hyper automation can further streamline financial workflows by integrating with AI to boost efficiency and reduce cycle times. Tasks like financial reporting, year-end settlements, and accounting can be revolutionized through automation technology.
6. Open banking across industries and institutions
Open banking is the concept of sharing client data with a third party after taking the owner's consent. Open API lets banks provide information to insurance providers, e-commerce platforms, and other organizations.
This helps providers verify a person’s solvency before providing loans or services to them. It is also the basis of all your online transactions and swipe payments.
Open banking brings Fintech and banks under the same roof by building a data network between two industries and multiple organizations. Banks release information in a risk-free, standardized form to authorized parties through APIs and AI.
The open banking field is expected to grow massively in the next few years, with the emergence of consolidated accounts for better financial decisions.
7. RegTech to comply with industry regulations
RegTech or regulatory technology helps financial organizations stay compliant with the complicated regulations of the industry. It finds compliance issues within a system and fixes them or raises a warning.
Compliance software is predicted to reach a value of $55.28 billion by 2025 due to its high relevance. Regulatory oversights can cost the company massively. So, instead of paying huge money to fix breaches, they can invest in RegTech for smoother operations.
RegTech solutions can be grouped under identity management, transaction monitoring, risk management, regulatory reporting, and compliance software. Banks and other financial organizations can use this technology to reduce overheads, ensure customer data protection, and bring speed and agility to their capabilities.
RegTech is powered by automation fields like big data and machine learning. It works by analyzing and identifying patterns in large historical data to pinpoint fraud and problem scenarios.
The Fintech industry is blooming in all its glory, with technical integrations opening up the job market for diverse roles. Skills like data science, machine learning, and SaaS capabilities have become important. Needless to say, Fintech careers make huge sense in this landscape.
To understand the current landscape and acquire relevant skills, opt for certification courses like Hero Vired’s Finance and Financial Technologies learning program. This course teaches advancements in the finance field via an online curriculum of practical and theory learning.
Taking this course will also make you eligible for an MIT MicroMasters program certificate and give transferable credits. All you need is to register and apply for the program if you have a bachelor’s degree.
The 11-month course has up to 90% live instructor-led classes online, assured placement and career support, practical case studies and projects, and gamified and interactive learning.
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