Over the last ten years, the development of technology, especially mobile advancement, has drastically changed consumer behaviour. The banking and financial industry has been no exception to this trend; in fact, one could argue that it is one of the sectors which has changed the most quickly and dramatically, with fintech technologies becoming a primary catalyst for much of the upheaval.
The rapid development of the finance industry is most evident with the innovation of fields within fintech, such as RegTech and InsurTech. These are more than just fancy buzzwords; fintech innovation changing finance has now become the standard. The question, now, is simply which fintech start-up will emerge in pole position.
So what will be the fintech trends of 2020 and beyond?
As a B2B service provider with many clients from the finance industry, keeping ahead of the curve is core to our business. We believe that four of the most significant trends for the upcoming years will be a blend of adopting innovative technologies, a focus on security, heightened regulations, and further advancements in financial technologies. Let’s dig into the details:
RegTech Driving Fintech Companies Forward
As anyone who has worked in it will tell you, finance is one of the most heavily regulated industries. The weighty red tape is a result of the finance industry's direct influence over economic performance—and its influence over personal assets and consumer security, i.e. the consumer's private data, on both a local and global scale. Due to its ability to directly impact global economic health, the industry is continuously undergoing more regulation changes; and as a result, compliance tends to be one of the most significant operational expenses for financial companies. The high costs that result from implementing procedures to ensure that companies are following the law have led to the development of RegTech technologies which make it easier and cheaper for companies to become compliant.
One of the latest trends shaking up the fintech and RegTech industries, throughout 2020 and beyond, is Open Banking—and the PSD2 directive.
Open Banking and PSD2
The Revised Directive on Payment Services (PSD2) is a new European initiative aiming to increase security for online payments and therefore encouraging the development of online and mobile technology that will make payment services across Europe safer.
Open banking regulations are laws that require traditional banks to adopt open APIs to allow third-party developers (fintech companies) to create new applications and services for the finance industry. Open banking requires that these technologies have enhanced transparency and security, as these services require the consumer to share their personal data.
Therefore, for 2020—as regulators publish amendments—expect to see more advances in fintech that will help companies increase their repertoire of offerings and accommodate regulation changes, as well as advances in RegTech to help companies reduce the cost of and streamline compliance.
Robotic Process Automation
Robotic Process Automation (RPA) has begun (and will continue to be) one of the driving forces for innovation within the fintech and finance industries. According to Juniper Research, "RPA revenues in the banking and financial services industry will total $1.2B by 2023, showing a 400% growth from 2018."
RPA is a powerful fintech tool that automizes various processes such as processing transactions, maintaining records and performing calculations. It is convincingly versatile and can be applied to multiple tasks that are based on a structured set of rules.
So, how will RPA affect businesses in the future? RPA adoption has already begun to gain traction with financial institutions, and it is a trend that shows no sign of stopping there. That's because RPA's flexible nature makes it an instrumental tool for streamlining processes, boosting efficiency, providing better customer experience, and cutting down on costs. In addition, its ability to help companies automate compliance with international and European regulations cement RPA as a must-have tool of the future.
Fintech Utilising Big Data for a Competitive Edge
Fintech businesses have long been using big data—extensive sets of structured and unstructured information—to get a competitive advantage over their competition. The collection and analysis of big data allows fintech companies to uncover hidden patterns and trends, which enables them to out-maneuver their competition and disrupt the industry. The third trend on our list, its use gives fintech the following advantages:
- Customer segmentation: By identifying patterns in human behaviour and demographics, fintech companies can group their customers into categories, which enables them to create highly personalized products and services.
- Detect suspicious activity: Security is, and will continue to be, a significant concern for fintech banking. Big data can help financial organizations to learn the distinct buying habits of their customers and therefore identify and stop suspicious activity more quickly and accurately.
- Manage risk: Fintech businesses are able to identify and avoid poor investments through the creation of customer risk profiles, which are created based on the information learned from mining big data. In this way, companies can manage their risk by using analytics to 'predict' which clients are bad borrowers, and therefore bad investments.
Big Data and the Future of the Fintech Industry
In 2020, the adoption of Big Data and Predictive Analytics is paramount for fintech companies to continue offering highly personalized products and services. To successfully implement the two procedures, businesses in the industry will have to create and promote a culture of data-driven actions and define a strategy that will harvest the desired ROI from data projects. Companies will either partner with technology specialists or create and train an in-house data science team just to keep up.
Fintech Cybersecurity and Stability
Fintech has helped the finance industry to join the era of digitization. However, because of this, the finance industry is now more vulnerable than ever to various harmful activities such as identity theft, money laundering, and fraud. Adding fuel to the fire are IT crashes and data breaches that have now become commonplace, costing companies an average of $1.8 million each time there is a targeted attack on online banking services.
Because of these vulnerabilities, fintech companies are facing pressure to adopt more efficient strategies that will strengthen their cybersecurity. The future will see fintech technologies using biometrics, AI, and machine learning to not only improve cybersecurity, but also help to prevent attacks and minimize their damage.
Cedar Rose supports the fintech, regtech and insurtech industries through our KYC and KYB electronic identity verification and data services via API. To know more, contact our client services team on firstname.lastname@example.org or call our Cyprus Office on (+357) 25 346630.