The rise of fintech has been a game changer for the finance industry. Whether it be TransferWise enabling international money transfers or Kabbage providing loans to small businesses, fintech companies are changing the way we manage our finances.
Some studies suggest that competition from entering fintechs leads to increased innovation by incumbent financial firms. However, this relationship is not always clear cut.
Automation
Financial services companies are using automation to reduce manual processes, increase efficiency and improve customer experience. They are also integrating automation into their core products and services through the use of software, hardware and data networks.
Fintech innovations range from back-end processes, like automated auditing and double-entry bookkeeping, to consumer-facing solutions such as robo-advisors, P2P lending apps and investment apps. They are enabling more people to save and invest, as well as provide financial services to those who have historically had limited or no access to them.
Other examples include mobile wallets and payment apps, crowdfunding platforms and cryptocurrencies (like Bitcoin). Cryptocurrencies are built on blockchain technology, which supports transactions in a decentralized way using distributed ledger technology.
Artificial Intelligence
FinTech innovations have made traditional financial services accessible to more people. This includes remote banking, digital wallets, and a variety of apps that allow consumers to transfer funds or make purchases using their phones.
These technologies also include robo-advisors, peer-to-peer lending platforms and investments apps. Additionally, there are programs that automate underwriting and can help lenders evaluate creditworthiness more quickly for certain consumers, especially those from lower socioeconomic backgrounds.
Successful FinTechs focus on process in addition to technology. This helps ensure that the technology is implemented correctly and that users can adapt to it effectively. This is critical to success, as many consumers worry that AI could replace their human bank employees.
Big Data
Big data analysis is the foundation of many fintech solutions, from robo-advisors to payment and money transfer apps. It also helps fintech companies streamline traditionally clunky processes like applying for loans or managing investment portfolios.
These technologies also allow people to access financial services from anywhere, on any device. For example, voice recognition software allows users to check their balance or make payments through mobile devices without typing or swiping. And blockchain technology allows for more secure transactions by storing digital records in a distributed network. It can also be used to reduce fraud in the banking industry. These tools are helping fintechs create more efficient business models and deliver better customer service.
Machine Learning
Using machine learning, financial institutions are automating processes and improving their efficiency. For example, post-trade settlements are being processed faster and more accurately than ever before by using AI algorithms that analyze unstructured data, such as tweets, satellite imagery, news articles, and financial statements.
Moreover, customers no longer have to visit traditional banks to access their funds. Today, they can open a bank account online and use their smartphone as a digital wallet to manage their money.
In addition, biometric authentication technology allows people to use their fingerprints, face, eyes, and voice to log into their accounts instead of traditional passwords and PINs. This provides greater security and privacy than conventional methods.
Cloud Computing
A number of these innovations use cloud computing, which allows companies to modify and deploy software quickly. This accelerates product development and allows FinTech firms to respond swiftly to customer demands.
Financial services are highly regulated and must operate efficiently, safely and in compliance with mandated procedures. To achieve this requires sophisticated technologies that are agile and responsive to changing regulations.
FinTechs can increase productivity and reduce costs by helping businesses automate processes and cut labor costs. They can also enhance customer service and reduce risks. These benefits extend to non-financial businesses as well. Examples include embedded finance, where FinTech tools like buy-now-pay-later buttons appear on point-of-service terminals at coffee shops, and buy-now-pay-later options in e-commerce stores.
Internet of Things
Fintech companies are introducing new products and services that disrupt traditional financial firms. They provide alternative financing solutions, such as peer-to-peer lending apps and online investing platforms. These innovations allow businesses to save money and access the finance they need without having to go through a bank.
Typically, FinTechs are created by people who work in the financial sector and see a better way to do things. They leverage the latest technology to develop solutions that are faster and easier to use than existing systems. They also offer transparency tools to build trust with their customer bases. They also offer mobile applications and web-based solutions for convenient, on-the-go access to financial information and transactions.
