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The 5 Top Fintech Trends for 2019

November 26, 2018 by Emmy Gengler

Trend #1
Trend #1
Commercialization of Blockchain/DLT
Trend #2
Trend #2
Customer Service Through Chatbots
Trend #3
Trend #3
The Last Mile in Digitizing Financial Services
Trend #4
Trend #4
Biometric-Based Fraud Prevention
Trend #5
Trend #5
Fintechs and Financial Institutions Playing Cat and Mouse

As the year draws to a close, I’m getting a jump on my fintech trend projections for 2019. Based on what I do for a living, you won’t be surprised that my top four top trends are explicitly tech-focused—from blockchain/digital ledger technology to artificial intelligence. My fifth trend is more strategic—fintechs and financial institutions continuing their cat and mouse game—but strongly tied to technology innovation.

The common denominator is the belief that the groundwork has been laid for all these trends, and they’ll gain momentum and greater market presence in 2019. And, I expect these trends to be major influences in fintech for years to come. 

I’d appreciate hearing your ideas on fintech trends for 2019, too. Please share your thoughts with me directly, through our website at www.softjourn.com or when we met at industry conferences throughout the year. The more we share, the more we collectively move the fintech industry forward. And, of course, let me know how Softjourn can support you with your software needs.  

Wishing you a joyous 2019, filled with health, opportunity and success. 

1. Commercialization of Blockchain/DLT

Blockchain and distributed ledger technology will continue to be an area of exploration inside and outside of traditional financial institutions during 2019. The new trend, however, will be transitioning from patent filing, proof-of-concept experiments and limited-function niche applications to broader applicability and live production with the aim of commercializing investments.

Most interesting to watch in 2019 and beyond (because commercializing blockchain/DLT will be a multiyear, maybe even multidecade, effort) will be the varied blockchain/DLT-based use cases fintechs and financial institutions attempt to commercialize. It will be, I believe, another five to 10 years before there’s marketplace consensus around the financial applications best suited for blockchain/DLT solutions. Until then, we’ll see fintechs and financial institutions continue to experiment but in a way that’s less academic and more conscious of blockchain/DLT as a cost-cutting, fraud preventing or market expanding solution—in other words, with a focus on how blockchain/DLT offers clear-cut advantages over conventional technology solutions. 

Count on this trend to be on my top five list for years to come.  

2. Customer Service Through Chatbots

The application of artificial intelligence is a fintech trend on its own and takes many forms (like reducing fraud and false positives in payments processing), but, for me, the most exciting and tangible AI trend is automating customer service through chatbots—embedded within apps or through social media, like Facebook. 

The West is light years behind the East—especially China and Japan—in adopting chatbots, and financial institutions, in particular, have been slow to adopt the technology. Those gaps should shrink in 2019, as fintechs and financial institutions recognize the power of AI-powered chatbots that get smarter over time, eventually supporting full conversations through advanced speech and natural language processing capabilities.   

When this happens, AI-powered chatbots will deliver benefits beyond the obvious human labor cost saving, providing true virtual assistance—including transactional capabilities, advice based on individual behavior patterns and even opening accounts. Financial businesses providing these smart chatbots will capture the added benefit of rich data to target offers and anticipate their customers’ needs—creating a continual feedback loop and building.   

Ultimately, AI-powered chatbots will incorporate sentiment analytics, enabling responses that match human tone and emotion, and even mimicking geographic accents—giving customers the experience of communicating with a “person” just like them. I agree with Edrizio de la Cruz who predicts that in the future, handling finances without a chatbot will be like picturing your life without a smartphone.   

3. The Last Mile in Digitizing Financial Services 

Another important trend for 2019 will be traveling the last mile in the digitization of financial services. 

Nearly all fintechs and many financial institutions enable customers, consumers and businesses, to conduct most of their financial business digitally. Yet, there are gaps in digital service—most notably in account opening and particularly for business customers—requiring personal visits to branch offices.  

