In the 21st century, we are feeling like we are finally living in the future that everyone’s been waiting for, and picturing in movies. We may not have flying sneakers yet, but contactless payments, for instance, isn’t that bad either. And keyword fintech became one of the most popular notions of 2018. Especially, in terms of how it affects how we manage, invest, borrow, and save our money, and how it makes these processes more convenient and accessible. According to Accenture reports, $27.4 billion were poured into fintech startups in 2017 worldwide, compared to 18% in 2016, which makes us look forward to more detailed fintech reports of 2018. Meanwhile, we analyzed recent trends and outlined top fintech takeaways of 2018.
The new technology in self-service, both online and mobile banking, machine learning, Big Data, and artificial intelligence (AI) have caused a major disruption in financial services. And fortunately, fintech startups are keeping their positions ahead of the game. Being free of legacy systems and bureaucratic hassle, they move, adapt, and develop faster – which is exactly what customers of the 21st century expect.
Transformations of Fintech in 2018
The truth is, among the wider audience, fintech has been mostly associated with cryptocurrency and blockchain. Though, it’s always been about improving financial services and products using the most advanced technology. Well, yes, these types of tech have been a major part of fintech. But in 2018 the popularity of blockchain has reduced slightly.
Why, actually? It’s a conversation worth an article of its own. In short, blockchain got so overhyped that people started using this term at every turn. And gradually the buzzword soon lost its meaning. These days, blockchain is even used to describe from a system for inter-bank transactions to a new supply chain database for a supermarket chain. In fact, there was an entire urban myth around an Estonian technology vendor. Due to the lack of definition of blockchain, when The Harvard Business Review wrote that “Estonia has been operating a universal national digital identity scheme using blockchain,” a misunderstanding happened.
However, some good came out of this development. Now, the hype died down, and fintech shifted its focus from the nerd fest that was blockchain to a fully developed industry of services.
This year, fintech stopped being an umbrella term for blockchain and cryptocurrency, and grew into an industry devoted to the end user.
Indeed, it is now a service industry that aims at making financial operations simple, fast, efficient – from transferring funds from one account to another via online-banking, to online mortgage, and online investment platforms. To do so, companies use a wide range of technology, from gamification to AI.
The Biggest Hits in Fintech Technologies in 2018
Every single tool that’s being used in financial technology has one single goal: to eliminate multiple pain points in every user’s customer experience. They allow for the personalization of the services customers use, make them faster, more convenient and secure. But in all the array of fintech products, what were the most popular types of tools used in 2018?
Artificial Intelligence and Machine Learning for Financial Technologies
What every business dreams of is providing high-quality services with as little expenses as possible. Introducing AI and machine learning, allow lower costs and raise efficiency and revenue, increase productivity and compliance. And while chatbots answer some of the inquiries, machine learning applications can be used for fraud prevention or risk management, as well as for quick processing of large amounts of data. The biggest breakthrough of AI in 2018 is robo-advising for personal wealth management. Such services are low-cost in comparison to classic financial advising.
With the help of intelligent chatbots, personal financial advice or intelligent back-office processing, one can improve customer experience while saving on hiring and/or training extra workers. Which means that companies with platforms based on machine learning can provide low-cost wealth-management services, which allows them to reach a wider audience and spend less money.
Finance is one of those things that come with extra security concerns. Biometrics helps to raise security standards with as little effort as possible. There is no need to remember numerous passwords and go through levels of authentication between computers and phones anymore. The new technology allows using unique identifiers to authenticate and authorize individuals to perform transactions. For instance, it uses retina, fingerprints, voice, and facial expressions which are characteristic for each and every person.
Biometrics, however, isn’t something only used by startups and cutting-edge technology gurus. More and more financial institutions, even traditional ones, have accepted this new way of identification. It’s a lot more convenient for the clients, and allows quick access to routine transactions such as bill payments or small-amount transfers. Large transactions still require multiple-factor authentication.
Giants like American Express, ING Bank, and Deutsche Bank have already integrated TouchID in their mobile banking applications. Other companies work solely on developing biometrics based verification services, and provide them to other financial services firms.
In every serious situation, there’s always a room for some fun. Gamification is being widely used by all kinds of financial companies to help their customers achieve their financial goals in a fun, interactive, and engaging way. Finance is already a stressful industry, so why make it worse, when you can make it better? Actually, gamification isn’t an entirely new thing in finance services – bonus and loyalty programs are some of its older forms.
