Financial Technology (FinTech) is a catch-all phrase describing software, mobile applications, and other technologies designed to enhance and automate traditional forms of finance for businesses and individuals alike. FinTech may range from simple mobile payment apps to large blockchain networks that house encrypted transactions. This article will go through technologies that shape the future of FinTech, the FinTech industry, futuristic predictions for FinTech, and FinTech trends.
The phrase "fintech firm" defines any business that employs technology to improve, extend, or automate financial services for businesses or consumers. Examples are mobile banking, peer-to-peer payment systems (e.g., CashApp), automated portfolio managers (e.g., Betterment), and trading platforms like Robinhood. It also applies to creating and trading cryptocurrencies (e.g., Bitcoin, Dogecoin, Ether).
While FinTech is a complex idea, it is feasible to obtain thorough knowledge. FinTech streamlines financial transactions for individuals and businesses, making them more accessible and often less expensive. It can also refer to companies and services that use artificial intelligence, big data, and encrypted blockchain technology to conduct highly secure transactions within an internal network.
FinTech aims to simplify the transaction process by removing potentially superfluous procedures for all parties involved. For example, a smartphone application such as PayPal to CashApp lets you pay others at any time of day by sending dollars directly to their bank account. If you paid with cash or a check, the receiver would have to go to the bank to deposit the funds.
Fintech has evolved in reaction to advances in the broader technology industry. Several dominant trends will determine this increase in 2022:
Digital banking is becoming more popular
It is now simpler to access digital banking than ever before. Many customers currently handle their money, apply for and pay for loans, and buy insurance through digital-first banks. This ease of use and convenience will fuel more expansion in this sector, with the worldwide digital banking platform market predicted to rise at a CAGR of 11.5% by 2026.
Blockchain technology enables decentralized transactions without the involvement of a government body or other third-party organization. For years, blockchain technology and applications have been overgrown, and it is expected to continue to grow as more businesses turn to enhanced data encryption.
Artificial Intelligence (AI) and Machine Learning (ML)
AI and ML technologies have transformed how FinTech organizations expand, altering their services to customers. AI and ML may cut operating expenses, boost client value, and detect fraud. As these technologies grow more inexpensive and accessible, they will play an increasingly important role in the continuing expansion of FinTech, particularly as more brick-and-mortar banks become digital.
FinTech's Powerful Technologies
AI, big data, and blockchain technology have altered how businesses move, store, and safeguard digital cash in modern finance. AI, in particular, may give organizations significant insights into consumer behavior and spending habits, helping them understand their clients better. Big data analytics may assist businesses in forecasting market shifts and developing new data-driven business strategies. Blockchain, a unique financial technology, enables decentralized transactions without the involvement of a third party by utilizing a network of blockchain users to monitor prospective modifications or additions to encrypted data.
How secure is financial technology?
According to Forbes, consumers usually trust FinTech businesses; 68% of individuals are eager to utilize financial instruments produced by non-traditional (e.g., non-finance, non-banking) organizations. However, many fintech apps are still in their early stages and are not subject to the same safety standards as banks. It is not to say that customers should not trust FinTech businesses with their money; instead, caution might be advantageous. Most customers believe that the benefits of cooperating with a FinTech business exceed the dangers.
FinTech has transformed financial institutions for millions of people worldwide, changing how we pay each other, purchase stocks and other financial instruments, and obtain financial advice. Several fintech businesses provide different services to their clientele. Here are a few notable examples:
How to Learn FinTech and Skills Required
FinTech is a developing industry with several career prospects for people with relevant experience. Are you considering a career in finance? Here are a few options for learning crucial industry concepts and a few critical skills to practice right away.
FinTech Education Pathways
FinTech boot camps provide students a place to get started in FinTech rapidly. Boot camps offer organized study opportunities and hands-on experience for students interested in the profession. Boot camps are both individualized and demanding; they provide a comprehensive curriculum that simulates real-world experiences, but they can frequently be conducted remotely and efficiently. For example, Columbia Engineering FinTech Boot Camp provides a foundation for anybody looking to start fintech in as little as 24 weeks, with adaptable courses ranging from financial analysis to algorithmic trading and blockchain transactions.
