The fintech ecosystem has started to rapidly progress over recent years. Global investments in the financial sector approached almost $40 billion in 2018, which was a huge leap compared to the previous year.
According to EY’s report, 33% of clients in 20 different countries use a minimum of two financial services, showing that the demand for fintech software keeps expanding exponentially.
For companies, it is important to remain aware of all challenges and take advantage of 2019’s key fintech trends to stay at the top of the game and create new markets.
So, in this post, we are going to
- uncover the main challenges facing the financial industry, and
- discuss hot fintech trends in 2019.
Main FinTech Challenges in 2019
Regardless of the fintech industry’s evolution, there are some areas to worry about.
We have interviewed fintech experts and asked them what they think are the biggest concerns in fintech today and if there are some ways to solve these concerns.
FinTech Services Fragmentation
We have chatted with Evan Schindler, fintech expert and co-founder at Dappiness Development Studio, who revealed the biggest concern in fintech today: “Right now the biggest challenge in the fintech sector is fragmentation, especially in the payments space. Much of the world is still using legacy systems that require manual integrations, and the amount of competitors is growing daily. By the time a merchant has dealt with choosing their point-of-sale software, partnered with a processor, cleared everything with the payments networks and opened up a bank account, they’ve already spent too much time and money on a system of middlemen that aren’t adding value.”
Evan went on to add, “We are, however, beginning to see some consolidation in parts of the world like China where Alipay and WeChat pay have captured large portions of the market. These companies are inserting new products like micro apps and digital banking right into a familiar interface which results in seamless onboarding. One major problem these products haven’t solved, and likely aren’t interested in solving, is the centralization of their services.”
He also suggested a possible solution for fighting this challenge: “I do believe that blockchain is the answer. With it, we have the ability to create a uniform currency or store of value that’s not owned by one central entity. And we are beginning to slowly see the adoption of this in the west, with platforms like Simplex (processing online purchasing of crypto) and Square (physical point of sale terminals accepting crypto). Until we truly reach mass adoption of cryptocurrencies, however, we will still be reliant on some sort of hybrid model. But as we move forward, I don’t think there’s any question that pure blockchain solutions will prevail.”
Legacy, Regulation, and Cybersecurity
Natalie Pavlovskaya, chief marketing officer at HES (HiEnd Systems), identified three major fintech challenges.
The first one is about legacy. Natalie commented, “Legacy systems still present a major stumbling block. In the world of platforms, digital payments, 24/7 availability, cryptocurrency, and open banking — fintechs take a greater slice of the market share. Industry influencers expect traditional financial institutions to establish more partnerships with fintechs in order to give customers the best possible digital experience.”
The next challenge according to Natalie is regulation: “Since the financial crisis, the arrival of PSD2 and GDPR in Europe and the subsequent increase in regulation, the fintech market has faced stricter and more complex requirements for monitoring risk and ensuring regulatory compliance.”
Finally, she has emphasized cybersecurity as the last but not least fintech concern today: “In the Black Mirror episode ‘The Entire History of You’, the characters had implants that recorded everything they saw and did. This is close to how people leave a digital trail behind as we use apps and browse the internet. With cybercriminals launching more frequent and sophisticated attacks, fintechs must be extremely proactive in anticipating things that could go wrong. With data security and privacy protections as a priority, it’s a must for fintechs to invest in cybersecurity for protection against a potential breach.”
FinTech Trends That Are Going to Improve Financial Services in 2019
Innovator’s Guide conducted a study to identify which emerging technologies and fintech trends will revamp the industry. They analyzed 14,000 fintech startups. As a result, they found out that blockchain, artificial intelligence (AI), regulation technology (RegTech), and mobile technologies are going to be 2019’s main game changers.
FinTech Trends: Blockchain for Secure Financial Transactions
Blockchain was primarily created to ensure that cryptocurrency transactions were secure and protected from hacking attempts.
So, how does this fintech trend work? There is a chain of financial transactions that consists of blocks. Each cryptocurrency transaction is a component of a block in this chain and is united with the next and previous transaction.
So, any modifications made to a previous transaction require the approval of all the stakeholders that participate in the chain. Additionally, the entire system is fully encrypted, which makes its penetration impossible.
When it comes to regular currency transactions, we transfer only pieces of code from one account to another. Hackers can easily find ways to duplicate the necessary code and “spend” the money embedded in that code multiple times. They can also modify the code to add several digits to the amount of money available.
While security is still a top priority, more and more financial institutions are starting to implement blockchain in banking systems because of the unbeatable security.
Many banks have initiated working groups to start using blockchain technology to offer their customers safer and cheaper transactions. Based on the CEBNet report, 12 of 26 official banks in China have already adopted fintech blockchain technology.
Russian ALFA Bank, Indian Yes Bank, Singaporean United Overseas Bank, and Australian CommonWealth Bank are also on the list of those who apply blockchain in fintech.
However, blockchain in the financial sector is not used to its fullest potential. In 60% of cases, this fintech trend is implemented for protecting transactions. See how you can also benefit from blockchain except for securing money transfers.
