As we continue to use our mobile devices, IoT technologies and have taught cars to drive without human intervention, the financial sector has also been influenced by innovation. Such a merger of technologies and financial services is now commonly called “fintech”. In fact, fintech has become so popular that the Merriam-Webster dictionary in 2018 introduced this word with the definition: “Products and companies that use newly developed digital and online technologies in the field of banking and financial services.”
This makes fintech a very broad field, because today technology has penetrated so deeply into our daily lives that it is simply impossible to clearly determine where traditional banking ends and fintech begins.
Since the appearance of the first bank cards, users of financial services have taken for granted online and voice banking, chat for customer service, new security features that protect against fraud, financial documents sent to any application, and cost analytics. Moreover, in 2018, only 18% of customers visited the bank for transactions, all the rest of their actions were carried out online. Today it is becoming clear that fintech is much more than just online banking. With so many innovations in technology, there are some really interesting fintech trends that are worth paying attention to in the coming year.
The use of fintech by the largest high-tech companies
Amazon provides loans to small businesses to improve the quality of service to its customers and help them expand sales opportunities on its platform. Apple is issuing its own credit card to address customer security concerns, providing its customers with a best-in-class experience with financial products. Facebook and Telegram are looking to launch their own currencies. Monsters like Apple, Facebook or Amazon (with deep pockets, strong customer relationships and a huge amount of information collected about them) can pose a real threat to traditional banks. To save themselves, banks will have to abandon the traditional product-oriented approach in favor of a customer-oriented one.
Fintech to protect vulnerable consumers
New services are emerging to help protect the elderly from financial fraud. The idea is to keep our parents and grandparents financially independent and at the same time protect their assets. These services are also in demand for teenagers and young people of student age, who are still funded by parents to help parents control costs and ensure accountability. One of the most popular services is Visa debit cards with the True Link Financial service, which allows you to block or allow only certain sellers.
The use of AI in the financial sphere
It’s no secret that banks use AI as a way to simplify customer service and partially automate simple financial products, freeing up scarce banking specialists. Risk assessment using AI also allows for more flexible and dynamic regulation of business lending in order to minimize the impact of the human factor.
But AI is no longer a monopoly of large banks. AI as a service is now available at Google, Amazon and other companies, which allows developers who do not have experience with data to include AI in their products. And it has a huge potential for automating simple processes, which allows fintech companies to offer better, simpler and faster customer service than traditional banks.
Bet on youth
People aged 23-38, often referred to as “millennials”, are the largest able-bodied age group. But compared to previous generations, their financial behavior has undergone significant changes: they no longer seek to purchase real estate, preferring greater mobility, they are much more willing to invest in their own education and are extremely dissatisfied with the high cost of living. This age group is also less likely to be entrepreneurs than older people, despite surveys showing that they would like to start their own business. They have a clearer tendency to hoarding and minimizing expenses than to risky spending. Accordingly, services that are popular with the millennial generation must meet fairly simple requirements: have the simplest and friendliest interface, be aimed at saving money, financial planning and cost optimization.
Monetization of fintech products
After several years of the fintech boom, after many ups and downs, investors have become much more selective. Despite the fact that the overall financing of fintech remains at a historically high level, technology investors are eager to invest in already proven companies that have demonstrated the prospect of growth and profit.
Data collected by PitchBook shows that despite a clear increase in total venture capital funding, early-stage financial technology investments have halved from a peak of more than 13,000 transactions in 2014 to about 6,000 in 2017 (1). The funding bar is growing rapidly, and it is becoming increasingly difficult for companies that do not have a clear path to monetization to overcome it. This is especially unpleasant for ambitious new digital banks. Some of them have collected significant sums, but are still trying to find ways to effectively monetize their product, others have not even provided a product yet due to the difficulties associated with licenses and legal restrictions
The adoption of truly innovative business models by the banking sector takes time, and startups are in need of significant investments in infrastructure for a long period before stable revenues begin to flow. For example, blockchain startups attract a significant amount of venture capital thanks to a radically new infrastructure for payments and other applications. Nevertheless, investors, having experienced the cryptocurrency boom not without losses, have become more cautious. So far, blockchain technologies, despite the huge prospects, remain rather an interesting innovation that does not bring significant profit.
Banks or Fintech
Financial institutions interact with fintech startups either as investors or as part of a strategic partnership. According to McKinsey, almost 80% of financial institutions have entered into fintech partnerships. Compared to $1.8 billion in 2011, 2018 was a stellar year for fintech companies: with more than 1,700 transactions worth almost $40 billion (2).
In the 2010s and 2020s, fintech has become one of the fastest growing areas, and the next decade should not be any different. Although not every fintech startup threatens small and medium-sized banks, the banking community is already forced to constantly keep abreast of the latest trends in order not to miss the moment when some new technology can significantly shake the very foundations of their business.
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