FinTech Concentration Degrees
When it comes to traditional degrees, as the area expands, more universities provide degrees concentrating on FinTech. These programs enable students to understand the details of a conventional finance degree while also learning technology abilities that might be useful in FinTech. Depending on the degree programmed and the number of classes a student may take simultaneously, these programs usually take 2-4 years to finish.
FinTech Options for Self-Study
For people who wish to learn FinTech on their own, there are several resources accessible, including free online courses, instructional multimedia and applications, and digital manuals. Self-teaching choices are great for people who want a completely independent learning framework. They provide the opportunity to master industry essentials and personal organization and time management skills.
FinTech has increased the number of work possibilities for people interested in the subject. Here's a brief rundown of a handful of them:
Financial analysts assist organizations in making decisions that will result in higher future profits. They use advanced critical thinking skills to evaluate the performance of stocks, bonds, and other financial products. Financial analysts have excellent career prospects right now. According to the Bureau of Labor Statistics (BLS), the profession is anticipated to rise by 5% by 2029, with a median salary of $83,660 in 2020.
- Analyst of Finance
Information security analysts develop and carry out security measures to secure computer systems and data from illegal access – a requirement for today's fintech firms. Information security analysts have excellent job prospects. According to the Bureau of Labor Statistics, the employment outlook for information security analysts is predicted to expand by 31% by 2029, which is much faster than the average for all industrial jobs. In 2020, the median salary for information security analysts was $103,590, which was much more than the national average.
- Analyst for Information Security
Blockchain firms and apps are becoming an increasingly important aspect of the finance ecosystem. Blockchain developers create, implement, and support decentralised blockchain applications such as bitcoin exchanges, lending systems, and voting platforms. The typical compensation for a blockchain engineer in 2020 was $92,870, according to CareerOnestop, and the number of employment in the industry is predicted to expand by 6% by 2029.
- Blockchain Developers
Smart contracts, zero-knowledge proof, and distributed data storage and exchange will be essential in FinTech developments such as digital wallets, digital assets, decentralized financing (DeFi), and non-fungible tokens (NFT). Financial technology uses technology and innovation to compete with traditional financial techniques in delivering financial services. It is a new industry that employs technology to enhance finance activities.
Seven key innovations will drive business paradigm retellings while shaping the overall competitive landscape of the financial sector over the next ten years. Technological advancement and innovation are the bedrock of fintech growth, and they will continue to drive innovative business models in financial products. According to McKinsey, seven main innovations will fuel fintech growth and define the competitive financial environment over the next decade:
Artificial intelligence will generate immense value.
As according McKinsey, artificially intelligent (AI) may bring up to $1 trillion in value to the worldwide banking industry every year. Financial institutions are intended to adopt an AI-first approach, and urban planning to withstand incursion by increasing technology corporations. Automatic factor discovery, or the machine-based identification of the components that cause improved performance, would become increasingly common in financial services, assisting in refining financial forecasting. Knowledge graphs and graph computing will also play a more significant role as a crucial application of AI semantics. Their capacity to aid in forming linkages and identifying patterns across complex financial networks by relying on a diverse set of frequently divergent data sources will have far-reaching ramifications in the coming years.
Moreover, analytics that integrates better privacy safeguards will encourage minimum data utilization or the use of just relevant, essential, and suitably cleansed information in financial model training. These include federated learning, a type of decentralized machine learning that solves the privacy risk associated with centralizing datasets by providing computational capacity to the information instead of the other way around. Advanced encryption, safe multi-party computing, zero-knowledge proofs, and other privacy-aware data analysis techniques will increase consumer rights.
AI applications will permeate the whole banking industry's activities, with front, middle, and back offices. Tailor-made product lines, personalized user experience, analytics services, intelligent service robots and chat interactions, business tracking systems, automatic vehicle money transfers and self-driving, alternate solution credit scores based on non-financial data, and facial recognition authentication are examples of consumer applications. Intelligence, better knowledge representation tools, and natural language processing for fraud detection are examples of middle-and-back office applications.
