Financial services including banking and insurance are not just facing changes to their operations, as in the past. This time, entire business models are facing disruption. Let’s review the latest fintech trends and analyse their impact on businesses.
Technology has disrupted the financial services industry many times over the decades, but it can be argued that the current wave of technological transformation is perhaps the most disruptive ever. Let’s take a look at the leading fintech trends.
Firms need to respond to a building trend
It is clear that the pace of change is building, with over $13.8bn in venture capital due to back fintech in 2018, compared to a mere $3.8bn in 2013. To survive in the fintech landscape financial institutions need to know what these trends are as a necessary first step. Let’s take a look at the leading fintech trends.
Artificial intelligence and automation
With new branches such as deep learning AI is capable of tackling immensely complex problems. AI can save costs, improve customer service and create new opportunities for financial institutions:
- AI is shaping insurance. Underwriting used to be a complex task that could only be undertaken by humans, but the ability of machine learning to process and learn from huge datasets may mean that human underwriters are soon no longer needed for any insurance lines that collect large datasets.
- Robo-advisors driven by AI. In another Deloitte study, this time of the growing German robo-advisor market, the consultancy suggested that 4th generation robo-advisors driven by self-learning AI would soon provide highly customized financial advice. AI has the capability to bring robo-advisors far closer to the capabilities of human financial advisors.
Distributed ledger solutions and BaaS platforms
One word says it all and 56% of respondents in the 2016 PwC Fintech Survey said that they recognised the importance of blockchain. But what can blockchain deliver in practice? The applications are continuing to emerge:
- BaaS and trade finance. Microsoft and Bank of America Merill Lynch are collaborating on ways to apply the tech giant’s Azure blockchain-as-a-service (BaaS) platform to trade finance transactions. The aim is to reduce transaction risk while at the same time boosting trade finance efficiency.
- Clearing and settlement. Transaction clearing and settlement is not an exciting business, but it is a costly operational issue for financial institutions. Blockchain offers a solution, with stock exchanges embracing blockchain: the Canadian Securities Exchange unveiled the country’s first platform for clearing and settling securities via blockchain and Australia’s ASX is also examining using blockchain to cut costs.
Data tokenization and advanced security measures
The cybersecurity threat is not retreating. PwC’s 2016 Global CEO survey found that 59% of financial services respondents were either extremely concerned or somewhat concerned by cybersecurity. A multi-faceted approach can include strategies around:
- Data tokenization. Separating a customer’s personally identifiable information from the information required to complete a transaction can make it harder for criminals to commit fraud. Data tokenization can make card payments safer, for example. Tokenization can successfully isolate sensitive data without obstructing transactions.
- Third party vendors. The ongoing adoption of cloud computing increases the points of exposure for financial institutions that use third-party providers for everything from KYC verification to in-office productivity software. Wise institutions must go to extreme lengths to vet the security practice of their partner vendors.
What else?
We can’t cover the entire universe of fintech trends in one article, but these other trends that are driving the digital transformation of financial services should be touched on at least briefly:
- The sharing economy has impacted a range of industries including accommodation and transport, finance will not be left unaffected as decentralized asset ownership takes hold.
- There is a coming regional shift too, with PwC suggesting that Asia is due to become a centre of innovative fintech, thanks to a growing Asian middle class.
- Analytics and customer intelligence are also due to enjoy a boost in capability thanks to big data and business intelligence technologies. Financial institutions now have exponentially more data about their customers — and more computing tools to mine it.
Financial institutions are not alone
Your organisation does not need to go it alone when dealing with fintech challenges and in taking advantage of what fintech offers. While the world of technology is fast colliding with the world of finance it remains a world apart in many ways.
Get in touch to learn how we can help your organisation make the most of fintech opportunities.
Originally published at eleks.com on June 29, 2018.