Fintech is a fast-growing change that can shake up many parts of the financial world. The increase in financial technology companies has been amazing in recent years.
Now, there are over 26,000 fintech companies worldwide, and they together provide jobs for about 500,000 people. Almost 30% of bank customers use at least one service from a non-traditional provider.
In banking, everyone talks about fintech. It has changed a lot of things in finance, from how we make payments to getting advice. To keep you updated on the newest trends in the fintech revolution, we’ve made a list of seventeen technologies that are transforming the industry.
Distributed ledger technology is becoming the backbone of the digital world. It’s the tech behind Bitcoin and other digital currencies, but it can do a lot more.
Blockchain has so much potential that we haven’t fully explored yet. There could be some really exciting developments in the next few years.
Things like Decentralised Finance (DeFi) and Non-Fungible Tokens (NFTs) are just a couple of examples of how blockchain could change finance. There are many other ways people can use this technology, and it’s hard to predict what new things will come up in the next few years.
Blockchain has a lot of room to grow, but there are also some challenges that need to be worked out before it becomes more common.
2) Sensors & Internet of Things (IoT)
The Internet of Things (IoT) is changing how financial services work and how we understand data. Sensors play a big role in the fintech revolution, and they are becoming more common. These sensors help companies gather data in new ways.
Harvard University’s research says, “Putting affordable sensors to watch temperature, location, and stress of almost any moving part gives us many options to monitor distant operations, whether it’s simple household devices or big capital equipment.”
In the financial services industry, sensors are used in ATM machines. They can tell how many people are waiting to use them. Sensors are also used in small payments, like in contactless payments, where users don’t need to enter credit card details for tiny transactions.
3) Mobile Payments & Digital Banking Services
Neobanks are a trendy fintech service shaking up traditional banking. Unlike regular banks, neobanks operate exclusively online, focusing on mobile-friendly designs.
With neobanks, customers can open accounts using smartphone apps, skipping the need for physical branches or mountains of paperwork. These apps are user-friendly and offer a variety of banking features, including savings accounts, car or mortgage loans, and easy payments.
Examples like Monzo and Starling Bank in the UK, and Number26 in Germany, have gained popularity in Europe, often outperforming traditional banks. Forbes reports that banks worldwide have invested $1 trillion in digital banking to stay competitive.
4) Augmented Reality / Virtual Reality (AR/VR
The use of virtual reality (VR) in financial technology is slowly gaining ground. People can now use VR to invest in stocks or trade currencies, creating an immersive experience for monitoring real-time market movements and making quick investment decisions. It’s a great example of how consumers can leverage fintech and modern technology for their investments.
Although experts believe it will take some time for VR to have additional practical uses, companies are already testing the technology to unlock its potential. According to Heather Bellini, an expert from Goldman Sachs Research, virtual and augmented reality is projected to become an industry exceeding $80 billion by 2025.
In 2021, a substantial $10 billion investment in VR was made through Meta (formerly known as Facebook), the company behind VR-headset producer Oculus. Meta plans to hire 10,000 people to build a ‘metaverse,’ and there’s a strong likelihood that fintech will play a crucial role in such a large-scale simulation.
5) Smart Contracts
Smart contracts, although not fully explored, offer numerous benefits to the financial services industry. These include enhanced security by removing third parties, increased efficiency with faster transactions and lower fees, improved transparency leading to greater accountability, and reduced costs by eliminating overhead expenses.
In financial services, smart contracts are already in use. For instance, Compound Finance utilises smart contracts to enable users to secure short-term loans using Ether as collateral. Another example is Agrello, a startup developing smart contracts for enterprise customers that execute when specific conditions are met.
While most people link smart contracts with blockchain technology, they merit their own category. Older examples, like automated clearinghouses (ACHs) and central securities depositories (CSDs) for bond issuance, also fall under the umbrella of smart contracts.
6) Robotic Process Automation (RPA)
RPA, or Robotic Process Automation, employs digital robots or programs (bots) to take over routine and repetitive tasks that were traditionally done by humans. It differs from artificial intelligence as it doesn’t need human-like intelligence.
Numerous businesses have embraced RPA to enhance efficiency and accuracy by automating routine activities like data entry and information processing.
