As FinTech gains widespread adoption across the world, different technologies have been applied to suit the needs of the industry. They include consumer demands, regulatory approvals, security enhancements, and competition. The advanced technologies running the ecosystem have become smarter and more adaptable. The key trends for the future of FinTech can be classified into the following categories: Artificial intelligence (AI), Cloud Computing, Blockchain, the Internet of Things (IoT), and Open Banking. Let’s dive into these FinTech technology trends in more detail.
Key FinTech Trends
#1: Artificial Intelligence for Smarter Solutions
90 percent of FinTech firms are already applying AI in some form, according to the Cambridge Center for Alternative Finance. The most potent aspect of Artificial Intelligence is that it learns how to work efficiently and better than any human can. By learning from data, AI models are able to efficiently perform tasks without further human intervention. This results in work being done quicker, more efficiently, and more accurately, making FinTech solutions smarter.
Some of the use cases of AI in FinTech include the following:
- Purposing chatbots into virtual assistants to answer customer queries, offer suggestions, and complete repetitive tasks
- Deploying Natural language Processing (NLP) to enable human-like communication with virtual assistants and enhance customer engagement
- Using AI algorithms to detect suspicious activity to prevent fraud, such as flagging suspicious transactions or insurance claims
- Customer segmentation to offer tailor-made products based on risk score profiling and to facilitate faster loan approvals
According to Mordor Intelligence, the value of the global AІ market is expected to reach $26.67 billion by 2026 as more companies embrace it as an integral part of the business.
#2: Cloud Computing Improves Security
In addition to speed, scalability, flexibility, and faster deployment, cloud computing considerably boosts security through automated and embedded security controls. FinTech is always associated with the risk of managing sensitive data and complying with industry regulations. Cloud data warehouses have proven to be more reliable than traditional IT ecosystems. Thanks to such features as data encryption and zero-trust verification, the cloud more reliably protects against data leakage and fraud.
Now that cloud technology is more accessible than ever, it is changing the way we live our lives. It enables organizations to unlock digital transformation use cases by providing a path for security-rich data sharing and dynamic applications that can be used in any industry or sector of business, no matter what you’re doing now!
Cloud technology also contributes to the scalability of FinTech solutions and will greatly impact its future. Any startup that wants to grow requires an infrastructure that can grow with them. Cloud infrastructure is easier and cheaper to upgrade. In addition, this agile environment allows businesses to more easily adapt to market changes, including consumer demand, regulatory compliance, and implementation of new technologies.
#3: Blockchain Disrupts Outdated Financial Systems
The power of blockchain in disrupting legacy financial systems is massive. Through the application of Distributed Ledger Technology (DLT), it is possible to record, share, synchronize, and distribute data across different data stores in real-time. Moreover, it eliminates challenges associated with outdated financial systems, such as the dependency on a centralized system which means a single point of failure, lack of trust, and higher operating costs. This results, among other benefits, in more revenue, improving the end-to-end experience and reducing business risks.
The introduction of blockchain has led to an increase in the investment appetite of traditional players such as institutional investors, increasing the capital allocation of digital assets in their portfolios. Today, the most progressive FinTech solutions have blockchain modules to attract an audience of crypto enthusiasts and enter the rapidly growing cryptocurrency markets. Traditional financial institutions are also not missing out on this trend and should keep an eye out for this in the future of FinTech. Initiatives such as the central bank digital currency (CBDC) are being tested by central banks around the world. Another example is J.P. Morgan using blockchain to improve transactions by reducing the payment processing and verification time for large payments.
#4: IoT Сollects Customer Financial Data More Efficiently
Among FinTech firms, Internet of Things (IoT) communication options are gaining widespread adoption, enabling more devices to communicate across connected networks, from wireless and end-point devices to centralized control management. Moreover, embedded systems and smart technologies are evolving fast, facilitating intelligent and seamless communication among different nodes.
In the financial sector, IoT is utilized to generate meaningful customer data, decrease the need for human input in solving financial issues, for fraud detection, and to offer solid data protection, among other uses. Meanwhile, insurers are increasingly adopting IoT in risk determination while optimizing customer engagement and simplifying the complex underwriting and claims process. For example, car insurers have historically used indirect indicators such as the driver’s address, age, and creditworthiness to determine premiums.
#5: Open APIs Drive Industry Growth
As the world moves toward an open banking system, open banking APIs and services are becoming commonplace. These APIs are critical in establishing a seamless user experience while securing information via endpoints. Open banking allows banks to open user data for third-party providers via APIs at the request of the users themselves. Thus, you can easily connect your favorite fintech personal finance management application to your bank account for more accurate money tracking.
For banks, Open banking provides an opportunity to learn and collaborate with FinTech rather than compete. This creates a win-win solution as banks are often slow to innovate. At the same time, FinTech firms are quick to innovate but lack financial muscle, so the collaboration with traditional banks only plays into their hands. There is also the possibility of creating a revenue-sharing ecosystem where incumbents extend to their customer’s third-party developed services while deriving revenue from referrals, infrastructure, or subscription services. Moreover, APIs can be shared across lines of business or with trusted external partners. This fosters ecosystem relationships, allowing for innovation.
The FinTech Ecosystem
The future of the FinTech ecosystem rides on different building blocks, without which the solid advancement driving the sector would not be possible. Incorporating Artificial Intelligence, IoT, Open APIs, Cloud Computing, and Blockchain will further revolutionize the ecosystem. To compete effectively, enhance customer experience, mitigate against risks, and meet regulatory requirements, forward-thinking companies need to embrace FinTech innovation software solutions that promise to shape the future of FinTech and derive a multitude of benefits.