Top 5 Emerging Trends in Fintech
The financial service industry has, over the past couple of years, experienced explosive growth linked to the vast and frequent changes in technology. Companies have found themselves forced to adopt new industry trends or risk being rendered obsolete. That is the rate at which technology is changing and by which almost every company, especially those in the financial service industry, have to learn and quickly assimilate themselves into these industry trends.
Different financial services trends have transformed the way consumers deal with their financial institutions, be it your bank, the trust companies, insurance companies as well as brokerage firms. All these players have found themselves having to play by some new rules in the fintech industry if they are to remain relevant.
“Fintech” as a term is a compound word for “finance” and “technology”. It describes an emerging financial service sector of the 21st century. This meaning has however been changed due to the rampant advancements in technology and innovations in the field. The term “Fintech” now stands for any technological innovation in the financial sector, including innovations in financial literacy and education, retail banking, investment and even crypto-currencies like Bitcoin and Ethereum.
Fintech is changing the way we think and do business. In a few short years, the fintech industry has been completely transformed. Once the “big players” in this financial field are now finding themselves having to play by new rules. This comes as multiple startups have joined the financial service industry where they are now offering financial services that are similar or even completely unique, cheaper, and more accessible to the consumers.
For instance, one can raise money on Kickstarter or trade stocks without being charged a dime on Robinhood or even get loans at smaller fees on Prosper and Lending Club. These are some of the challenges that the so-called ‘big players’ such as the banks and other financial institutions have had to deal with, and by ‘deal’ I mean, they have been forced to change or be changed.
Fintech covers a broad reach of financial services; here, it includes an innovative service which provides differentiated financial services using new technologies, such as Social Media, Mobile Payments, Blockchain Technology, Internet of Things (IoT) and Open Banking. These are some of the emerging trends in Fintech and we are going to look at each one of them throughout this article.
- Fintech and Social Media
Social Media has been in the forefront in the implementation of almost every fintech aspect. Today, we are doing pretty much anything online – from buying new clothes to making hotel reservation to making our banking transactions. For these and many more reasons, companies have found the need to adapt to social media. To this effect, it is now a requirement for companies to have social media channels where they can attract new customers and also help retain their already-acquired clientele base.
Social media trends have almost entirely changed. As much as people still click and laugh to those cat videos, they also click on tweets, shares and links on Twitter, Facebook, Linkedin, Instagram, and tumblr to name a few looking for items to buy, new deals and also news on new product offerings.
Through these platforms, companies have learned ways to promote their goods and services more effectively and at lower costs. They have also found new ways to engage their customers more efficiently by closely following mentions in articles, podcasts and even twitter feeds. This engagement slowly builds up a fintech cog into a real machine in the industry with access to a worldwide platform.
From big industry players such as Deutsche Bank, Bank of America, and the Barclays Bank to upcoming startups such as Kickstarter, Lending Club and Prosper, they all have multiple accounts on social media. They all use social media to build their brands and expand their businesses and customer bases.
Let’s face it, Social Media is here for the long run and fintech have to adopt this new trend in order to remain competitive in the market. Understanding how to effectively use social media platform for an enterprise can not only greatly improve a company’s competitive advantage but also help shape its long-term goals.
- Fintech and Mobile
The future belongs to the youth! This is a phrase often uttered in tech disrupt events and it is for good reason. A recent study shows that mobile internet usage finally overtook desktop to underline the rate at which millennials are moving towards the mobile age. This era comes with new found ways of doing things – a new way of paying for food, a new way of paying for a movie ticket, think of pretty much anything and it can be paid for through the comfort of your mobile device.
Fintech in mobile brings about new ways of making transactions through your phone or mobile device. Based on the recent internet usage data statistic that puts mobile on the forefront, this loosely translates to more people using mobile to access their apps and also do their banking straight through their phone.
Trends in mobile payments suggest that this movement is here to stay. Some of us may still cling on to our wallets but the rate at which mobile technology is disrupting the market suggests that perhaps we should not get too comfortable.
Big industry players such as Google, Apple, Alibaba, Samsung, to name a few, have already developed their own mobile payment platforms. Banks are also realizing this inevitable movement as realities of an end to the traditional brick-and-mortar branches looms in the background. Numbers of people visiting their branches for financial transactions are dwindling; instead, they are choosing to do their banking transactions from the comfort of their mobile phones.
There have been several success stories of mobile payments, but nothing has come close to what the M-PESA service has achieved. This mobile payment service was introduced in Kenya in 2007 by Vodafone for the local telecom operator, Safaricom. Recent reports show that the service has over 15 million subscribers who transact as much as 60% of the country’s GDP through the mobile platform. The service has since been expanded to Albania, the Democratic Republic of Congo, Egypt, Ghana, India, Lesotho, Mozambique, Romania, and Tanzania.