If financial institutions don’t have end-to-end account opening digitization on 2019 roadmaps, they should. Beyond being a significant convenience for customers—who, increasingly, aren’t just digital-first but digital-only in handling their finances—digital account opening is an extreme advantage for online-only neobanks and online lenders, which have perfected digitization of customer-facing activities and live and die by their UX.  

The last mile digitization trend also extends to the back office—upgrading operations to support digital delivery and, most importantly, blasting through the siloes that are remnants of legacy software and prevent financial institutions from effectively accessing and using their own data.  

In 2019, you don’t need a digital strategy, your strategy should be digital.  

4. Biometric-Based Fraud Prevention

On one hand, it’s surprising to say that biometrics-based fraud protection is a trend that will gain momentum in 2019. It should have happened sooner given the soaring growth in digital financial services and ecommerce, which beg for biometric customer authentication. On the other hand, biometric-based fraud prevention is complicated on levels beyond technology—cost, standardization and, importantly, culture—so, perhaps, it’s not surprising at all.   

The old canard is businesses won’t expend funds to replace a fraud-prevention system until its cost becomes greater than the cost to change. We’re not there yet, but the writing is on the wall. Fraud is a huge problem and fraudsters are getting smarter in exploiting vulnerabilities. The current systems of authentication aren’t adequate to address today’s or tomorrow’s challenges. 

And, the market, which has pushed back on biometrics for reasons of privacy, is becoming desensitized as it’s commonplace to use fingerprints to open mobile devices, have retinas scanned when crossing borders and open computers via facial recognition. Then, there’s the weight of numerous and cumbersome passwords. How much easier is it to authenticate your identify with something you always have with you—your finger or palm, retina or voice—vs. a “secret” code?

In 2019, biometric-based fraud prevention—as part of a multi-factor authentication program—is no longer a trend fintechs and financial institutions can avoid, and I predict we’ll see broader adoption in the year ahead. 

Looking farther down the road, behavioral biometrics (for example, how your mouth moves when you speak or your pen strokes when you sign your name) offer improvements over physical biometrics, which can change over time. Here, AI can be deployed to learn the minute characteristics that distinguish each person’s behavior and provide a secure and unique identifier. 

There’s more exciting innovation to come. 

5. Fintechs and Financial Institutions Playing Cat and Mouse

Here’s my strategic trend.

Who will buy whom? Who will disrupt whom? Who will emulate whom? Answers to these questions highlight a trend that will carry into 2019—financial institutions and fintechs keeping a close eye on each other in the quest for an advantage or great exit. 

Think about this: Are financial institutions actually playing it smart, letting fintechs do the heavy lifting in financial technology development by passively or explicitly outsourcing innovation to third parties in which they have no risk or investment exposure? If the technology flies, the financial institution acquires the fintech, because even the rare unicorn is a bargain compared to taking on the cost and risk yourself. Or, if the fintech can’t be bought, it’s proven the concept and provided at least a partial roadmap for financial institutions to emulate. Is a proven approach worth risking first-mover advantage?

On the other side, did anyone ever start a fintech with the goal of retiring from it in 35 years? Successful exits are the next notch on the entrepreneur’s resume, and who better to be bought out by than the marquee name you were committed to disrupt? 

We’ll continue to see financial institutions working individually and collectively on capital-intensive development efforts, like blockchain/DLT. For other tech development—especially with targeted audiences like consumers or SMEs—the cat-and-mouse game will continue with financial institutions carefully watching promising fintechs and moving quickly on strategic acquisitions to enhance their capabilities. Fintechs with solid vision, backed by great execution, will be rewarded. Fintechs without a viable value proposition or poor execution will continue to burn cash. 

 

I hope you’re as excited about these trends in fintech technology as I am. The year ahead offers so much opportunity, and I’m proud that here at Softjourn we have the people and the commitment to help our clients capture these opportunities to take their financial services operations to the next level. I’d be honored to explore these opportunities together with you.  


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