7 Hot Fintech Industry Trends for 2018
Every year new technologies emerge in the marketplace and the most prospective ones loom large to give business more opportunities. FinTech is deemed to be one of the most technologically advanced industries and can be regarded as a test bed for global innovation.
FinTech startups and well established financial companies leverage innovative business models and strategies to optimize business processes and to grasp new customers and markets. More than 25 years ago Bill Gates called retail banks “dinosaurs” and today they still lack digital power in such sectors as marketing, underwriting and loan servicing. To create a new image and opportunities in financial sphere companies invest heavily – in 2017 global FinTech funding amounted over the US $31 billion, with US $8.7 billion being invested in Q4'17. Future of the industry seems quite bright too – the value of FinTech investments worldwide by 2020 is estimated US $46 billion.
What will be the real impact of FinTech on banking industry? What are the FinTech trends in 2018 that will drive changes in the finance market?
The trends which emerged in 2017 are still present but 2018 has something to add.
AI Is Here to Stay
Artificial Intelligence (AI) and big data are the buzzwords heard everywhere. Financial institutions now use cognitive AI solutions to decrease costs and overheads as well as to get closer to their clients. The report by Synechron suggests that AI will continue dominating in 2018 spreading over such financial services industry as the sales, marketing, investments, wealth management, and compliance.
AI is massively used for fraud detection and customer analytics. For example, Citi Ventures collaborates with a data science startup Feedzai, which is a machine learning platform used to prevent fraud in eCommerce.
Virtual assistants powered by Natural Language Processing (NLP) such as Alexa and Siri are of potential value for banks as such assistants can be used for bill pay or balance checks. Large banks and startups launch AI-powered chatbots to decrease costs and service tech-savvy consumers the number of which grows every year. Among those Erica introduced by the Bank of America, the AI-powered chatbot on Facebook Messenger used by Wells Fargo, and chatbot assistant Eno by Capital One. According to CNBC, automated customer service programs known as chatbots could cut business costs by $8 billion per year by 2022.
Blockchain Is Still on the Frontiers of Innovation
Blockchain remains one of the most promising trends in Fintech industry. PwC survey results show that 88% of global financial services companies plan to increase FinTech partnerships to be able to catch up with innovations. Blockchain becomes a reality of financial services with its potential power to save costs and ensure transparency.
According to the survey:
- · 77% of global financial services companies plan to adopt blockchain in live production systems by 2020
- · Funding in blockchain companies increased by 79% year-on-year in 2016 to $450million globally
- · 24% of global financial institutions say they are now ‘extremely’ or ‘very’ familiar with blockchain technology
Blockchain-powered payment systems are on the table in large credit card companies, such as Mastercard, Visa, and American Express. According to Global Capital experts, banks and FinTech startups are going to take advantage of the distributed system to facilitate international instant payments, to automate payment streams using smart contracts, and to harmonize data collecting and processing in different banks as a blockchain contains a copy of data which can be used by all parties.
Banks Are Going Mobile
The statistics portal Statista estimates that the number of smartphone users in the U.S. will grow to more than 230 million in 2018, and the number of all smartphone users worldwide will pass 5 billion marks by 2019. The most common question people ask when they are offered service is “Is there an app for it?” No wonder that the finance sector is leveraging mobile technology. Mobile FinTech simplifies dealing with financial institutions for customers saving their time. Moreover, mobile financial services apps ensure accurate data management and eliminate human-intermediates.
Mobile banking provides a great opportunity to offer services for the underbanked population. According to the report by PwC offshoot DeNovo, “Fintech is becoming an enabler of economic inclusion… the industry is in a position to drive innovation and economic and social change. According to the World Bank Group (WBG), an estimated 2 billion adults, or 42% of the global adult population, are absent from the formal financial system. Therefore, even modest strides in achieving economic inclusion present the single largest addressable opportunity in FinTech.”
Globalization in the Banking Industry
Today large banks typically operate worldwide. This trend goes both for American banks such as Citibank, JPMorgan, American Express, and banks headquartered in other regions. Emerging markets present market growth opportunities and it would be amiss not to grasp them. Bank acquisitions and mergers with FinTech allow banks companies to compete and continue to serve their customers.
Research shows international banking may be beneficial for the banking services sector in two ways: first, global banking structures make available much-needed capital, expertise, and new technologies thus making domestic financial systems more competitive; second, global financial services companies allow risk-sharing and diversification, which means they can smooth the effects of unstable domestic economy shocks.
FinTech Regulation Gets More Diverse
Finance is the industry with one of the heaviest regulation system. Today financial institutions leverage new technologies, collects enormous amounts of data and employs self-service patters, so it is natural for regulations in this sector to increase. Regulators both in the U.S. and Europe are seeking new ways to keep this industry under control, especially with the view to the Blockchain revolution.
Regulatory bodies present regulatory guidelines, or regulatory sandboxes, for FinTech. In Europe, new regulations regarding Fintech were adopted by the European Commission in February 2018. These are a set of recommendations related to online security, the blockchain, and cloud data services. In the U.S. FinTech businesses are not regulated by a single federal or state regulator. There are no less than ten different federal agencies that are involved in FinTech regulation. However, the process of new regulation development has already started. This year Arizona became the first U.S. state to laund regulatory sandbox for FinTech businesses.
The Market Share of Digital-Only Banks Grows
Banking industry adopts new technologies fast and digital channels of service provision are on top priority. The Capgemini’s report Top 10 Technology Trends in Retail Banking shows that these new banking providers offer highly innovative products and services to today’s digitally-savvy consumer. Online-only banks imply much lesser overheads and costs as a bank has no need to pay for branch office premises and clerk wages. They increase competition with traditional banks as their digital offerings reach younger customers who prefer managing their finance online via smartphones.
Biometric Identification Becoming a Mainstream
Mobile banking brings to the front the necessity of secure transactions. Google Intelligence predicted that biometrics will be used as the predominant method of identifying bank customers to access bank services by 2020. The new solutions could be a combination of voice, face identification, fingerprints. Biometric readers or contactless payments will go mainstream as they can be used instead of the standard “chip and PIN” system making transactions safer. Mastercard promises biometrics such as fingerprints or facial recognition will be used to identify all consumers when they shopping and paying with Mastercard by April 2019.
If you have questions or ideas on how to use the latest Fintech trends for the benefit of your company feel free to contact the team of Archer Software professionals. We’ll gladly give our opinion on the issues concerning the adoption of new technologies in business.