The past year was very turbulent for the financial technology (FinTech) industry because of the economic uncertaintiesy, numerous regulatory changes, and the culmination of technologies, like blockchain technology, AI, design thinking, and cloud enablement. In view of the developments from the recent past, ranging from open banking, regulatory clarity, AI maturity, and blockchain technology, 2018 proves to be another exciting year when it comes to FinTech trends.
Below are the top 10 trends to keep an eye on , that will uphold the financial services for the next few years.
- FinTech as a Business Model
The financial services industry constitutes of large financial services institutions with huge user bases and wide-spread networks. These incumbents have always been strong in compliance and adapted to new and increasing regulations. But financial disruptors are always a threat to even the incumbents.
Up to 28% of the financial services business will be at risk by 2020, due to this technological disruption.
A high 81% of the CEOs are more concerned about the speed of the technological advancements when compared to other industry verticals.
Successful, FinTech disruptors will always please the customer crowd with the better customer experience, convenience and low price. This has been attacking the profitable elements of the financial services industry.
The bottom line is that the financial institutions should now accept the fact that FinTech is the new business model which they should adopt to keep pace with the competition.
- FinTech Collaboration
Most of the industry today, has a decentralized asset ownership, which is called as sharing economy or collaboration. Financial services will very soon flow into this chain. This is a topic which should be seriously considered by the financial services institutions to reduce the operational cost. This will be driven by peer-to-peer transactions, enabled by technology partnerships. This collaboration will consist of decentralized asset ownership and use of information technology to find the efficient match between the providers and the consumers.
- Digital will be Prevalent
Since, customers are now becoming more digitally- savvy, the legacy infrastructure of the bank is strained to support new modes of customer engagement and grow digital initiatives significantly. Mobile and digital platforms will continue to push the boundaries when it comes to banking and insurance.
There is a surge in digital consumers’ population. In response to the increasing competitive pressures and rising expectations of the millennials, financial institutions around the world are investing aggressively in digital transformation projects.
According to a recent research report by PR Newswire, - “Global digital transformation market is expected to grow from US$ 445.4 Bn in 2017 to US$ 2,279.4 Bn by 2025 at a CAGR of 24.3% between 2018 and 2025.”
- A Data Future
The FinTech industry is going to witness a data future. Access to it, and the ability to mine data, will be the core to everything that happens around financial services. Financial institutions should invest more to build a data science team to extract the maximum out of the available data. Now that the data is loaded, and the toolsets are understood and available, data science and analytics will be the propeller for this industry.
"Data is permeating everything we do, and it is accelerating," said Rob High, Cehief Technology Officer, IBM Watson. High said data will grow 4,300% annually until 2020, and financial institutions need to invest in scientists and engineers who understand how to work with it.
Data will grow 4,300% annually until 2020, and institutions need to invest in people who understand how to work with it.
- The Rise of Robots and AI
Along with Big Data and analytics, Artificial Intelligence (AI) and Machine Learning (ML) are among the key technologies driving FinTech. These technologies empower the majority of fintech products and services spectrum, while automation has already proved to be one of the key drivers of the digital banking and finance ecosystem. The implications of automation are also massive. AI is not only lowering operational costs and increasing the efficiency of various processes, but also helping financial institutions to predict various financial outcomes with greater accuracy than traditional prediction methods.
It is this dynamic nature of FinTech that is drawing many millennials which is, a highly technology savvy demographic, to explore career opportunities in this sunrise industry. Robotic Process Automation (RPA), which uses software robots or ‘bots’ to mimic human activities, has the potential to unlock more value by freeing up employees to focus on value-added work – ultimately transforming the way the financial services sector operates. In 2018, we will see how this will impact RegTech, data analytics, and ultimately how organizations service their clients. A game changer for the industry will be the start of the processes to replace people with robotics and machine learning.
- The Blockchain Reality
The use of the distributed ledger technology will disrupt the financial services industry. The opportunities for financial services who invest in such technology are endless from reducing operational costs to improving efficiency.
Last year alone, 13 blockchain companies obtained over $365 million in funding, – according to a recent PwC survey.
Why is blockchain having a huge impact on FinTech?
There are two major aspects of blockchain technology, the first being the fact that it will considerably reduce the infrastructural expenses of the financial services industry. Second, the potential uses of blockchain technology are limitless, counting from a large number of financial transactions and automated contractual agreements. Also, blockchain systems could be far cheaper than the existing platforms, since they eliminate the burden of authenticity confirmation layer.
The extraordinary range of options available with blockchain is the most attracting factor for the C-level executives, start-up owners, or private equity firms.
- Customer intelligence
Intelligence is the most important predictor of revenue growth and profitability not only for financial services but also for other industries. These are all representations of data for consumer behavior. It is a wonderful opportunity to use data analytics and unlock the potential and give what the customer actually needs.
By 2020, there will be 20 times more usable customer data than today.
- Public Cloud as the Infrastructure Model
The data storage cost has dropped, facilitated by cloud infrastructure. The cloud model has facilitated for Big Data management and sophisticated data analytics. According to IDC, the public cloud investments are rising quickly, whereas the spending on traditional infrastructure has plateaued.
IDC estimates that public cloud investments will increase by 32% in 2015 to US $21.7 billion and private cloud investments grew in 2015 by 17%, reaching US $ 11.7 billion. Overall, total cloud IT infrastructure spending grew to 26% in 2015, reaching US $ 33.4 billion. To put that in perspective, this is approximately one-third of all IT spending. Inquisitively, the sharing economy also plays a role here. After all, some companies that have a demonstrated competency in an area are choosing to sell it to others who need it. For example, the payments infrastructure of many industrial, healthcare, and smaller FinTech institutions are being provided by conventional banks. These banks are selling their infrastructure as a service to others, and leveraging the cloud to do it. In our view, this provides an important source of revenue for these institutions.
Despite the cautionary note, we expect that the next several years will result in an increasing adoption of the public cloud within the financial services industry. But the benefits will certainly be significant too.
- Cyber-security is the Top Risk Factor
- Attack surface: Hackers can gain entry to a corporate network through an IoT device.
- Perimeter security: IoT technology relies on cloud-based services, so it will be challenging to implement effective perimeter defenses.
- Privacy concerns: The pervasiveness of IoT data collection, coupled with advanced analytic capabilities could potentially result in consumer privacy violations.
- Device management: Many IoT devices currently do not support the implementation of strong security controls, and maintaining a security baseline will only get harder as IoT devices proliferate.
- Regulations - Turning Points
This is only the beginning. As financial institutions, themselves continue to automate controls and monitoring in KYC/AML, trade surveillance, reconciliations, and other areas, regulators will seek direct access to these tools – either on an ongoing basis or during supervisory reviews. As a result, firms will need to make data and control transparency priorities as they implement these tools and comply with data requests. It is short-sighted to focus solely on compliance with current regulations. Rather, firms should develop a better understanding of where their data and associated controls live. This will let them work with a growing range of interested regulatory bodies more quickly, easily, and accurately on everything, from stress tests and periodic exams to individual requests. By doing so, they will improve their credibility with regulators today and be ready for the future.