FinTech, the lucrative domain of brave technology startups, is proving a potential gold mine for traditional financial institutions. FinTech software development is booming thanks to consumer confidence, turbulent technological evolution, and lax regulatory policies coming together to form attractive yet highly competitive market conditions.
How do we know this? For years, Intellias has been establishing productive dedicated teams for FinTech projects across various fields like digital banking, integrated payment systems, lending platforms, and more. And we assure you that the digital transformation in banking from legacy systems to innovative FinTech solutions transforms financial businesses into strong players in the competitive FinTech field.
Let’s dive into finance software development tendencies, see what FinTech software trends are gaining momentum, and consider which FinTech software solutions businesses should bet on for maximum profitability.
Digitalization of retail banking: a mainstream trend
According to the McKinsey global banking annual review, all players in the retail banking arena are at risk of losing profit unless they’re on first-name terms with digitalization. Banks in established markets may collectively lose $90 billion, while banks in emerging markets are too vulnerable in terms of the credit cycle.
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.
As you can see, banks have already realized that simply streamlining traditional services isn’t enough to keep up with digitalization and other FinTech trends. The threat of losing customers has become the strongest driver of conventional banks’ accelerating their digital initiatives. The major task for retail bankers in the coming years is to create new business models, products, and services that form new revenue channels.
Meanwhile, we’re witnessing the rise of startup FinTech banks that either are connected to traditional banks but are focused on improving the user experience and providing novel services or offer completely new digital banking software.
Spheres of retail banking that have learned to embrace digitalization
Digital-only banks. Among the main FinTech trends in banking, these are standalone FinTech solutions that provide banking services to customers exclusively through online platforms and mobile applications. An alternative to branch-based banking, digital-only banks offer nearly all of the accounts and services provided by traditional banks. Because they don’t have to cover branch expenses, however, the fees and costs of digital-only banks are lower.
Digital-only banks are between two and four times less expensive than the cheapest traditional banks.
Smart budgeting and personal financial management. Retail banks used to upsell their products: spending planning, wealth management, personal financial data management, and even retirement planning. Now, retail clients can use tech-enabled help of AI to keep their spending under control, earn higher interest rates on savings, and simply align wealth management services to their actual needs. And customers can do all this without having to interact with potentially biased advisors at bank branches.
FinTech security. Along with positive impacts and competitive advantages, digital disruption, unfortunately, also entails a rise in cybercrime. Sophisticated fraudsters exploit vulnerabilities of connected digital devices and the channels that retail banking customers use for financial transactions.
Secure access, protected financial data management, and fraud prevention and detection are top challenges for both FinTech startups and traditional banks.
Advanced payment services are a lifeline for a cashless society
Adoption of digital payments is on the rise with contactless cards, wallets, and mobile devices. But what else stands behind innovations in FinTech payments? The range of options is impressive. As the number and variety of FinTech players rise, new tools and solutions emerge, gain traction, and reach the market with remarkable speed.
Instant payments. A global phenomenon that operates at the speed of the internet 24/7 offers real-time money transfer from almost any part of the world. Instant payments make financial institutions more agile and responsive to customer demands. The ability to send and receive money immediately is critical for e-commerce, e-invoicing, mobile solutions, and a lot of businesses that think big.
Cross-border payments. This financial service allows businesses to grow in a globalized world. Traditional payment service providers face huge competition from agile, bright startups that are entering the FinTech payment market. The best cross-border payment solutions provide fast transactions, reasonable fees, transparency, regulatory compliance, and security. Support for currency conversions, alternative payment methods, and tax transparency are huge bonuses.
Integrated payment services. Credit cards are a globally accepted payment method. But different locations may have commonly accepted alternative payment methods such as e-wallets, real-time banking, cash-enabled payments, or debit card payments, to name a few. Payment processing platforms that integrate various payment methods can maximize revenue opportunities for businesses. On the other hand, a lack of payment integrations often turns into terminated transactions if customers can’t use their preferred payment options.
Regulatory sandboxes and regtech. These new trends have just appeared on the payment services horizon. Regulatory sandboxes are areas for controlled experiments within an environment that’s safe for consumers but open for FinTech startups or established firms. No licensing or thorough authorization processes are needed. Meanwhile, regtech firms have emerged to address regulatory compliance with the right technologies. Regtech startups can help financial companies reduce time-to-market for FinTech software solutions and ensure compliance with industry-specific regulations.
