Since around 2010s, it may seem like there hasn’t been much new in the FinTech industry except for general digitalization, adoption of AI, and online payment integration. But this is just the tip of the iceberg, as new impressive technologies are about to hit the financial sector. Intellias is ready to bust the myth of the innate conservatism of the financial industry and introduce a devil’s dozen of innovative technologies that will rattle the field in 2019.
Fast forward a few years and FinTech is now white hot and getting hotter. The sector has sky-rocketed this year, with worldwide global investment in the sector for the first half of 2018 exceeding the whole sum value of 2017.
Top FinTech trends to take over in 2019: New technology & data
All global FinTech trends and predictions for 2019 swirl around innovations and data. Digital payments, cardless transactions, mobile deposits, and other self-service options are what most of the population — especially Millennials and Gen Z — appreciate most. Easy payment options increase the frequency of transactions and extend a bank’s audience internationally. Data gathered from various sources helps financial institutions improve customer service and offer personalized services.
Industry leaders that have taken advantage of state-of-the-art innovations are already reaping the fruit of their investments. ITPro states that 94% of businesses that have invested in IoT solutions have already returned their investment.
Banks are sitting on mountains of data and they need to leverage it to survive in the future. With so much data available within the industry, we must work together to analyze the data and act on it. Data will be the key to the payments evolution.
Connected, frictionless, and automated service design
5G + cloud computing
Cloud-based technologies are growing in popularity as financial institutions aim to reduce IT costs and improve scalability. In the next three to five years, cloud technology will be the focus of financial institutions. It has a lot to offer:
- Faster and easier launching of new products
- Increased scalability and flexibility
- Savings on IT infrastructure
- Customized solutions and customer insights
- Compliance with new regulations like FRTB
Still, we can’t assume that everyone has access to high-speed internet to take advantage of cloud computing. For many businesses and customers, 5G is the missing link. But the critical advantage of 5G isn’t even its speed — and we’re talking about downloads of over 1Gbps — but rather its low latency. This will mean rapid real-time mobile user experiences and zero wait time for payment processing. As one of the top FinTech industry trends, 5G will connect more devices at lower power, at lower cost, and with greater reliability.
Data & AI
Data is the cornerstone of FinTech innovations. The joint use of data analytics, artificial intelligence (AI), and the Internet of Things (IoT) is reshaping the financial sector right now. Take the credit niche, for instance: in a year or two, banks won’t be using the outdated FICO score. Instead, they’ll be collecting data from social media and wearables and taking into account GPS information to understand your needs and assure your reliability. And while the big players are trailing, young and ambitious startups are ready to take their place this very moment.
Bob Lord, Chief Digital Officer at IBM, says that every bank has access to enormous volumes of data behind their firewall. The thing is, they can’t effectively mine it and use it. AI is recognized as a top FinTech trend that will transform financial services, as it can solve the current data problem.
Machine learning and natural language processing (NLP) can transform extensive historical and real-time data into actionable business insights, helping banks offer truly personalized services and products. These are some of the essential fields that AI is reshaping in FinTech:
- Fraud detection/modeling
- Customer interactions
- Market/equity trends
- Data cleaning
- Democratization of technology/services
Despite its obvious benefits, some people are cautious about letting AI into their everyday lives. But the almightiness of artificial intelligence is seriously overblown. The singularity is not in our immediate future, and our generation isn’t likely to witness the robot uprising. What we should do right now is amplify our capabilities with AI to create more convenient and efficient environments.
Predictive analytics with machine learning for fraud detection and security
Banks face a delicate balance between customer experience and fraud management: while prevention practices can create friction and a declined customer is often an unhappy customer, fraud events can result in lost relationships.
Financial crime costs the global economy $2.1 trillion every year – more than the combined GDP of Saudi Arabia, Pakistan, Switzerland, and Ireland. AML compliance costs $83.5 billion a year. Approximately $2 trillion a year is laundered, with only 1% getting caught by regulators.
Fraud detection and security issues are a big, costly headache for the banking industry. The solution of 2019 is machine learning and predictive analytics.
The 2018 Industry Payments Report shows that 90% of banks cite a payment failure rate under 5%, yet the cost of failed payments has increased to more than $30 per failed transaction.
Percentage of payments that are rejected or repaired by a beneficiary or correspondent bank
Source: BI Intelligence Survey, March to April 2017, analyst estimates
Machine learning and predictive analytics can detect network intrusions, secure user authorization, analyze a company’s cybersecurity, and predict hacking.