Fintech trends show that gamification will sink into financial technologies even more. It can help with crowdsourcing ideas, market research, and popularize self-help applications, and interactive and responsive customer service. Popularity of online games, increasing levels of smartphone usage and gadget literacy, as well as changing demographics (more millennials, urban population), will also contribute to the widespread of gamification in fintech.
To help you with a bit of inspiration, a US-based insurance firm has introduced an app, which their customers can connect their fitness wearables to, and earn discounts on their policy by meeting health goals and paying attention to their lifestyle. A win for everyone!
Distributed Ledger Technology (DLT)
A distributed ledger technology is essentially a record of transactions shared by a network of participants. This is in fact where blockchain (a type of DLT) found its calling in the “new” kind of fintech.
DLT does not only offer transparency and speed, but also a much more enhanced security. DLT transactions are in real time, they cannot be tampered with, and don’t require any supervision. Which, again, guarantrees full transparency.
“The industry moving to a decentralized, blockchain way would result in a really big change in the banking infrastructure,” said Teppo Paavola, BBVA’s Chief Development Officer, and GM New Digital Businesses.
Fintech is probably the #1 industry exploiting DLT potential. From creating virtual currencies to developing innovative solutions in banking, payments, insurance, and trade settlement, technologies frequently used in fintech products have paved innovative ways of working – convenient, cheaper, real-time. For instance, to send money safely, companies use advanced blockchain technology, on which big-name companies like Santander or UniCredit fully rely on.
Fintech in 2018: Predictions vs Reality
Like every other person, we love making New Year resolutions, discuss our fintech takeaways from previous years, speculate about fintech predictions for the next year. But how often do we actually look at whether our predictions came true?
Different experts named all kinds of technologies used in fintech products to make a big break-through this year, with everyone’s favorite AI topping the list. It seems however, that these were the top three types of technology that fully bloomed in 2018:
Regulatory Technology or RegTech, is a fairly new technology that ensures that companies, especially in tech, act according to laws and regulations. Its goal is to standardize a firm’s regulatory process, and most importantly, automate the compliance process. The most recent event that pushed RegTech to fame and success was the GDPR – an EU regulation that forces all companies working with sensitive client data to strongly protect it. You may have noticed all the Terms & Conditions and Privacy Policies emails coming your way – that was actually the reason for it.
Next Gen Digital Lending
Without any doubt, the year 2018 was the year of the rise of online mortgage technology and platforms. No wonder, as it’s one of those technologies that relieved thousands of people from mundane bureaucratic procedures, and helped them in fulfilling their dreams of their own houses or businesses. Digital lending has turned traditional bank loans and credit analysis into a distant memory. Now, it’s possible to find a mortgage plan and get vetted online, maintaining privacy and saving a lot of time.
In fact, EllieMae reports that 92% of borrowers this year performed online mortgage requests prior to getting a loan. To compare, in previous years, this number was 57%. Meanwhile, report says that millennials are twice more likely to start the mortgage process online than boomers. Having that millennial homeowners population is growing, it’s clear that online mortgage will get even more popular.
Having realized what a great niche this is for business, entrepreneurs keep starting new businesses in digital lending. We were lucky to have worked with some of the brightest stars on this horizon – Moneypark and Molo – both active in online mortgaging.
APIs, or application program interfaces, are a vital tool in the business industry. Open APIs allow for open banking and an open road for third developers. They’ve become an integral part of fintech product development. If you want to make it in online finance, you just can’t go around using API.
Through APIs, fintech companies can access cloud-service providers. Moreover, they can connect to platforms and services provided by financial firms or connect with other members of the ecosystem. They allow fintech companies to reach their customers using other firms as distribution channels.
In the age of Facebook and Instagram, API prove their value by enabling access to data from third parties and less traditional sources like social media. This way, solutions can become more personalized and relevant, and focused on the end customers.
First step to such a direct approach is analytics, with which APIs can help as well. “Analytics is helping with the ability to use data to customize the experience for customers. Additionally, APIs and microservices are creating ease of integration, ease of connectivity, and ease of distribution,” says Steve Ellis Wells Fargo’s Head of the Innovation Group.
According to the World Retail Banking Report 2017, more than 78% of banks and nearly as many fintech firms are going to use APIs to improve the customer experience for their clients, and most of them are convinced that APIs will help generate new revenue streams for their businesses.
A Year in Fintech
So, what did we take away from 2018 when it comes to fintech? First of all, of course, that fintech is booming and becoming an even more integral part of everyone’s live, not just the big businesses. AI and APIs allow fintech technology to become more personalized to reach the customers. Biometrics help keep all their data safe, while digital lending is conquering the hearts of the new money savvy generation.