For fintech businesses, RPA is a valuable tool to cut operating costs without compromising quality or productivity. By automating back-office functions, it frees up resources, allowing individuals to concentrate on more innovative and value-adding tasks.
7) Voice-Enabled Payments
The older generation once saw futuristic ideas like those in Star Trek as mere fiction from the 60s. Today, these concepts have become reality, with voice-enabled smartphones being a prime example.
Voice-enabled technology allows individuals to utilise their smartphone’s voice recognition, along with digital assistants like Siri, Google Assistant, or Amazon Alexa, to check their balance and perform tasks such as making payments or transferring money.
For fintech startups working on proof of concept (POC) projects with limited budgets, voice-enabled payments offer a viable option. This technology could be applied for payments in retail stores without contactless terminals, presenting an opportunity. Additionally, it serves as a helpful tool for individuals with visual impairments, providing them access to the cashless economy.
8) Virtual Cards
Virtual cards, based on VISA or Mastercard, offer a digital alternative to physical cards for online transactions. These cards don’t involve plastic; instead, users have a sixteen-digit card number, CVV code, and expiration date.
Beyond just online spending, some virtual cards support storing loyalty programs and enable users to manage both fiat and crypto transactions from a single account. This consolidation simplifies fund management, providing one balance across all accounts. Additionally, virtual cards can serve as a backup payment method when physical cards face issues like decline or misplacement.
Setting up virtual card accounts is easy through mobile apps like Zumo and iCard. However, it’s worth noting that virtual cards may not be universally accepted by all retailers, posing a potential drawback.
9) Autonomous Finance
Automating finance, or autonomous finance, is when machines and devices handle financial transactions on their own, without needing humans to do it.
For instance, you can set up automatic payments for things like insurance premiums. It means your payments happen without you actively doing anything. Another example is using robo-advisers like Wealthfront or Betterment, which automatically manage your investments.
Blockchain-based smart contracts can also play a role in autonomous finance. For instance, Etherisc lets you create “flight-delay” insurance policies using smart contracts. If your flight is delayed by two hours or more, the insurance pays out automatically, without you having to go through the process of filing a claim manually. This takes away the hassle of dealing with paperwork after something happens.
10) Biometric Security
Biometric technology is becoming crucial in the world of financial technology, especially as identity verification becomes more widespread. Biometrics simplify tasks like accessing accounts, verifying online transactions, and even replacing traditional passwords.
In the future, authentication methods like facial recognition, voice analysis, and fingerprint scanners will play a bigger role in ensuring the security of banking processes.
More advanced biometric examples include analysing palm vein patterns, iris recognition, and retinal scanning. These cutting-edge security methods allow financial institutions to do away with less secure practices like passwords and PINs.
11) Artificial Intelligence (AI) & Machine Learning (ML)
Artificial intelligence (AI) has a wide range of applications in financial services, with ongoing research and countless use-cases. It’s utilised for risk assessment, forecasting, data management, automation, and many more possibilities yet to be explored.
Robo-advisors stand out as a notable development and a popular trend in fintech. These online platforms autonomously manage investments, providing personalised portfolios tailored to individual preferences. They leverage cognitive computing technology and big data trends to determine the most optimal investment strategy.
AI’s presence in finance extends to chatbots used by banks for basic customer service queries and tools like IBM Watson for financial analysis. With AI integration, these bots can learn from client conversations, adapting future customer interactions based on acquired knowledge. FinTech companies leverage machine learning, a subset of AI, allowing bots to learn and predict future customer behavior using historical data and real-time inputs.
Machine learning in finance is evident in areas such as fraud detection, compliance analysis, and algorithmic trading, showcasing its ability to learn and evolve from data to solve complex problems.
12) Open Banking
Open banking enables banks to integrate third-party APIs into their banking platforms. This allows customers to share their financial data with third parties in exchange for new services and improvements to existing information.
For example, customers can grant access to a utility company app to pay bills directly from their bank account, simplifying the process without needing an additional login and payment method.
Open banking has various use cases, including third parties offering payment suggestions based on transaction history, providing personalised offerings such as improved loan options from banks, and offering investment advice through wealth managers or robo-advisors.
