MARCH 1, 2023
10 min read
The future of fintech sector is concentrated around creating innovative approaches and technology.
Industry trends are shifting with the myriad socioeconomic and political elements. These factors impact markets and the worldwide financial business. So the sector is always developing.
Every year, we see the emergence of new fintech solutions. There is also the evolution and refinement of tried-and-true ideas that are causing a stir in the sector. It’s time to look at how fintech is shaping the future of banking and which fintech trends will continue to lead the sector in the coming year.
Why Fintech Solutions Matter
It’s easy to believe that fintech is only important to a small percentage of individuals and businesses, but this is not true. So, why is fintech important?
Fintech benefits large banks since it is so related to their existing goods and services. Entrepreneurs in the technology startup sector have a vested stake as well, because they are the ones developing innovative technologies.
But, consumers’ usage of fintech for banks, payments, and investments has hit a tipping point, with about 90% of Americans already using it. Hence, the importance of fintech is that it has the ability to help every company owner, investor, and consumer.
10 Technologies Shaping the Future of Fintech
Technological advancement and innovation are the foundations of financial development. They will continue to drive disruptive business models in the sector. The demand for new technology in the financial services industry was spurred by the epidemic. Yet there are other factors that are going to influence the near future and affect newcomers as well.
#1 The “Buy Now, Pay Later” Model Is Increasing in Popularity
The BNPL concept is a prominent trend in the financial business. In general, BNPL providers work by partnering with retailers to offer their payment services at the checkout. Customers can select the BNPL option and provide their payment and personal information, and the BNPL provider will pay the retailer upfront for the purchase. Customers are then responsible for repaying the BNPL provider according to the agreed-upon payment schedule.
Here are some examples of how BNPL works:
- Klarna is a BNPL provider that offers a range of payment options, including splitting purchases into four equal payments or paying for purchases over a longer period with interest. Klarna also offers features like price drop notifications and the ability to pay for items up to 30 days after delivery.
- Affirm is another BNPL provider that offers payment plans for purchases ranging from $50 to $17,500. Customers can choose to pay back their purchases over three, six, or twelve months with interest, and there are no late fees or hidden charges.
Consumers are increasingly relying on this technology to pay for their items. BNPL allows customers to make payments without being required to pay for them in advance or use a credit card. Hence, it might be an appealing choice for those who don’t have a credit card or wish to avoid excessive obligations.
#2 Traditional Partnerships Through Digital Banking
This trend provides a wide range of advantages to both sides. Digital and traditional banks are collaborating more frequently than ever before. What can this technology provide? A traditional bank might partner with a fintech company that specializes in mobile payments to offer a mobile wallet service to its customers. The bank can leverage the fintech company’s expertise in mobile payments while providing access to its existing customer base and regulatory compliance.
In this way, traditional partnerships through digital banking can help banks stay competitive by offering innovative digital banking services, while fintech companies can benefit from the trust, scale, and customer base of established banks.
This is why collaborations between digital and traditional banks make sense for the future of fintech. Both sides may benefit from each other’s skills.
#3 The Growth of RegTech Apps
RegTech is a new phrase for the use of technology to track regulatory operations. These challenges are often addressed by RegTech companies through different features. Among them there are monitoring, alerting, and compliance.
Here are some examples of how it helps businesses in real world:
- RegTech companies offer solutions that use AI and machine learning to monitor transactions and identify potential risks or breaches of regulations.
- They can also help financial institutions verify the identity of their customers using biometrics, facial recognition, or other technologies.
- RegTech solutions can automate the process of regulatory reporting, allowing institutions to submit accurate and timely reports to regulators. This can reduce the risk of errors and omissions and help institutions avoid penalties.
Despite its recent emergence, the sector has seen great development, which is expected to continue. The RegTech market is predicted to increase from $8 billion in 2022 to almost $45 billion by 2030. This fact makes it a profitable business for all parties involved.
Financial technology development is required for the growth of RegTech. While it’s excellent that more things are going digital, it also means that there are more hazards. The uncontrolled digital financial sector provides a sanctuary for fraud, hacking, and other financial institution dangers.
