When it comes to fintech innovation, we see changes at warp speed. While many of the developments are incremental, they add a potential sea change in the way banks, financial institutions, and consumers interact. AI, machine learning, mobile banking, blockchain, online-only banks, and touchless payments provide:
- Better consumer experiences.
- Cutting down on fraud and inefficiency.
- Opening new markets to financial institutions – all thanks to innovation in fintech.
Here are some of the fintech investments we’re seeing. Many have been underway for a while, but they are set to make big moves in 2021
Online Banks
These are banks doing business online. With no need for brick-and-mortar locations, many are offering more competitive and attractive rates for consumers. They’re banks that only exist online.
43% of Americans use a digital banking service and their primary bank. Half say they prefer the digital bank overusing the physical location. It’s a small jump from there to using an online-only bank.
Of those consumers thinking about opening up new accounts, nearly half (47%) of consumers say they would be comfortable with an online-only financial institution. Look for online-only banking to grow significantly in 2021.
In developing countries, online-only banks are already the preferred business method. Mobile wallets, Bots, and AI financial assistance are already here and growing.
Mobile Banking
COVID-19 made people more comfortable using electronic and touchless methods of payments rather than having to handle cash. Look for this trend to accelerate. P2P transfers, such as Apple Pay, Google Pay, and Venmo, have also created a group of consumers comfortable with mobile banking.
Expect more financial institutions to launch two-way video banking via mobile. This provides convenient customer service while also helping reduce consumer dependence on physical locations.
This can ease labor costs and potentially help banks reduce their physical footprint in the future. Combined with AI to handle predictive routing, it’s an efficient way to improve the experience.
Interactive ATMs
One of the world’s largest manufacturers of ATMs and cash registers is planning to launch self-serve banking making that can handle loan applications and live video chats to reduce the need for tellers further.
Tapping into New Markets
To continue growing in a mature market, you can create complementary products or find new markets to enter. Fintech has opened up previously untapped and entirely new markets.
1.7 billion adults don’t have an account with a financial institution or a mobile provider in countries such as China, India, Indonesia, Mexico, Pakistan, and Nigeria. What they do have is cell phones. More than half (53%) of the people living in developing countries have smartphones. This opens up a significant untapped market for fintech.
Blockchain
Blockchain has the potential to bring dramatic change to the financial sector. Using distributed ledgers provides the ability for decentralized processes that make faster payments and lower fees possible. We also see a movement to tokenize traditional securities, such as stocks, bonds, and assets, and placing them in public blockchains.
Blockchain is the tech that birthed cryptocurrency. Now more than a decade old, cryptocurrency markets for Bitcoin, Ethereum, and others have eclipsed $260 billion in market value with BTC prices continuing to rise.
A survey by Business Insider revealed that 48% of financial executives believe blockchain and artificial intelligence (AI) are poised for the biggest innovation in fintech in the next few years.
Artificial Intelligence
Consumer adoption has been faster than expected as most people are comfortable with Bots. If they can get the information they need quickly, many consumers say they prefer Bots versus talking to someone. Some Chatbots have evolved to the point that consumers often can’t tell whether they interact with a human or a Bot.
Chatbots are creating significant efficiencies. According to Deloitte, Financial Chatbots can save more than 4 minutes on every interaction, or 7 cents for every query.
AI is also making its mark in the back office in areas such as:
- Insurance underwriting
- Loan underwriting
- Risk analysis
- Fraud detection
- Claims management
- Predictive analysis
- Wealth management
Cybersecurity
With so much money at stake, cybersecurity is top of the list for fintech – especially as financial institutions move more to cloud environments. AI is increasingly being used to detect fraud.
Mastercard said its AI, Machine Learning, and Decision Intelligence platform has cut the fraud rate in half. That equates to more than a billion dollars worth of fraud detected at just one company.
There is still a significant amount of legacy technology being used by financial institutions. A lot of ATMs are still doing business on software that’s no longer supported.
Streamlining of Taxation Regulations
More institutions are doing business nationally or internationally. The internet has removed the entry barrier for consumers who couldn’t visit a physical location. However, this ability to sell anywhere created a much more complex situation for financial institutions and interstate and international taxing authorities.
Fintech is streamlining the process for efficiency and savings. AI can verify transactions and make sure proper taxes are being assessed and paid far faster than humans can. JPMorgan is now using this tech to extract and process data from $6 trillion worth of daily transactions and estimates it has saved $150 million in expenses.
Investments in Fintech
If you’re wondering at all whether the investment in fintech is paying off, consider this final fact: Accenture says that financial institutions that invest heavily in AI and emerging fintech have the potential to grow revenue by 34% by 2022.