Most financial organizations deploy AI in a haphazard and fragmented manner, frequently limiting the technology to specific use cases or verticals. However, leaders in the banking sector are revolutionizing their operations by systemically applying AI throughout the whole lifespan of their digital operations. Notably, the financial industry realizes that algorithms are only as good as the fed data. The focus is shifting to establishing a competitive edge from previously underutilized consumer behavior data obtained through traditional operations. This will unleash the hitherto untapped potential of ecosystem-based finance, in which bankers, insurance, and other banking and finance organizations collaborate with non-financial actors to provide seamless client experiences in areas beyond their conventional jurisdiction.
For financial institutions, becoming an "AI-first" institution will result in increased operational efficiency through the strict automated processes of work labor (a "zero-ops" attitude) and the replacement or augmentation of human decisions with advanced diagnostic tests. The broad application of conventional and trying to cut AI technologies, such as computer vision and facial recognition, to (relatively close) real-time analysis of massive and complicated customer information sets would result in better-operating efficiency. Future "AI-first" banks will emulate the speed and agility of "digital native" companies and users. They will innovate quickly, releasing new features in days and weeks rather than months and years. Banks will also work closely with non-bank groups to build value propositions that span trips, software packages, and benchmark datasets.
Blockchain will fundamentally alter traditional financial conventions.
Some notable blockchain uses involve real-time transaction settlement: banks simultaneously employ smart contracts to pay the collateral and cash parts of a transaction. To improve the efficiency and sustainability of past transactions, securities financing and stock exchanges may all be resolved on the network. Conversely, marketable securities backed by electronic assets on the blockchain facilitate more efficient, transparent, and safe cash flow and post-transaction stock settlements. Corporate investors are looking for DLT features such as tokenization for unlisted firms or private equity funds, spot exchange between established currencies and cryptocurrency on digital exchanges, and safekeeping services such as key encryption encrypting on clients' accounts.
Ecosystems of authentication based on zero-knowledge proof: Consumers use agreed-upon data from partner organizations to verify their identity online, in person, or even over the phone, streamlining identification processes and providing faster access to health data and government programs. The information required for every individual operation is communicated, with all other data remaining safely on the authorized provider's server.
Decentralized finance (DeFi): Decentralized non-custodial applications that generate predictable (or "always valid") transactions can replace intermediaries. You canto get loans, make investments, and exchange financial items without depending on centralized financial bodies. DeFi binary representation contracts minimize competitor risks and the expenses involved with tenant intermediaries while increasing market performance through genuine visibility. DeFi, built on blockchain technology, is ushering in a new era of opportunity by upsetting traditional value chains and institutions. DeFi is expected to grow significantly as financial rules and laws evolve.
Cloud computing will unleash businesses in the financial services sector.
According to Mckinsey report, cloud technology will account for more than $1 trillion in EBITDA (profits before interest, tax, depreciation, and amortization) among the world's top 500 corporations by 2030. According to our study, efficient cloud utilization may boost the efficiency of migrated application development and maintenance by 38%, network cost-effectiveness by 29%, and moved app unavailability by 57%, cutting expenses related to technical violations by 26%. Simultaneously, the cloud may increase platform integrity through automatic and incorporated security procedures and controls.
A primary example of a cloud-based feature that reduces technical risks through a consistent, cross-environmental technology stack is Development, Security, and Operations (DevSecOps), or the idea that safety is a responsibility that can be actioned through an organization in tandem with the increase of its development and its operations.
Thinking forwards, we have identified several essential cloud services trends:
- Computing and edge cloud are critical: Division and development logic based on the interaction between network edge, data centers, and the cloud is becoming more widely acknowledged in a variety of contexts. Edge cloud development is growing as 5G connectivity pushes new interactions and synergies across the internet of things (IoT), cloud computing, AI, and other technologies in sectors such as new commerce, health, business estates, intelligent buildings, and agricultural IoT.