#4 Open API Motivates Industry Growth
The world works toward an open financial system. Hence, open banking APIs and services are among the fintech technologies that are getting more popular. Such APIs are crucial for creating a unified user experience while safeguarding data via endpoints.
Open banking permits banks to make user data available to third-party suppliers via APIs at the request of the consumers. As a result, you may link your preferred fintech personal financial management software to your current account for more precise money monitoring.
Rather than competing, open banking allows banks to develop and engage with FinTech. Because banks are generally sluggish to develop, this produces a win-win outcome. FinTech businesses are quick to develop but lack financial power. So a partnership with conventional banking only benefits them.
There is also the prospect of establishing a revenue-sharing ecosystem. Incumbents provide third-party-created services to their customers. Thanks to that, they can earn income through recommendations, infrastructure, or subscriptions. APIs can also be shared between business lines or with authorized external parties.
#5 Stable and Progressive Artificial Intelligence
The most powerful characteristic of AI, the future financial technology, is that it can function better than any individual. AI models may do jobs without extra human involvement by learning from data. As a consequence, work can be completed quickly, which is what makes FinTech solutions smarter.
The following are some examples of AI application cases in FinTech:
- Creating virtual assistants out of chatbots to handle consumer questions, provide advice, and execute monotonous jobs
- Natural-language processing allows human-like interactions with digital assistants and to improve client satisfaction.
- AI algorithms detect suspect behavior to avoid fraud, such as reporting questionable transactions or insurance claims.
- Customer segmentation is used to offer tailored solutions based on risk rating profiling and to expedite loan approvals.
#6 No-code and low-code Completely Reshape App Development
No-code development platforms (NCDPs) and low-code platforms (LCPs) enable developers and users to create programs using graphical user interfaces and settings (e.g., drag-and-drop) rather than standard computer coding. While still in their infancy, the platforms have the potential to eliminate the requirement for scarce and costly software skills.
NCDPs are frequently used by businesses to speed the construction of cloud-based apps while maintaining corporate strategy alignment. Security, for example, may be kept up and enhanced by automating audit trails and document production on no-code or low-code systems. This is extremely beneficial for banking firms and fintech startups that need to adapt promptly to market movements.
No-code or low-code platform as a service has the prospects to free up critical R&D resources to work on countless tasks at the same time, offering traditional banks the competitive advantage they really need to keep competing with fintech start-ups while also pursuing corporation-wide digital transformation initiatives.
#7 The Rise of Blockchain
Blockchain is a technology that enables individuals to securely transfer information without the need for a third-party provider. This implies that banks may use this technology to monitor funds, handle transactions, and verify client personalities without relying on a third party like PayPal or Mastercard.
With the debut of blockchain, conventional stakeholders such as institutional investors have increased their investment ambition, boosting the capital allocation of digital assets in their portfolios.
Example of blockchain application in finance (without mentioning crypto currencies):
- Blockchain has the potential to streamline cross-border payments by eliminating the need for intermediaries and reducing transaction fees. That helps banks and other financial institutions make cross-border transactions quickly and securely.
- The technology can be used to create a secure and decentralized digital identity verification system. This can help to prevent identity theft and fraud by providing a tamper-proof record of an individual’s identity and credentials.
- One more point is that blockchain enables the creation of “smart contracts,” which are self-executing contracts with the terms of the agreement between buyer and seller being directly written into lines of code. This can help to automate processes and reduce the need for intermediaries in the execution of contracts.
Traditional financial institutions are not following this tendency for now and thus should pay attention to it in fintech’s future.
#8 IoT Enables Efficient Collection of Customer Financial Data
Internet of Things (IoT) solutions are becoming increasingly popular among FinTech organizations, allowing more gadgets to interact across linked networks, from wireless and end-point devices to centralized control administration. Furthermore, embedded systems and advanced solutions are rapidly emerging, allowing for intelligent and smooth communication across diverse nodes.
