Few organizations are feeling the quickening pace of technological disruption more than banks. Traditional banking institutions are fast-tracking bottom-up transformations in order to capitalize on new collaborative opportunities for long-term growth.
Those opportunities aren’t limited to major business partners and technology vendors, either. Financial institutions are looking to technology to better equip and inform their own customers — potentially turning each customer relationship into a mutually beneficial long-term partnership.
These developments center around a concept called FinTech, a portmanteau of financial technology. So far the second half of the 2010s has seen FinTech startups make serious headway into disrupting the strictly regulated world of banking and financial services.
Where FinTech Is Heading
Already, the financial world is home to a few successful, highly visible names in FinTech. Many of these firms focus on streamlining narrow business functions in underserved market segments, but their influence is rapidly growing.
Today’s most exciting FinTech developments are occurring in six major areas. Wherever new capabilities and features can address long-standing customer concerns and demands, there is opportunity for business leaders to create new lines of revenue.
The most exciting upcoming advances in this industry are going to be in the following areas of interest:
1. Payment Processing
Major startups like Square have already made powerful waves in the world of payment processing, but the industry can go much further than allowing smartphones to read credit cards.
Many of the most exciting upcoming developments in payment processing will focus on treating payments as a digital experience factor. Brands that treat payment processing as an asset rather than a cost open the door to new frameworks for communicating with their customers.
For example, payments are already migrating from banking institutions to native apps and point of sale (POS) solutions. A proliferation of payment and banking application program interface (API) solutions will need to rise up to the challenge of ensuring business agility in a more complex financial ecosystem.
2. Blockchain Technology
Blockchain has evolved to mean more than just a form of cryptocurrency. Developments in blockchain technology are just now beginning to form the backbone of new methods for managing trust in financial transactions.
There are many ways this transformative technology can impact business leaders’ revenues. Perhaps the most immediately obvious solution is using blockchain technology to reduce infrastructure costs. For financial reporting processes, some estimates point to cost-savings of up to 70 percent, when compared with traditional methods.
This technology can also vastly improve the security infrastructure financial services rely on. The ability to generate trustworthy digital certificates without a third-party can lead to enormous gains in the speed and reliability of financial networks
3. Biometric Authentication
In 2015, FinTech experts predicted that PIN numbers will be obsoleteby 2020. If the current rate of development continues, they will be right.
Although the vast majority of digital financial transactions take place using credit or debit cards that rely on PIN authentication, banks, regulators, and customers alike implicitly understand PIN authentication is flawed and easy to defeat. Major financial companies like MasterCard have already announced plans to go fully biometric.
Biometric technologies can also do more than help consumers avoid fraud. At the level of enterprise organizations, they can prove a powerful asset towards preventing cybercrime while improving the security and user experience (UX) of making high-profile or high-volume transactions.
4. Alternative Financing
One of the most exciting areas for consumer-level FinTech application development is in alternative lending. Traditional banks are typically very strict in their lending capabilities — people with low or poor credit scores understandably have great difficulty securing loans.
Alternative lending and financing can generate solutions for people who would not otherwise have access to the funds they need to accomplish their goals. Many of these financing structures will use blockchain technology and smart contracts to establish long term trust-structures that automatically deliver funds when certain thresholds or circumstances are reached.
Consider ambitious young professionals in less-than-strictly regulated fields, like art, music, or sports. While crowdfunding can provide a one-time financing boost, the development of more sophisticated alternative financing options could allow investors to generate returns throughout an entire career’s worth of time.
5. New Wealth Management Options
Wealth management has a broad wave of disruptive potential on the way. One example is artificial intelligence (AI)-powered investment services that leverage machine learning (ML) algorithms to generate automatic investment strategies, tailored to user portfolios. These automated advisors can leverage more data than a human consultant can, and offer lower up-front fees.
High-frequency trading represents another key area in which professional wealth management services may invest FinTech interest. The ability to navigate flash equity failures (commonly called flash crashes) in an automated trading environment, using blockchain settlement, can present powerful benefits to FinTech entrepreneurs looking to attract the world’s wealthiest investors.
6. Internet of Things
There are many powerful and potentially game-changing potentials in the intersection between the financial world and Internet of things (IoT) technology. From simplified debt collection to personalized customer offerings and rewards, there is almost no limit to the number of ways businesses can interact with customers through their Internet-connected devices.
The ability to leverage consumer data when making IoT FinTech decisions may prove to be the most vital asset a potential startup can have. User shopping activity, demographics, and other data can result in highly targeted, yet unobtrusive, communications between financial organizations and their customers.
FinTech Innovation Changes the Face of Business
Although the technology itself is cutting-edge, the recipe for success in the world of FinTech is stunningly simple. Wherever customer demands are not met by the legacy systems that traditional banks and financial institutions rely on, there is an opportunity for disruptive growth.
The banks of the future will not need to hold funds in heavy steel vaults. Tomorrow’s FinTech developments will digitize assets in far more secure ways.
This applies as much to the world of wealth management and counting account sums in the millions, as it does to consumer micropayments that count transactions in cents. In both cases, improving the security, affordability, and accessibility of financial services is key to generating a brighter and more streamlined future for the commercial sector.
Sila provides Banking and Payments Infrastructure-as-a-Service for teams building the next generation of financial products and services. Our banking API replaces the need for integrating with legacy financial institutions saving you months of development time and thousands in legal and regulatory expenses.