- Fintech and Cryptocurrency
The internet has brought us a lot of good things, great things in fact! But not many are as good and as exciting as the new Blockchain technology. Bitcoin, Ethereum, and other altcoins have been headlining the news of late with astronomical price surges. These cryptocurrencies all employ what we now know as the blockchain technology. As the name correctly suggests, this technology entails a chain of information broken down into individual blocks of data. Each block contains a specific piece of information – entirely different from the other. These individual blocks make up a transaction of currency where in order to identify the transaction; you have to follow the entire chain of blocks.
The cryptocurrency market is huge with reported market capitalization for Bitcoin, Ethereum and Ripple at $45 billion, $25 billion and $9 billion respectively. There are also over 100 altcoins already trading in the market and much more are expected to be unveiled soon.
The potential these cryptocurrencies bring to the market has been acknowledged by major financial institutions such as banks and brokerage firms. To this end, the Fintech sector has been exploring the use of cryptocurrencies as a new innovation to bring some due competition for the banking industry. Big players such as CitiBank, Santander, and UBS, are starting to embrace that this disruption and are ready to exert a positive influence on future banking innovation. The biggest benefit comes from the ability to transfer assets worldwide in a secure and traceable way mainly because this technology applies authenticated ledger based systems.
The blockchain technology also eliminates intermediaries by use of decentralized platforms where there is no central ledger. This feature offers a promising solution to the financial sector for the currently centralized ledgers that act as custodians.
Financial market researchers, the TABB Group, hinted for a prosperous future while also speculating that blockchain syndicated loans can happen very soon. They also cautioned that the financial sector needs to agree on standards and set up checks and balances before the blockchain technology can truly make inroads into the sector.
- Fintech and the Internet of Things (IoT)
Discovering a great market is all about identifying opportunities in unrecognized and unexploited gaps that are truly worth pursuing. Internet of Things (IoT) represents the next wave of disruptive technologies. IoT has been increasingly growing, influencing many industries along the way, including Fintech. Its potential is far-reaching and has the opportunity to change the way we live and work.
We have already seen what social media, mobile payments and indeed blockchain technology can do. They have disrupted the financial sector and to a good effect. Therefore, it is mindboggling to imagine the level IoT will take us.
From the look of things, everything around us is already becoming smart! From smartphones and smart wallets to self-driving cars, smart homes and green cities. Therefore, today seems to be the right time to start thinking of things far beyond social media and mobile. Branching into this new found realm of Internet of Things changes the entire ballgame; from home improvement financing enabled by leveraging data from smart home sensors, to insure-as-you-drive insurance leveraging real-time driving (human) and traveling (autonomous) behavior, these unique datasets will bring a whole new set of innovation and the next wave of fintech startups.
IoT basically brings your imagination into reality. Imagine internet operated coffee machine or a jacket that adjusts its temperature based on outside environment or even a hat that downloads your memories and keeps them safely for future reference. The applications are endless; you can think of anything and then make it happen.
Statistics show that IoT will contribute about $2 Trillion to the global economy with an insurmountable room left for growth. The market is already forecasted to grow from an installed base of 15.4 billion devices in 2015 to 30.7 billion devices by 2020 and 75.4 billion in 2025
- Fintech and Platforms, APIs, and Open Banking
Technology has completely changed the way we interact with companies, from Facebook in social media to the blockchain technology of Bitcoin and Ethereum. The same can be said about Platforms, APIs and Open Banking. You cannot have data architectures based on machine learning into social mobile and IoT, without a heavy focus on open banking. This feature is already being applied into banking sectors in the UK.
As Chris Skinner, a well-known commentator, and strategist on financial markets, puts it, “2017 will be the year of open marketplaces and platforms. Platforms support the rapid cycle deployment of micro-services into a financial marketplace. Those include apps, APIs, and analytics that transform the back, middle, and front office respectively. As the financial world is rapidly moving to open, loosely coupled marketplaces, any bank with old legacy technology will start to look like a dinosaur.”
With the adoption of PSD2, a move that has already started in the UK, banks will have to rethink their position in the financial services landscape. With the APIs, the banks will merely function as a platform and customers will use this platform to interact with their respective banks. The market will also be open for third party entrants to build their market using banks’ data. As a result, banks will have to come up with more ingenious ways to attract clients as bank accounts alone will not be enough to keep hold of these customers.
The financial service industry is hugely affected by changes in technology. The vast transition towards social media forces companies to assimilate to that move whereas changes towards mobile payments have proved far reaching. Continued advancement in technology produced the blockchain technology whose untapped potential in the fintech industry is clearly evident. However, it is through IoT and Open Banking that big players in the financial industry will really be tested. Changes in these areas could prove damaging to some companies while also paving way for new startups to come in and disrupt this burgeoning market.