IoT is used in the fintech industry to create valuable consumer data, reduce the necessity for human intervention in financial problem solving, detect fraud, and provide reliable data safety, among other things. Meanwhile, companies are rapidly using IoT to assess risk, improve consumer interaction, and streamline the complicated underwriting and claims processes. Car insurers, for instance, have traditionally determined premiums based on indirect factors such as the driver’s address, age, and credit rating.
#9 The Increasing Popularity of Cryptocurrency Exchanges
In the last decade, cryptocurrency has grown in popularity throughout the world. There is no doubt that crypto platforms are the financial industry’s future.
Companies are not just growing their ICO investments and adoption of virtual currency, but service providers and traders are also becoming more prevalent in an increasingly complicated field. Navigating the bitcoin business may be difficult for novice investors, especially now that negative internet activities and frauds are rampant.
To accommodate increased demand, new genuine crypto exchanges have entered the competitive industry. This measure may aid in the prevention of cryptocurrency frauds and provide a better experience for inexperienced traders.
Nonetheless, fraud activities will continue to increase, and potential investors and traders must collaborate with reliable exchanges and financial security firms to limit risk.
#10 The Growth of Alternative Financing
Alternative financing, often known as “alt finance,” refers to financial services and goods that are not offered by the traditional banking industry. These options include peer-to-peer lending platforms, crowdsourcing websites, and internet lenders.
Alt finance is a burgeoning industry that is impacting the future of fintech by giving consumers and companies seeking financial services more options and accessibility. In a nutshell, it is influencing fintech developments.
- Alternative financing can be more innovative, faster, more accessible, and more flexible in terms of loan terms and repayment schedules than traditional financing.
For example, crowdfunding platforms allow businesses to raise capital from a large group of investors, while peer-to-peer lending platforms allow individuals to lend money to others in need. Also, online lending platforms can provide funding within a few days, whereas traditional lenders may take weeks or even months to approve a loan.
This technology is positioned to play an ever-increasing part in future fintech developments; therefore, we can anticipate its expansion to continue.
Why Fintech Is Set to Continue Growing
Once more, the fintech sector will only get more popular and powerful. In many ways, this is just the beginning of a long and complicated transition of everything we know about banking.
We can predict evolutionary growth for numerous factors:
Many fintech technologies provide significant improvements over their competitors, and because of that, there are no more questions about why fintech is important. As a result, businesses have the chance to be extremely profitable and scalable. These compelling advantages have enticed many investors to pour millions of dollars into completely new firms and prospective possibilities.
Everyone in today’s world is excited about the latest advances in the field of fintech. Demand is unlikely to lessen anytime in the foreseeable future, with every business owner begging for innovative financial services and every client thrilled about the prospects for the future.
Innovations and Public Reaction
Fintech is one of the most intriguing industries to follow because it has the ability to make our companies and lives easier, more efficient, and financially beneficial. It’ll only become more fascinating from here, so keep an eye out for new entrepreneurs, companies, and environmental pressures. With this approach and an understanding of why fintech is the future, you can stay ahead of the competition.
The development of the financial sector is dependent on certain building elements, without which the sector’s stable progress would be impossible. The incorporation of AI, IoT, open APIs, cloud computing, and blockchain will further change the industry.
Forward-thinking firms must adopt FinTech innovation software and services that promise to define the future of FinTech and reap a plethora of advantages in order to compete successfully, improve customer experience, manage risks, and satisfy regulatory requirements.
Let DashDevs, a software development consulting firm, assist you if you are seeking superior fintech app development services! We provide a selection of fintech and other software solutions to help you get your firm off to a good start.
Which Technologies are at the Core of the Fintech Revolution?
Over the next decade, the following seven important technologies will drive fintech growth and influence the competitive environment of finance:
- Artificial Intelligence.
- Cloud Computing.
- Open source, SaaS, and Serverless.
- No-code and Low-code.
- Hyper Automation.
Why is Fintech Important?
Since it combines the best of both worlds—information and technology—fintech is the next big thing. Fintech employs algorithms to evaluate data, making it easier for firms to conduct their own financial modeling and make knowledgeable decisions about how to spend their money.
Fintech also provides customers greater control over their funds, which may help people save up for the things that are most important to them.