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Fintech is probably our favorite industry, and it’s easy to see why. One of our biggest projects is in fintech!
We are so committed to this industry that we even filmed a video interview with a client about one of the most interesting projects we worked on in the fintech!
But enough of this and that, we all are here to learn about the impact that fintech software solutions has made on banking. Recent events from SWIFT inspired us to tell our customers more about this industry.
Fintech is one of those market segments we’ve analyzed a lot, and we see the perspective for growth in fintech software not only as enthusiastic people but as experts in software development. Want to know why? Read along!
What is fintech?
The term “fintech” comes from two separate concepts and perfectly combines those not only in its name but in its very nature. Financial services and digital technologies are the two main pillars of this term. It is a fintech that transforms the financial industry and moves it to digital transformation by using innovative payment systems, integration of digital transactions into other different applications, and building alternative ways of banking and financial management.
At the end of the XX century, the term fintech was applied only to the internal banking tools: cards, ATM, banking software, etc. Since that time, however, many things have changed, and what we outline as fintech software is now completely different.
Today, fintech consists of online banks and other software products that include payments for different services from insurance to selling foods and other items.
In banking, fintech caused a revolution. It is not limited to digital banking as is; it also may be various apps for investments, keeping your own account (e.g. online wallet), and others. You may notice fintech elements, like online payments, in almost every app. Such a digital revolution can potentially be dangerous for offline banks.
There are banking systems in the world that don’t have an offline office at all. The staff there is not only live people but AI and chatbots; payments are transferred not only via card but via NFC on your smartphone. You can transfer some funds to your friend from a messenger or make an investment in a global monetary fund while going to work. This makes operations with finances in fintech much simpler and, even more important, can attract new people to it. Earlier investments seemed to be interesting only for “white collars” from the office, but today everyone may think it over, and potential investors will not necessarily have millions in their wallet.
Despite the “culture of being poor” flourishing among millennials, people are still interested in finances and possibilities to simplify the bureaucracy associated with it for themselves.
The proof of it is the statistic that compares investments in fintech companies from 2010 to 2019.
The graph clearly shows that 2018 and 2019 were peak years for fintech. According to Statista, in 2020, the most popular part of it is digital payments. It is where the largest user growth is expected: more than 4 millions new users attracted by 2024.
But all in all, the fintech’s impact on banking isn’t only about numbers. How’s banking changing with new technologies? Let’s find out below.
How does fintech change banking?
Most financial institutions today are building their way into the digital world through online credit cards, loans, and registration of new accounts. But this aside, most of those operations still require the user's physical presence in the institution or are simply too complex and take too much time. Of course, all those technological benefits of fintech are no surprise for those who are genuinely interested in this industry.
But all in all, maybe this article will light the entrepreneur's spark in you! If we look at something more practical than numbers, it’s obvious that banking and fintech are still far from being all technological and convenient. So maybe giving you information on the fintech industry and digital banking may be at least somewhat helpful for this change we all need.
As we already noted above, digital payments are one of the most successful niches in the fintech industry. It may be a profitable investment if you’re planning to work with online banking - this can simplify the workflow for business.
But banking has a bunch of new things that can simplify and improve working with finances, e.g. digital payments even via social networks.
That aside, online payments in fintech are already much simpler for businessmen who are thinking about monetizing their application. For example, according to Statista, the sum of all digital transactions made will be around $4,934,741 to the end of 2020.
Lately, financial relations are widely integrated into the everyday life of any technology user. Many banks are holding the accounts in social networks to simplify communication with clients. Aside from such fintech payment tools as Apple and GooglePay, some social networks introduce the possibility to pay for a service or make a money transfer directly within the system.
It has been already implemented by:
The money transfer function is already available for the USA and works through a Messenger. If you are an active user of this social network, this information will unlikely come as a surprise to you. Nevertheless, peer-to-peer transactions can become revolutionary in social networks and fintech both, given their constant expansion and an increasing number of users. All you need to do is to click the button, and you will have the opportunity to send money instead of a meme to your friend.
The Snapcash function on the popular platform works the same. Here the user will need to enter a number (the sum of money) and dollar symbol, then hit the button to send a message which will turn into a green button for a money transaction.
This social network also presented a significant gift not only to banking and fintech but also to the retail industry with this new feature. Now you can buy directly from the application. If a company tweets about its products, social network algorithms define it as a product and give the user the opportunity to buy it.
But all this is no utopia: you have to be cautious of the social networks' security if such a system is implemented in them.
Fortunately, we have an idea!
The idea for a startup: a secure payment system for social networks based on blockchain.
Just think about the benefits it can bring! Blockchain disrupts the fintech industry, and right now, we’ll uncover how.
Don’t think that blockchain in fintech can only transfer bitcoins.
Blockchain has a list of advantages that allows it to change online banking, and one day it’ll probably become a part of the digital evolution’s second wave.
Aside from the advanced security that we mentioned above, blockchain can optimize the transactions’ speed. With its decentralized nature, it is possible to transfer data and funds from one user to another momentarily through blockchain. Hence, there won’t be any long waits or extra steps for the payment to be completed.
Besides, all transactions are secured, and information about each user and time-marks are classified and can’t be altered.
