Shifting from traditional banking and financial services to modern digital platforms is no longer a trend – it’s a necessity. The onset of the COVID-19 pandemic has spurred an even greater move towards digitalization as businesses and consumers move away from in-person interactions.
Although the pandemic has been a major catalyst for change, technology integration in the financial sector is nothing new. In fact, the continuous quest for agility, efficiency, and security in the business landscape has been the key driver of digitalization in the financial sector even before.
In this blog post, we’ll take a closer look at FinTech, some of the most common FinTech applications you’re probably using right now, and the top eight technologies that will continue to transform the financial sector. So, read on to learn more.
What Is FinTech?
FinTech is simply the term used to describe the intersection of finance and technology. It applies innovative technology in delivering financial services and products such as banking, payments, investments, and insurance.
The primary purpose of FinTech is to make financial services more accessible, efficient, secure, and affordable. This is achieved by automating manual processes, increasing transparency, and reducing the need for intermediaries – whether by developing new digital platforms or improving existing ones.
Some of the common FinTech applications that you might be familiar with include:
Mobile app payment platforms like Apple Pay, Google Pay, and Samsung Pay allow users to make contactless payments using their smartphones.
Services like Prosper and LendingClub offer personal loans and small business loans, respectively, entirely online.
These are automated investment platforms that provide recommendations based on your goals and risk tolerance. Examples include Betterment and Wealthfront.
Bitcoin, Ethereum, Litecoin, and other digital currencies are created and managed using blockchain technology.
Top Eight Technologies That Will Transform FinTech
While many existing FinTech applications are already making a big impact, several emerging technologies can potentially transform the financial sector even further. Here are some of the top technologies to watch out for:
1. Big data and artificial intelligence (AI)
The financial sector generates a vast amount of data and most of which is unstructured. Big data and AI can make sense of this by identifying trends and patterns and making predictions. These data will allow financial institutions to make better decisions in managing risk, assessing creditworthiness, and customer segmentation for marketing efforts.
Financial institutions can also use Artificial intelligence to automate repetitive tasks like AI-powered chatbots, which can answer customer queries in real-time, 24/7. Likewise, if you’ve ever received a personalized offer from a bank or credit card company, big data and AI were likely used by banks to target you.
Blockchain technology is the cornerstone of cryptocurrencies such as Bitcoin and Ethereum. It’s a distributed, decentralized ledger that records transactions chronologically and publicly, making it secure, transparent, and tamper-proof.
Initially, blockchain was developed for cryptocurrency. However, it has been adapted for other use cases in the financial sector. For instance, blockchain streamlines issuing and tracking bonds and speeds up cross-border payments, KYC/AML, and trade finance.
3. Cloud computing
Cloud computing is revolutionizing the way financial institutions store and process data. It’s a cost-effective and scalable solution that allows businesses to outsource their IT infrastructure to a third-party provider, like Amazon Web Services (AWS), Microsoft Azure, or Google Cloud Platform.
In the financial sector, cloud computing is used for various purposes, such as online banking, mobile payments, and customer relationship management (CRM). These cloud-based applications are often more secure and reliable than on-premise solutions and are ideal for small businesses and startups with no budget to invest in IT infrastructure.
4. Internet of Things (IoT)
The Internet of Things (IoT) refers to the network of physical devices connected to the internet, like smartwatches, smart home hubs, and smart appliances. These devices are equipped with sensors and actuators that collect and exchange data.
The financial industry can use IoT for several applications in the financial sector. For example, IoT-enabled ATMs equipped with facial recognition technology can be utilized to prevent fraudsters from stealing money. Insurers can also use IoT devices to track the location of insured assets in real-time and send alerts if transferred to an unauthorized location. Or, banks can work with IoT-enabled devices like Google Home to allow customers to check their account balances or transfer money using voice commands.
5. Augmented Reality and Virtual Reality
Augmented reality (AR) and virtual reality (VR) are two emerging technologies beginning to impact the financial sector. AR is a technology that superimposes digital or virtual information in the real world. And VR is a technology that creates a simulated environment.
AR would greatly help in product visualization, allowing customers to visualize what a new home or car would look like before making a purchase and reducing the risk of buyer’s remorse. Likewise, companies can employ VR to provide immersive training experiences for employees or transport customers into a realistic simulated environment where they can experiment with different products and services before deciding.
Biometrics refers to using physical or behavioral characteristics to verify someone’s identity. It includes fingerprints, iris scans, facial recognition, voice recognition, and other unique identifiers.
One of the advantages of biometrics is that it’s more difficult for criminals to spoof than traditional methods like passwords and PINs because it requires fingerprint authentication to verify identity and authorize payments. In addition, biometrics is often quicker and more convenient than other methods since it doesn’t require remembering or entering any information.
7. Quantum Computing
Quantum computing is a type of computing where information is processed using quantum bits. In the financial sector, quantum computing can be used in risk management and portfolio optimization.
One of its main benefits is providing a significant performance boost for portfolio optimization algorithms that are presently too computationally intensive. It can also help financial institutions to develop new products and services faster as banks can use quantum computers to design and test new credit scoring models through automated testing tools before releasing them to the market.
8. 5G Mobile Networks
The fifth generation (or “fifth-gen”) of mobile networks is the latest wireless standard that offers faster speeds, lower latency, and more capacity than previous generations. These latest mobile networks enable the development of new applications and services that require real-time data like instant payments, live customer support, instant claims settlement, and real-time quotes.
Another benefit of fifth-gen mobile networks is that they will provide a more reliable connection for constantly moving users, which is especially important for real-time financial services.
Benefits of FinTech’s Transformation
The further development of FinTech will bring several benefits to both businesses and consumers. Some of the most notable advantages are as follows:
Increased access to financial services
FinTech solutions make it easier for people to access banking, investing, and other financial services, regardless of location or income level.
Improved customer experience
FinTech solutions are often more user-friendly and efficient than traditional financial services, which leads to a better customer experience.
Greater transparency and security
Using technologies like blockchain and biometrics can help increase transparency and security in the financial sector.
Enhanced data management
The use of big data and artificial intelligence can help businesses to manage their finances better and make more informed decisions.
Indeed, FinTech is currently experiencing a period of rapid growth and transformation. Thanks to the development of new technologies that make financial services more accessible, secure, and efficient. Moreover, with the increasing number of digital nomads, we can expect FinTech to continue to grow and transform innovative solutions that will benefit businesses and consumers.
What do you think about the future of FinTech? Let us know in the comments below!
About the Author
Zeke Gavin is a freelance financial planner who aims to educate the younger generation and equip them with fundamental financial knowledge to help them make smart decisions on where to invest their money.