Clara Shi from Ant Financial says that her company has secured their transactions through AI. For every million dollars in transactions, Clara claims, less than one dollar is lost to fraud. Processing data with AI will keep companies ahead of fraudsters. If you can predict weaknesses, you can eliminate them.
Most significant FinTech technology trends for banking
46% of banking services consumers use only digital channels – a drastic increase from the 27% that was seen only four years ago. Moreover, 82% of Millennials, a considerable client segment for traditional retail banks and the prime target audience for digital banks, bank entirely by their phones.
The digitalization of retail banking is mainstream these days. The threat of losing customers to more agile FinTech startups is the primary driver of digital innovations within major industry players. As a result, some fresh business models, products, and services are taking the stage and forming new revenue channels.
Platformification/Banking as a Service
The average person visits a branch maybe 10 times a year, but they’ll visit their mobile app 300 times a year.
A simple definition of banking as a service is providing banking services outside traditional brick-and-mortar points, letting customers do business via mobile devices and the web. Due to the growing segment of tech-savvy customers, the future of banks will be
- driven by AI
The way people interact with money is changing, and banks should meet the demand for data-driven, secure, real-time platforms that provide excellent customer experiences. Platform FinTech companies will have an edge because of their openness and information sharing models. They can offer more services, provide easier access from anywhere at anytime, and better understand customer needs.
KYC + digital identity + behavior identification
Due to the expansion of AI and big data, the traditional identification methods like a passport, driver’s license, and proof of address have become old-fashioned if not insecure. To survive in our digital age – and keep money safe – we’ll need a decentralized, smart, and individually controlled identity system.
Someone knows your first pet, first boyfriend, favorite movie, etc. We need to get away from passwords and knowledge-based data and move to biometrics and risk-based behavioral authentication.
Biometric technologies that FinTech can use for security
The devices we use daily can provide an additional layer of security that’s dynamic enough to prevent hackers from breaching and convenient enough to not affect the usability of the banking app (finger pressure, typing speed, navigation preferences, etc.) This way, identity check and KYC procedures will break the chains of time-consuming face-to-face meetings and move online.
Open banking + APIs
Open data is already predicted to generate more than $3 trillion in economic value annually across major sectors.
According to Accenture Banking research, banks that exploit Open APIs will profit from a potential revenue uplift of 20%, whereas those failing to do so risk losing 30% to disruptive industry players by 2020.
A poll at the SIBOS 2018 conference shows that the majority of FinTech industry representatives are already using open APIs or are considering implementing them shortly.
Will open banking be a revenue stream for your bank?
Thomas Nielsen, Chief Digital Officer at Deutsche Bank, says that open banking is driven by customer demand, but technology is the key enabler. So tech companies will provoke competition in the banking sector. Winning in an open banking society means new business models and cooperation with FinTech leaders.
In the open banking era, the best example of a banking platform would be a connected platform with APIs in the cloud and a UX that could win the trust of customers.
Moving from personal financial management to personal financial coaching
Moving from personal financial management (PFM) tools to personal financial coaching (PFC) tools is one of the top FinTech trends poised to take over banking in 2019. PFM has evolved into personal money management (PMM), which leverages open banking, linked accounts, and better categorization. It’s embedded in almost all banking apps.
But some innovators have gone a level further: the next evolution of PFM is PFC (check out the first tries). PFC is proactive and conversational. It goes beyond simple banking and transactional services, combining data, products, and services into an ecosystem that supports the complete customer journey.
What are the top FinTech trends for payments in 2019?
Gen Z controls $143 billion in purchasing power. By 2030, Millennials will hold close to $20 trillion in financial assets, making them the wealthiest generation in history. And mobile payment processing is our best friend in winning over this audience. With advanced security like biometric authentication and new customer needs, the payment industry is improving mobile services and online products by leveraging AI, big data, IoT, and blockchain.
The cashless economy
Over 70% of payments are fulfilled via mobile devices. Sixty-seven percent of millennials don’t have a credit card. These days, smartphones are often the only way people shop, entertain, do business, or do anything digital. Contactless cards are seen as the new normal.
In Japan, the government aims for 40% consumption by cashless means by 2025. The country has joined the cashless trend against the difficult-to-change consumer behavior, which is pretty much cash-dominated. IndiaStack is one more attempt to move to a paperless and cashless society through the Aadhaar identity scheme (however, it currently has some serious security issues).
Cashless payment processing is fueling modern businesses, says Jason Gardner:
- Delivery solutions
- Expense management
- Incentives programs
The market is filled with such FinTech innovators as N26, Monzo, Atom Bank, Yoyo Wallet, and many others, which means the competition is becoming tough.