If your goal is online banking, blockchain will significantly reduce the amount of paperwork and help you achieve a continuous workflow. This innovative technology can speed up, secure, and automate your business, especially if you work in fintech. And you won't need to make reports manually. All this will be automated, since blockchain stores all the data related to the transactions within the net.
According to PwC, the majority of banks today don't have an advanced familiarity with blockchain technology and are not inclined to use it. This shows that the potential of a blockchain in banking so far has not been sufficiently explored by large companies. This is both good and bad: the good news is that you have a real opportunity to monopolize the fintech market with innovative tech. The bad news is that there are always risks that something will work incorrectly, and you won't be able to learn from others' experience.
By the way, here's an idea for a startup: an innovative online bank with transactions on the blockchain, with artificial intelligence and a minimum number of live employees (only for issues that cannot be accessed by "smart" chatbots).
But blockchain is not the only tool that can be used to optimize fintech processes. There are others!
Recently artificial intelligence has become not just a tool for fintech but more of a necessity. If security and process automation are your biggest worries, then there is hardly a better solution for you.
It's no secret that robbing a bank is the ultimate dream of all cinema villains. Unfortunately, real villains are not much different, and their constant attacks on the banking's digital environment are becoming more and more sophisticated. This is why preventing them manually is more difficult nowadays. Machine learning algorithms will be able to analyze and identify potentially dangerous actions, preventing attacks on banking. This is especially important if you are going to work with online banking or in the fintech industry in general. The infographics below show the level of artificial intelligence usage for banking, fintech, and other industries cybersecurity.
Here you can see that banking is the industry that takes 3rd place in the use of artificial intelligence. Of course, these are not all the ways that AI can be applied in banking.
In addition, AI is able to automate some tasks: working with some routine banking algorithms, support service (which we will discuss further), forecasting and analytics, and others.
Thus, with the help of machine learning, it is possible to predict the probability of digital attacks on a bank based on data you got in the past. Also, artificial intelligence can analyze patterns of purchases and payments your customers make and offer them partner stores as an advertisement. You can even create a virtual assistant for your bank and not be limited by just a cute mascot! And with the help of artificial intelligence in customer support, you can gain either the respect or hatred of your clients. For example, the chatbots in fintech may be annoying or interesting, and it completely depends on how you use them.
The idea for a startup: an analytical tool based on machine learning to prevent digital security breaches in banking.
You may think of this tool as very questionable for a fintech, since many banking institutions, retail companies, and others are bragging that they have live customer support. We bet they do it because they aren’t lucky enough to have an advanced chatbot. The chatbot with quality AI algorithms controlling its work will be a better employee, and not a single Karen would make it stress. The important thing is to teach it by manually-verified information.
No question will be stupid for a chatbot, and its simple optimization by key requests can save time for your employees and customers.
For example, chatbots can deal with simple questions your clients ask you most often. If there are seriously complex issues that require immediate attention, you can assign a trigger word that redirects messages to a live employee. This way you can save on staff and generally speed up your company's work processes. Here are the statistics that show how beneficial it can be to implement chatbots into your banking or fintech applications.
Approximately 862 million hours you won't spend answering the same question over and over again; instead, you’ll get the 3.150% successful cases of chatbots interaction with customers. All this shows not only how popular this technology has become but also how profitable it may turn out in the future. Hiring fewer employees for communication with the clients allows you to pay more attention to atypical problems and their solutions. Thus, the overall quality of customer service in your banking will significantly improve over time.
And here goes an idea for a startup that may come in handy: a support service consisting of smart chatbots that learn from communication patterns of live employees in a support service and then follow this behavior in messages as they learn.
E-Wallets today are the advanced branch of the fintech industry, and there are a lot of those. You may find an e-wallet for paying your bills, transferring money, booking a ticket, shopping for non-food items, and a whole lot of other things. These can be mass popular platforms like PayPal, or separate platforms from market giants in other industries like Walmart Pay.
But one way or another, electronic wallets remain at the peak of popularity and are likely to grow in the future. For example, according to Statista forecasts, the total amount of transactions through electronic wallets is predicted to reach US$220 billion by 2023.
It is convenient, since you don't have to carry a physical card or cash. All operations can be done on your smartphone at any time and in any place. In addition, some wallets include integrated elements with other applications, such as gamification, bonuses for specific actions, or cashback.
It is the popularity of this tool that makes it so widely used. So now, many organizations offline recognize the existence of electronic wallets and allow users to pay for services through it. Not so long ago, you would have had to withdraw funds from PayPal to pay for a purchase in Walmart or on eBay. Now you have no need for it. In addition, you can use PayPal to pay for commercial services in social networks, such as Facebook. See how far we've already made it!
The last idea for a startup we have for you is a smart e-wallet with a virtual assistant who can give you currency and assets forecasts, keep track of investments you made and money transfers, and restrict your expenses after reaching a predetermined limit.
So the thing is not so much about the tools themselves but about their quality implementation and further evolution. It's not all about a good solution but about how you work with it. No matter if your goal is online banking, or if you are just looking at the possible optimization of your business with the help of fintech instruments - you need to understand their relevance.
Blockchain implementation is unlikely to be appropriate for food delivery or machine learning for a scalable solution, as it complicates the architecture and is itself poorly scalable. Think about the future now and perhaps get the support of a reliable technical partner. We’re more than ready to answer any questions about fintech and banking you’ve got after reading!