Payment security and fraud prevention. The number of payment options, the speed of innovation, and even increased government regulations can’t stop fraudsters. In fact, all these hurdles make them more inventive. But using biometric security, geolocation features, user profile verification, and standardized rules for payments and money transfers can help financial institutions out-innovate hackers. Even the best anti-fraud FinTech banking software doesn’t focus on the user experience, however, so startups have plenty of work to do in this area.
Notable startups: True Link Financial, Fraugster
Peer-to-peer lending: attractive returns and easy investing
This big FinTech trend goes by many names – peer-to-peer lending, P2P lending, P2P credits, marketplace lending, micro-lending business – but what looks more certain is that it’s here to stay.
According to Statista, the value of transactions in the P2P credits segment will amount to $119,022 million in 2018. With an expected annual growth rate of 25.2%, the total amount may reach $292,198 million in 2022.
P2P marketplaces attract users by offering better transparency, less bureaucracy, and quicker loans. In other words, they offer real money in real time. While the first lending platforms were indeed peer-to-peer, today there’s a tendency for organizations like insurance companies, hedge funds, and even banks to provide capital for lending. This explains why peer-to-peer lending is now often referred to as marketplace lending, denoting a wider range of lenders.
P2P marketplaces attract users by offering better transparency, less bureaucracy, and quicker loans. In other words, they offer real money in real time.
With the rise of P2P marketplaces, users can benefit from loan comparison platforms. These kinds of peer-to-peer lending apps allow borrowers to compare financial services to find the best interest rates for personal loans. Moreover, they offer an easy and convenient way to review other factors such as returns, track records, deal-flow, risks, and reputation.
The role of FinTech software development in business success
Technologies behind FinTech solutions have quite the complicated task: to combine a friendly UI, intuitive UX, and easy-to-use apps with rock-solid security to protect financial and personal data. Luckily, diverse software development approaches are available to help FinTech companies pull this off. Here are several examples of innovative technologies that are being used to develop FinTech software.
- Blockchain. Everyone associates this magical buzzword with cryptocurrencies. But in reality, the blockchain is essential for developing peer-to-peer (P2P) and business-to-business (B2B) payment solutions, cross-border and immediate payments, and currency transactions. The biggest merits of the blockchain include its security, robustness, and performance – and its almost infinite capabilities.
- Big data. Many FinTech companies use big data in general and predictive analytics with machine learning in particular to evaluate user behavior and make informed decisions about borrowers. There are countless ways to apply big data in FinTech since it’s one of the most data-dependent industries.
- Artificial intelligence. AI can power fantastic user experiences, and AI-powered software can deliver personalized financial services, track customers’ financial behaviors, and improve financial planning. On top of that, AI considerably reduces the risk of fraudulent activities.
- Cloud. The terrific speed of digitalization requires financial organizations to scale up their processing capacity while reducing operational costs. Cloud solutions can do just that, quickly and safely.
FinTech has considerably affected how, where, and why consumers and corporations deal with payments. Both FinTech players and traditional financial institutions are under pressure to bring in more revenue and reduce operating costs while delivering better customer experiences. The advantage of smaller FinTech companies is in their ability to offer competitive products that suit every wallet with a low-cost structure. Big consumer banks, on the other hand, have large customer bases and enough resources to take an interest in or even acquire a FinTech startup.
In this context, using game-changing technologies such as the blockchain, artificial intelligence, and machine learning will become increasingly common. Moreover, banks will continue to automate corporate processes and migrate their infrastructures to the cloud for a seamless customer experience.
Whether P2P lending, retail banking, or digital banking, a customer-centric model is at the heart of all FinTech products. The digitalization of various financial spheres meets the demands of customers who no longer want to use outdated banking software. The ability to calibrate business strategies will be crucial to remaining competitive for decades to come.
Watching the trends in payments isn’t enough. Custom financial software can help you build a solution to reach your goals on the vibrant FinTech market. Contact us and keep up with the trends by learning more from Intellias FinTech software engineers.