The financial industry has long been the engine of innovation, prosperity, and globalization. But the industry is changing rapidly, with innovations such as mobile payments, blockchain technology, and new payment systems. It will be transformational for finance to survive in an increasingly digital world.
Today’s financial institutions face four major challenges: a high cost of banking services, an aging population, increased cyber risk, and less consumer tolerance for expensive banking services such as overdraft fees. Financial institutions have been slow to adopt new technologies due to the challenge of educating and training employees and a general lack of understanding. Only a few banking staff has admitted that they use biometrics for payments. Let’s explore the Fintech innovation and transformation in the financial industry.
Fintech Market Overview
The fintech market has been growing rapidly; in 2021, it reached $6588.78 billion. This market is expected to grow to $16652.68 billion by 2028. It is expected to exhibit a CAGR of around 13%. In the same period, there will be an increase in global digital payments. Driver-based forecasting depicts that the number of active users will reach 23.4 billion by 2023. Technological advancements and consumer security concerns will fuel this growth rate. Stripe, Gemalto, Square, PayPal, and Visa are top players in this space.
In the next few years, they will utilize artificial intelligence to expedite automated operations of financial processes. With the use of machine learning and AI, there is an increase in processes such as risk management. Machine learning can automate many of these operations, improving efficiency through automation.
Digital Payments Transformation
Digital payments have been transforming the way business is conducted. Payment processing is no longer a routine task. It is part of a customer’s online life, with customer data, digital financial transactions, and customer management being part of their daily lives. These transformations are likely to extend to other industries as well. Digital finance will change the way money is managed and processed.
Innovation in financial technology has led to a whole new world of financial processes. There is significant growth in mobile payments. The number of non-cash payment transactions increased year on year. Financial institutions are investing heavily in self-service analytics and chatbots, which provide seamless services to their customers. This service is increasingly important as more customers are using their smartphones to pay for services such as utility bills and subscriptions.
Fintech innovations have led to a new paradigm of financial processes. This increased efficiency also significantly changed wealth management and investment banking. Here are some of the major financial services innovation.
Blockchain is a ledger that allows parties to record transactions without needing a third party. This eliminates the need for banks, lawyers, and other middlemen. The lack of human intervention in blockchain provides an immutable audit trail, making it an effective tool for recording financial transactions. Blockchain technology in banking helps to automate the disclosures of loans and security transactions and increases the speed of execution. This technology is expected to bring about a new world of digital banking.
2. AI or Artificial Intelligence
Artificial intelligence has the potential to automate several operations in financial services. For instance, bank employees can access the data to make decisions faster and more accurately. AI can give them the ability to learn from past successes and failures. This is particularly important as banks are looking for ways to control costs by reducing employee workloads. For instance, robotics banking can help banks to respond to customer needs faster, which can decrease the cost of customer support.
3. Smart Contracts
A smart contract is an agreement that automatically executes itself when the contract conditions are met. Digital contracts can exchange, transfer, or record any type of digital asset. Smart contracts are used in insurance policies and are often used to facilitate asset-backed securities.
Fintech can incorporate biometrics in a way that will improve customer service. Using smartphones and wearables, customers can identify themselves with their fingerprints and facial features. The smart biometrics will work in conjunction with a bank’s mobile banking apps. In addition, the identification of customers and employees can be used to prevent fraud.
Neobanks have been disrupting the traditional banking model. Neobanks are financial institutions that use this new technology to offer various services. These services include savings, loans, credit cards, and peer-to-peer lending. They are also known as challenger banks because they provide a cheaper alternative to traditional banks.
Cybersecurity in Financial Industry
Cybersecurity is a major concern in the financial industry. There has been an increase in phishing, malware, and ransomware. The financial sector cyber security market will reach a CAGR of 6% by 2025, driven by growing concerns about cyber attacks and weak cybersecurity. Improved cybersecurity will help finance big data analytics, cybercrime prevention, and identity management.
FinTech Regulations: Risks and Challenges
Regulators are concerned about Fintech’s use in the financial sector. Several risks and challenges need to be addressed. These include fraudulent transactions, data integrity, privacy, and economic growth.
Fintech innovations such as blockchain and AI are expected to change the financial industry significantly. Banks have an obligation to adapt these new technologies and applications. They will achieve new ways of engaging with customers, monitoring and controlling fraud, increasing efficiency, and reducing costs by applying these technologies.