Benefits of Blockchain for Financial Institutions
The value of blockchain in fintech can’t be underestimated. With blockchain, it has become possible to:
- Carry out transactions faster with no need for an intermediary
- Reduced need for stuff in the financial back office, saving you lots of money
- Increased transparency between parties involved in a transaction
- Improved regulatory reporting with real-time tracking
There are a few options for implementing blockchain into your financial services:
- First, you can build a completely new solution that corresponds to all your requirements. It will have only those features that you really need for effective work.
- Second, you can customize an existing system with additional blockchain-based features. This is less time-consuming than building a new solution, and your employees will spend less time familiarizing themselves with new functionality.
- Third, you can use a ready-made financial service that already exists on the market. Such solutions are good for short-term purposes, but they may include a limited number of features.
Innovecs can develop blockchain-powered financial applications and money transfer software solutions from scratch. Our engineers make use of blockchain technology to deliver secure and cost-effective products to our clients. We can also help revamp your pre-existing service or provide consultation.
FinTech Trends: Artificial Intelligence and Machine Learning
Artificial intelligence and machine learning (ML) technologies provide financial institutions with a myriad of benefits.
First, using fintech trends centered around ML and AI enables organizations to know their clients’ preferences, behaviors, and expectations. This information helps offer the products and services to the target audience segments that they are most likely to pay for. This way, AI and ML are a great chance for companies to enhance their profits in 2019.
Second, ML and AI in fintech allow for the development of software for automated personalization. This software aims to collect information about each client and analyze it. As a result, you can personalize the messages to your clients, which helps improve the overall user experience.
Third, smart chatbots are developed based on artificial intelligence. They are considered to be the helping hands in better interaction with clients thanks to their round-the-clock availability and cost-effectiveness.
Although chatbots still have a level of intelligence that equals a child, ML algorithms will help them significantly improve in the next few years.
The potential of AI in fintech is huge. For example, South Korea has introduced a national plan to invest $2 billion in strengthening its artificial intelligence capabilities by 2022. They plan to launch six AI research centers to investigate how this technology can impact different domains including fintech.
If you want to benefit from applying these technologies to your bank or other financial institutions, outsource the development of intelligent software to Innovecs. Our engineers are experienced in developing such solutions.
For example, for one fintech company, we produced a software solution based on AI and ML for their clients’ behavior analysis, and further reporting and predictions.
Benefits of ML and AI in FinTech
When deciding to implement a smart solution based on machine learning and artificial intelligence, you can expect:
- An improved customer experience
- Effective supply chain maintenance
- Human intervention elimination
- Deeper insight into the client’s preferences
- Better financial services targeting
FinTech Trends: Mobile Technologies Keep Evolving
Millennials don’t have enough time to go to a bank in the modern world. They prefer being provided with all the necessary banking services regardless of where they are at the moment.
Other generations are adopting this fintech trend rapidly due to the undeniable convenience of having every necessary service available on-the-go. Mobile technology development continues to be on the rise in the fintech industry.
It is expected that, by 2021, the volume of mobile payments will increase by 43% as compared to 2019. These statistics provided by Statista proves that financial institutions will be able to greatly benefit from keeping their eye on mobile technologies.
Another fact proving that mobile technology is a fintech trend on the rise in 2019 is provided by eMarketer. They have found out that 36% of people using smartphones (which is more than 900 million people) will use mobile payment applications, a 13.5% increase over the previous year.
This might be caused by the introduction of new technologies such as QR scanners and NFC (near field communication) in sales points.
The demand for mobile-based technologies is part of a bigger fintech trend, which is the merging of physical and digital banking together with other financial services. Consequently, fintech companies will become allies rather than rivals for legacy financial institutions, leading to a significant increase in fintech outsourcing services traded worldwide.
Thus, Innovecs can become your reliable partner in helping to integrate other financial solutions into your existing financial service while also maintaining performance.
Benefits of Integrating Mobile Financial Solutions
Emphasizing mobile payment capabilities in 2019 will definitely be advantageous. See how your financial services can improve by going mobile:
- Transactions will become faster (especially when it comes to cross-border money transfers)
- Blockchain-based mobile payment apps will ensure secure money flows
- Engage more clients since people of all ages are slowly but steadily switching to mobile-friendly products
Regulation Technology (RegTech)
RegTech is quite a new fintech trend. So, let’s first see what it is and how it works in the financial industry.
For example, a bank with a large volume of data can spend too much time on processing, which is also very expensive. A RegTech company, such as Innovecs, can help solve this problem by comparing the usual data with data, which caused regulatory failures. This helps make predictions and, thus, prevent fraud in the future.
Benefits of Regulation Technology for FinTech
By using RegTech in your financial services, you will have a chance to:
- Track financial transactions in real time to generate accurate financial reports
- Reduce the risk of money laundering within your organization
- Improve and maintain fintech compliance
- Cut costs associated with manual data management
- Enhance data protection
So, What Direction is FinTech Moving to in 2019?
The fintech industry has undergone major transformations over the last years. These changes in the sphere can be explained by emerging technologies and fintech trends that couldn’t simply pass by:
- Blockchain-based solutions aim to make transactions fast and secure
- Machine learning and AI in fintech help interact with clients more effectively
- Mobile fintech technologies ensure instant payments
- RegTech is oriented toward improving compliance and eliminating fraud
Innovecs can become your partner in implementing any of these new technologies into your financial services. Get ready to bring your services to a new level with the help of smart software solutions on the basis of new fintech trends.