A PwC study highlights that open banking is likely to bring significant changes to how consumers, especially small businesses, perceive banking. It raises questions about who should provide banking services, who will guide us, and under what conditions and reasons we allow non-banking organisations access to our financial data. Open banking is seen as a potential source of disruption in the financial industry.
With hackers continually finding new security vulnerabilities, experts must continuously develop creative strategies to protect sensitive data. Even with robust data protection measures, hackers discover novel ways to breach security, as seen in the Equifax incident where attackers exploited a known vulnerability that the organisation hadn’t patched.
Fintech startups are employing cybersecurity technologies innovatively, including blockchain, to enhance the security of information storage. Other notable cybersecurity advancements in the fintech sector involve multi-cloud data storage, secure access service edge (SASE), and decentralisation.
As cyber threats increase, particularly with the expansion of online transactions and digital processes, security measures against these threats are also on the rise. Fintech businesses are addressing various challenges, including fraud management, KYC (know your customer), AML (anti-money laundering), and exploring passwordless authentication solutions to bolster security.
14) Big Data
In the current landscape, businesses and individuals need extensive market datasets and finer details to power predictive models, forecasts, and trading activities throughout the day. The importance of big data has further surged with the proliferation of IoT devices. Even traditional data warehouse systems are evolving, incorporating sensors to adapt to the expanding wealth of data.
In this dynamic environment, traditional data management systems find themselves out of place. Unstructured data, generated on the fly and challenging to handle and record, requires organisations to reshape conventional data solutions into mobile applications, tablets, and smartphones to stay competitive.
Regulations, like the EU’s General Data Protection Regulation (GDPR), are adding complexity to the scalability of solutions across borders. Data privacy and analytics are now critical considerations. Compliance departments face the challenge of expanding their Big Data initiatives while ensuring client loyalty, especially in the face of increasing competition from international companies leveraging global trade agreements.
15) RegTech (Regulatory Technology)
The use of technology to monitor and ensure compliance with regulations is referred to as regtech. Regulatory technology solutions automate the monitoring and reporting of data, equipped to handle large datasets or unstructured information. These tools are specifically designed to assist financial institutions in keeping pace with evolving regulations across various jurisdictions globally.
The rise of regtech becomes particularly crucial in maintaining the security of fintech operations amid changes in political leadership and the increasing emphasis governments place on cybersecurity laws. These tools play a key role in managing large data transfers to meet regulatory requirements.
According to Thomson Reuters research, “Regtech applications continued to provide popular, embedded solutions for firms in areas such as compliance monitoring, financial crime, AML/CTF, sanctions, and regulatory reporting.”
Financial institutions are increasingly incorporating gamification into their products and services. Gamification involves designing solutions with game mechanics, such as personal scorecards or badges, to engage users in specific tasks.
These games aim to encourage customers to monitor their spending habits using events or progress bars, providing positive reinforcement for making healthy financial decisions.
For instance, Acorns is a mobile investment app that rounds up transactions made with a linked credit or debit card and invests the difference into ETFs (exchange-traded funds). Launched in 2012, the platform has over 8.2 million users who have invested $2 billion through its system.
Flourish Savings, another fintech startup utilising gamification, rewards users with incentives that can be cashed out later. A study by Apis Partners highlights, “Gamification is about customer centricity: it helps customers achieve their goals in a way that emotionally engages them.”
17) Quantum Computing
The integration of quantum computing into the financial industry is not just a futuristic idea; it’s already happening. Several banks are actively leveraging quantum computing technology. As computing speeds continue to advance, financial companies find it easier to predict market movements and discern patterns in financial data.
In addition to predicting market trends, financial technology companies are exploring quantum computing applications for more efficient issuance and verification of digital signatures. Quantum computing can also enhance security and privacy measures, accelerate trading algorithms, and reduce transaction settlement times.
According to Infosys research, “In financial services, quantum computing would exponentially increase the speed of transactions powered by algorithms. It would provide a significant advantage in areas such as cybersecurity, trading, asset management, AI, risk analytics, & predictive capabilities & help in scaling up with much lower cost & resources.”
Staying ahead in the rapidly evolving fintech industry requires keeping an eye on emerging trends. Exploring these top seventeen fintech trends can provide valuable insights and empower you to make informed business decisions, positioning your organization for future growth and maintaining a competitive edge in the market.