- Cloud containers encourage creativity. Cloud services are actively promoting the use of containerization in the cloud, which allows numerous workloads to operate on a single operating system instance, lowering overheads and increasing efficiency. This is pushing cloud delivery model innovation on the platform as a service (PaaS) layer.
- Cloud technology providers will progressively priorities the development of platforms that include containers as a services (CaaS). AI-cloud integration is becoming more common: AI-cloud platform applications are emerging in disciplines such as image and audio discovery, propelling advancements in high-value areas such as medical image analysis. Through cloud platforms, deep learning will continue to improve services for a greater variety of consumers.
Cloud computing frees banking firms from non-core operations like IT infrastructures and data centers while also providing access to flexible storage and computing services at a cheaper cost. Simultaneously, the cloud generates new banking and financial service formss, upending the age-old relationship between customers and financial institutions. Financial firms will continue to rely on the cloud as they implement more agile capabilities and establish new companies that demand high market and customer response and flexible scalability. However, self-development and self-big data analytics will increase demand for cloud-based elastic computing, allowing computer resources to be dynamically modified to match variations in order.
The Internet of Things will usher in a new era of financial trust.
After years of languishing in the lowest reaches of the hype cycle, IoT is now maturing, with significant financial implications. Perception and intelligent sensor systems, wireless communication networks, and application and operations support are the three layers that make up IoT systems. In terms of sensors, RFID tagging offers a lot of untapped potential for automating item identification and logistics management. IoT communication solutions are growing, allowing devices to communicate over wired and wireless networks, near-field communication solutions, low-power wide-area networks, narrow-band IoT, linked end-point devices, and centralized control management. Finally, embedded and intelligent technologies rapidly evolve, allowing for more sophisticated communication with things.
Consider that environmental, social, and corporate governance (ESG) factors increasingly influence many investment strategies and regulatory laws from financial applications. Several big countries, for example, have committed to achieving peak carbon emissions and carbon neutrality. Aside from the increased use of renewable energy, meeting these targets will depend on improved monitoring and control of industrial energy and power efficiency. It is an ideal environment for IoT applications. Carbon trading, for example, will become more correlated to IoT measures, creating new possibilities for perceptive participants.
Nevertheless, insurers embrace IoT to assess risk better, improve consumer interaction, and accelerate and simplify the underwriting and claims processes. Auto insurers, for example, have traditionally established premiums based on indirect factors such as a driver's age, residence, and creditworthiness. Thanks to IoT, data on driver behavior and vehicle use, such as automobile speed and frequency of night driving, are now available. The technology enables insurers to communicate with clients more regularly and provide new services based on collected data.
Customers frequently engage with agents or brokers and only contact the insurer directly for policy renewal or claims management, making the industry suitable for efficiency advantages. IoT can help customer relationship management by allowing insurers to develop more extensive and focused consumer communication. In banking, IoT-based inventory and property finance, which involves the integration of IoT with blockchain, is improving risk management by verifying that accounting records match real-world transactions, enabling an entirely new trust system. IoT is shaking up traditional trade finance in shipping and logistics, allowing banks to build new products based on commodities movement trackings, such as on-demand liquidity and other innovations supplied via smart contracts. Another way that IoT is bringing banks closer to their clients is by embedding financial services, such as digital payments, inside wearables.
Open source, SaaS, and serverless will decrease entry barriers.
Speed and adaptability are critical for new businesses and financial innovation, especially given the digital economy's intense competitiveness and winner-take-all dynamics. Open-source software, serverless architecture, and software-as-a-service (SaaS) have become must-haves for technology players and traditional financial institutions building new fintech firms.
SaaS enables employers to utilize software as required without owning or maintaining it. In contrast, serverless architecture eliminates the need for businesses to run their servers, freeing up time and resources for customers and operations. The serverless design saves money since costs are tied to running software code rather than being continuously created, independent of business requirements. It also promotes flexible scaling, which reduces idle and loss while increasing development efficiency. Open-source software is a blessing for businesses trying to overgrow since it provides free-to-use source code that enables developers a head start in developing their apps. McKinsey's analytics business, Quantum Black, published Kedro in 2019, an open-source platform allowing data scientists and engineers to design data pipelines.
