Organisations in the Financial sector have been offering the same services for decades, from helping people save for retirement to providing compensation after an accident. The shop window hasn’t changed. What is changing though, is the way in which these services are now being delivered.
If you’ve been keeping an eye on the technology press recently, you’ll have seen the term ‘Fintech’ gaining popularity, but what is it and how is it impacting the Financial Services industry? Broadly speaking, FinTech (financial technology) is anywhere technology is applied in financial services or used to help companies manage the financial aspects of their business, including new software and applications, processes and business models.
To put this into context, when you use PayPal, Apple Pay, Google Wallet or simply your credit card to make an online purchase, you the consumer, the ecommerce retailer and the banks behind the money exchange are using FinTech. But don’t be fooled into thinking this technology is new.
Fintech has actually been around for a long time but was traditionally considered more of a back-end, data center processing platform. In recent years however, it has become known as the basis for end-to-end processing of transactions over the Internet via the cloud. So with Fintech gaining traction, how is it helping to power a new wave of disruption across the sector and how are consumers set to benefit.
1. It’s helping to facilitate the shift to a cashless society
Online shopping, contactless pay and apps such as Apple Pay have made it easier than ever before to make purchases allowing us to make great strides towards a cashless society. Changes in culture towards the use of digital money for everyday transactions have allowed counties such as Sweden to move increasingly closer towards a cashless society and the UK isn’t far behind.
2. It’s enabled the birth of Cryptocurrencies and in turn, the introduction of blockchain
The rise of cryptocurrencies is mainly due to the technology that allows it to function almost as a distributed ledger system; this is known as Blockchain.
Many financial services businesses have been sceptical of cryptocurrencies; seeing their trading volatility and resistance to normal financial regulation. However, whilst most companies may be giving cryptocurrencies a wide birth, the financial services industry has woken up to the wider potential of Blockchain. It’s deemed a far superior and safer database in contrast to existing systems. It can be altered in multiple places at once across country borders and markets and can work for many more things than just money alone.
3. It’s supporting the development of advanced cyber security systems
The vast majority of fraudulent crime now takes place online. Successful break-ins have the capacity to remove vast sums of money and ruin the reputation of leading financial organisations and associated companies. So to meet the growing criminal threat, organisations must adapt, quickly.
Coupled with mounting pressure from consumers, governments and shareholders parties, regulations are changing. Fraud detection is improving, and major companies are paying ever more attention to the cybercrime threat. For financial services, criminality is a major trend which will play a critical role in decision making and future strategies.
4. It’s supporting complex algorithms and AI
The emergence of AI is birthing a new category of financial services product known as ‘Robo-advisors’ which are able to offer unique benefits to wealth management services. By harnessing this technology, organisations are able to advise more heavily based on mathematics while offering fully impartial advice.
Essentially what these companies are trying to provide, or what the long term aim of this type of product is, is an AI wealth management service and the robo-adviser market today is a kind of halfway point between a traditional human adviser and what will eventually be the norm, when full AI tools rollout in the future.
The changing role of financial services
We started this blog by saying Financial services companies have essentially been providing the same services for decades and while this has rung true for many years, change is afoot. Financial service firms must now take on the role of technology providers in order to compete with the likes of digital-native start-ups such as Paypal or Square. There may at times also be a need to rollout shared platforms to enable services.
By embracing Fintech, Financial services are able to increase productivity and gain a competitive edge, but the biggest benefits lie with the impact these changes will have on customers.
Customers are increasingly expecting their financial providers to understand their needs and preferences and providers that fail to do this will lose valuable customers. By way of example, banks that recognise language preference at ATM’s or on their online interface will stand out and raise customer expectations. It is because of this that we can expect to see more companies using technology specifically focused on actionable insights. Central to this is the technology behind data analytics which is allowing the financial industry to better understand their customers and employees. These tools will enable businesses to store useful information on customer activities across all channels to help drive revenue growth and profitability.
The future promises to deliver exciting changes ahead for the Financial services industry, but the most exciting development will be the ones that revolutionise the customer experience.