In recent years, Fintech has brought about a big change, disrupting many industries, especially in the financial sector. It has improved many aspects of finance, such as money lending, payment processing, insurance, etc. This change resulted in a unique and seamless experience for users, helping customers understand and embrace Fintech without much effort.
But the majority of customers still choose more traditional financial institutions. Fintech, although making a technological revolution, has some issues and challenges ahead. Some of the biggest issues are lack of trust, poor transparency, security holes, and certain customer habits. In this article, we will go through these issues in detail and try to figure out how to overcome them.
What is FinTech?
Financial Technologies (Fintech) were created to replace or supplement traditional financial methods. These include software, algorithms, processes and business models. The main areas of almost all fintech applications include personal investment, commerce, banking, and insurance.
According to Market Analyzer, the global fintech market will be worth $ 26.5 trillion by 2022, with an average annual growth rate of 6%. Some of the reasons for this rapid growth are global economic growth, the increased need for credit and insurance, and the growing interest in investing.
Major challenges in 2021
Fintech faces four key obstacles. To ensure long-term success, businesses must do everything in their power to meet these challenges.
User privacy and security concerns
In Europe, the use of FinTech increased by 72% in 2020, accompanied by massive investments in Fintech. However, such improvement can be followed by unintended consequences, the most important of which are new security concerns. Cybercrime is on the rise, with new attacks occurring every 39 seconds. And unfortunately, fintech companies are one of the most common targets for hackers.
This shouldn’t come as a surprise – people are relying more and more on managing digital money, so fintech companies now have more valuable data to protect than ever before. Because of this, even large, reputable institutions, such as national credit bureaus and major Forex brokers, can suffer from data leakage. This was the case for Pepperstone, an Australian leader brokerage house whose customer data has been stolen in August 2020.
Keep abreast of modern technologies
According to a 2019 Gartner CIO Survey, over 50% of financial services CIOs believe that most businesses will operate through digital channels and that digital initiatives will generate more revenue and value, underscoring the importance of fintech trends going forward.
However, organizations that use outdated business management applications or disparate systems will not be able to keep pace with an increasingly digital technology-driven world.
In other words, digital transformation is not just a good idea, it is necessary for survival.
Technologies such as cloud computing, artificial intelligence, big data, and machine learning offer significant benefits to organizations looking to cut costs. At the same time, they increase customer satisfaction and the share of portfolios. However, the initial switch to such technology comes with additional costs and risks.
Software-as-a-Service and Platform-as-a-Service cloud computing enables organizations previously burdened with disparate legacy systems to simplify and standardize their IT infrastructure. In this way, banks and credit unions can reduce costs and improve data analysis while using advanced technology.
Artificial Intelligence (AI) offers a significant competitive advantage by providing a deep understanding of customer behavior and needs. This gives financial institutions the ability to sell the right product to the right customer at the right time. Additionally, AI software and big data in finance can provide critical organizational information needed to determine operational capabilities and maintain flexibility.
Financial institutions that use the latest business technologies, especially cloud applications, have a significant advantage in the race for digital transformation: they can innovate faster. The power of cloud technologies lies in their flexibility and scalability. With no system hardware limiting flexibility, cloud technologies allow systems to grow with your business.
However, digital transformation is making companies more dependent on their software products, shifting the focus to innovations and fintech development. Some purely technical factors are starting to have a huge impact in business, namely:
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- Quality of the application code, its flexibility, maintainability and scalability;
- Overall system performance;
- UX design and quality of customer-oriented features;
- Security and scalability of the infrastructure;
- Speed of software development and bug fixes.
There are many other factors that come into play, and each of them can make a new product stand out from its competition or go dark. Successful fintech startups cannot exist without strong IT resources.
Regulatory compliance has become one of the biggest challenges in the banking industry due to the dramatic increase in regulatory fees relative to profits and credit losses since the 2008 financial crisis.
From Basel risk-weighted capital requirements at Dodd-Frank Law, and the Financial Account Standards Board’s Current expected credit loss (CECL) at the Allowance for loan and rental losses (ALLL), there are a growing number of regulations that banks and unions must comply. Compliance can take a significant toll on a fintech bank’s resources and often depends on the ability to correlate data from disparate sources.
There is no single panacea that can help you overcome all of the challenges mentioned above. However, here are some working solutions facilitating the evolution of Fintech startups to consider:
Implement innovative authentication processes
Imagine a world where users participate in the client authentication process only at the edge. No login, no password, no text confirmation code – customers open the app or log into mobile banking and do their daily banking.
However, in the background, complex algorithms are constantly running to ensure that the person using the device is who they say they are.
The algorithms test keystroke patterns and examine how the user slides across the screen when using US banking apps. It measures the speed at which the user walks, the height at which they hold their phone, the speed at which they speak. It examines the last places the user has been and where they are now. It brings up dozens of other user data points and determines if anything is out of the ordinary, for example in terms of fintech payments.
If the number of data points seems suspect, the algorithm activates the authentication process. The user can be prompted to take a selfie so that facial recognition software can verify their identity. They may be asked to provide a fingerprint. At this point, you can still use two-factor authentication to add a layer of security.
In this world, the user experience must be fluid and fluid. Security and confidence in customer authentication is high and ongoing. The number of cases of fraud and theft is reduced. And with this, user satisfaction increases dramatically. However, with that comes new privacy concerns, of course.
Outsource application development to experts
Creating an exceptional Fintech solution, including banking software, with great features and a high level of security, requires a lot of experience and dedication. Not every business can build a strong internal team to build an app. As a result, more and more companies are choosing to outsource financial technology software development to achieve functional and user-friendly applications.
A pre-assembled team of professionals allows you to start developing your application immediately. Plus, you won’t have to spend your budget on recruiting, training new employees, as well as paid time off. Outsourcing allows you to dramatically reduce costs in the long run, save on operating costs and, at the same time, achieve your goals and get things done quickly and efficiently.
Hire legal counsel
The consultant you hire should be your FinTech Evangelist. They are responsible for training, understanding, and working with you to ensure the solution meets your needs as an organization or corporate client. Consultants have in-depth knowledge of technology and markets, and they can spot trends in the FinTech landscape. And that information helps them understand possible solutions and identify opportunities on behalf of clients.
The future of fintech is clear: financial technology will take a significant market share. In fact, we are already seeing the growing popularity of Fintech, which may soon enter a cycle of hype as blockchain technology once did. However, creating a working financial solution that will be among the best fintech examples to look for requires more than a great idea. You need to quickly overcome the obstacles we have discussed so as not to slow down progress. Therefore, relying on professional help is a strategic approach towards better risk management and harmonious development.
Timothy Partasevitch is Director of Growth at Intelligent computing.