Every technology brings value, but businesses can rapidly expand infrastructure and produce and deploy prototypes at a low cost when used in tandem. On the other hand, traditional financial organizations provide significant barriers to using technology across IT organizational structures, development skills, and risk management capabilities. They will need to reassess their IT strategy and prioritize rapid response IT skills on their fintech innovation agenda.
No-code and low-code will radically alter application development.
No-code development platforms (NCDPs), and their low-code platforms, enable programmers and general users to create programs using graphical user interfaces and settings (e.g., drag-and-drop) rather than traditional computer programming. While still in their infancy, the platforms have the potential to eliminate the requirement for scarce and expensive software skills. NCDP is the integration and use of component reuse and assembly in software engineering, DSL (domain-specific language), visual quick development tools, flexible workflow process orchestration, and design thinking from a technical standpoint. The advancement of cloud computing, DevOps, and other technologies that handle difficulties such as containerization, limited scalability, and maintaining high availability computer systems is inextricably tied to NCDP development.
NCDPs are frequently used by businesses to speed the development of cloud-based apps while maintaining business strategy alignment. Compliance, for example, may be maintained and improved by automating audit trails and document production on no-code or low-code systems. This is highly beneficial for financial institutions and fintech startups that must adapt swiftly to market movements.
Google Cloud has invested in and bought Unqork, a no-code software platform, and AppSheet, one of the major competitors in the low-code and no-code software market. Both services enable regular workers to create apps without professional coding knowledge. According to Alex Schmelkin, Chief Marketing Officer of Unqork, tasks that formerly took years for financial services businesses to perform may now be completed in months after adopting "no-code." Unqork currently employs over 100 programmers, focusing primarily on financial services. No-code or low-code development platforms have the potential to free up critical R&D resources to work on multiple projects at the same time, giving traditional financial institutions the competitive advantage they need to compete with fintech startups while also pursuing company-wide digital transformation projects.
Robotics will replace manual work.
AI, expert systems, occurrence technology, and automation are known as hyper-automation. RPA and other technological aspects enhance decision-making efficiency and work automation capabilities. RPA, which allows businesses to deploy software robots such as chatbots at scale easily, is already a key component of digital transformation, but technology is constantly pushing its limits. The primary function of RPA is to delegate the handling of workflow information and business interactions to robots, automating and standardizing business execution. The critical criteria for validating RPA tech feasibility are high repeatability, clear logic, and solid stability. RPA will become more deeply integrated with AI in the future, increasing its effectiveness in dealing with more complex business scenarios and streamlining financial service provision.
RPA is already used in financial institutions' middle and back-office operations, automating financial processes and accounting reconciliation. Process automation for accounts receivable and payable, fund appropriation at shared finance and accounting service centers, work hour modification and review, highly automated economic recording, reporting, treasury procedures, and time frame financial reporting and peace agreement are all areas where RPA is used. Automation improves efficiency, reduces human errors, and enables businesses to respond to fluctuations in demand. While RPA is already well established among leading financial players, we expect it to spread further throughout the industry. Accounts payable processes, for example, have the potential to be automated to 60 percent using robots that mimic human actions for essential paperwork and decision-making.
These essential technologies and trends are increasingly interlinked, offering tremendous impetus to fintech and finance industry innovation. It is now a specialized financial service. Sub-sectors that thrive at leveraging technological breakthroughs to create apps, generate wealth, and change the competitive landscape. Financial institutions will need to mobilize their considerable resources to stay ahead of the impending tsunami of financial sector disruption. FinTech simplifies financial transactions for consumers or businesses, making them more accessible and affordable. It can also apply to companies and services utilizing AI, big data, and encrypted blockchain technology to facilitate highly secure transactions amongst an internal network.