Revolution from customer user interface to voice user interface
The use cases of voice user interfaces (VUIs) in financial services are currently mostly limited to checking balances and paying bills. The next step is more personalized solutions, financial coaching, and seamless guidance through different interfaces.
Consumers are 200 times more conversational and 40 times more likely to take action via voice vs. text.
Kurt Bilafer from Amazon Pay says that voice is the new UI, and it can be even more disruptive than mobile. In the next three to five years, personal assistants like Alexa will gain more recognition. The primary challenge is improving AI to understand the nuances of human dialog, understand accents, and so on. Still, the trend does seem exciting: Invoca’s study estimates that the VUI market will be worth $18 million by 2023.
US voice payments adoption
Voice represents a new opportunity for consumers and brands alike, redefining the way people research and purchase. The future isn’t just web or mobile; businesses should deliver consistent commerce experiences across multiple channels.
eCommerce changing into vCommerce
Commerce has been transforming since the adoption of digital services, from eCommerce through mobile commerce to a new era of voice commerce, or vCommerce.
Transformation of commerce
At the moment, 36% of homes have a voice-enabled device like Alexa. Interestingly, Asian consumers are more inclined to communicate with electronics via voice, while European consumers show a lower interest in voice assistants in general.
In a year or two, voice assistants will evolve to handle banking services not only through mobile banking apps: customers will be able to conduct voice-enabled financial operations via wearables, cars, and home automation hubs.
Some general trends that FinTech will experience in the future
Let’s discuss some intriguing ideas, promising perspectives, new competitors, and potential outcomes that will influence the financial industry in the future.
At its essence, finance deals with uncertainty. Interest rates, dividends, and other metrics exist because of the impossibility to predict the outcome of investments. How do bankers and traders deal with this uncertainty? They either charge higher fees for the risk or deal with it statistically by diversifying their funds. Big data and AI have brought about a revolution in the quality of data analysis. But what if we used quantum computing to manage our finances?
At this very moment, some promising methods of using quantum annealing are being tested in finance:
- to optimize trading trajectories
- to determine arbitrage opportunities
- to select the most relevant features for risk assessment
With quantum computers such as D-Wave, market prediction and credit risk analysis will rise to the next level. The training of neural networks will speed up exponentially. Another possibility is the creation of new, exclusively quantum neural networks that will be able to learn from significantly more complex data. We still need several breakthroughs to surpass modern supercomputers, but the field is developing at a surprising pace.
The young generation is excited about the possibility of banking through non-traditional financial organizations. Amazon? Sure! Facebook? Looks great! Traditional bank? Leave it to my grandma. GAFA (Google, Apple, Facebook, and Amazon) have millions of customers, the credit card data of those customers, and can offer highly tailored products. Will GAFA become the biggest pain for financial institutions in a few years, or should you look at it as an opportunity to evolve?
To face the competition of a potential GAFA bank, traditional players should take the following approaches:
- Ensure end-to-end capabilities
- Personalize services
- Use AI, NLP, and cognitive computing for data analysis
- Take advantage of open APIs, white labeling, and partnerships with FinTech companies
Proactive thinking and innovation are critical so that financial institutions don’t fall victim to the GAFA dominance.
If you’re looking for new opportunities, it’s time to turn your head east. Nine out of the top twenty technology companies in the world are Chinese. Alibaba, a Chinese FinTech giant, is building a technology stake that handles a million transactions per second for 2 billion people, while Visa handles about 2,000 transactions per second. Statista estimates that FinTech investments in Hong Kong will reach $21,252 billion by 2022.
Mobile banking activity usage and intentions by region
The Frost & Sullivan research company says that APAC will focus on the improvement and broader adoption of digital payments, working toward a cashless society. We’ll see more Asian FinTech innovations to come thanks to big data, AI, and the blockchain.
Digitalization is no longer a channel; it’s a new paradigm for leading financial institutions. The wide adoption of FinTech will continue to disrupt the industry, making it more customer-centered. Data and artificial intelligence are the pillars of innovation. Analytics will aid in creating more personalized services, and virtual assistants and chatbots will provide better efficiency and more seamless user experiences. Cashless payments are becoming a new norm for young consumers, and banks are working toward satisfying the need for mobile money transfers, online banking, and end-to-end financial services. The partnership between financial institutions and FinTech companies will become essential in the fully digital landscape of 2019.
If you want to keep up with the latest FinTech industry trends, contact Intellias. Our experts are ready to consult you on the up-to-date technologies for financial services.