Fintech Trends 2018
The continued evolution of digital innovation has resulted in seemingly endless options and technologies. This trend won’t end anytime soon, and IT leaders must adjust their digital strategies to develop a reasonable pace for adoption and bimodal development.
We at Softjourn have consulted a number of sources and looked at our own experience in fintech to come up with a list of the top eight industry trends for 2018:
1. Focus on the Customer Experience
Improving customer experience (CX) is a top priority for enterprises thinking about digital business outcomes. The shift from a product- to a customer-centric model may also blur industry boundaries, giving incumbents the opportunity to serve adjacent consumer needs.
Rather than focusing on products and services, banks, payment providers, card issuers, and fintechs are increasingly asking, “How can we serve our customers holistically?”
With so much consumer data already online, plus the information created in daily transactions, banks have the opportunity to engage consumers in new ways. They can help clients understand their spending habits, anticipate what’s next, and find new ways to save or pay down debt. In addition, banks can leverage customer information to assess their needs and offer them relevant products when and where they need them.
The main CX challenges facing organizations is that often the strategy is only the deployment of a new technology and nothing else.
Without answers to the what and why, the “How do we do this?” part of the strategy turns into “Let’s just throw new technology at the problem.” Think about how many mobile apps have been rejected because the apps didn’t help consumers with their lives.
Another common mistake is thinking that process automation is CX. That only works if it drives down costs or makes consumers lives easier. If consumers gain no value and their experience is the same, it’s easy for them to stop doing business with your organization.
The bottom line is for a successful strategy, you must take the time to determine how to help the customer and then answer the question “How can we do that?” Answering the how makes for a great CX strategy. Commitment and execution are needed for the long term, but once you get in the habit of doing this and keep repeating it, you will be on the road to delivering great long-term CX and contributions to the bottom line.
2. Blockchain and Biometrics for the World’s Unbanked Population
Today, an individual’s identity is not defined by a single attribute such as a name, address, or user ID. Rather, it is a collection of attributes including, but not limited to, name, age, financial history, work history, address history, and social history. These attributes work together dynamically to define an individual during a particular business or social interaction.
Figure 1 U.S., Digital, and Global Economy Statistics. Source.
By combining the decentralized blockchain principle with identity verification, a digital ID can be created that acts as a digital watermark to be be assigned to every online transaction. This solution can help organizations check identity on every transaction in real time, reducing rate of fraud. Consumers will be able to log in and verify payments using an app for authentication rather than username and password information. The solution will store their encrypted identity, allowing them to share their data with companies and manage it on their own terms.
While blockchain technology offers new ways of handling transactions, other innovations could help boost the security of financial dealings.
One such development is the increasing use of biometrics in banking. Already, many of us use our fingerprints to unlock our smartphones, and there are a range of potential applications in the financial world.
“There’s voice biometrics, there’s fingerprint biometrics, there’s iris biometrics, I think there’s going to be many more invented,” says Niall Cameron, global head of corporate and institutional digital at HSBC. He went on to say that biometrics was probably one of the most important areas of new technology in the industry.
Leveraging this technology, an app will hash identifying information and insert it into the public blockchain. Anytime you need to authenticate to another service or user, you share the information, which is then sent through the algorithm and checked against the blockchain. Once authenticated, identifying information is not needed again.
These blockchains open the door to innovation and enable more interoperability across distributed services. This use of immutable ledger can become the accepted modality of the future.
3. AI and Robo-Advising in SME Lending
One of the challenges when lending to a Small and Medium Enterprise (SME) is the expense of making a lending decision. It is estimated that at regional and community banks, $4 to 5,000 in operational costs go into processing loans under $100,000, leaving very little margin for bad decisions. In fact, these small loans take nearly as much time and manpower to process as much bigger ones. This is where automation and artificial intelligence (AI) can come into play.
Intelligent automation can be integrated with legacy systems to create robotic workflows from the customer to back-office processing. These robots take routine, repetitive processes, such as performing credit checks and consolidating data across multiple accounts, and make them more efficient and effective. What was once a tedious new customer onboarding process can be replaced by highly personalized interactions driven by biometrics.
These robots can reduce traditional loan documentation and collection from weeks to days, without having to replace or change existing systems. Customer onboarding and know your customer (KYC) processes can be greatly enhanced from an experience, quality, and cost standpoint. This intelligent automation can drastically reduce the cost of processing an SME loan.
Artificial Intelligence Software Revenue to Reach $59.8 Billion Worldwide by 2025
Artificial intelligence (AI) technologies are being deployed globally for a growing variety of use cases across consumer, enterprise, and government markets. AI, which is defined as an information system inspired by a biological system, is an umbrella term that includes multiple technologies, such as machine learning, deep learning, computer vision, natural language processing (NLP), and machine reasoning.
According to the Digital Banking Report, only 15 percent of organizations are using AI to compete with peers and identify opportunities in their data that would otherwise be missed. Another 22 percent are expecting to use AI functionality in the next 18 months. But this is just the tip of the iceberg. Soon, all financial services firms will need to leverage the power of AI to deliver better experiences, lower costs, reduce risks, and increase revenues.
Types of AI Solutions Used
When we asked financial organizations that had implemented at least one AI solution—or were planning to—which solution(s) they had deployed or were planning to deploy, security and biometric solutions were most likely to be in place or on the short-term horizon.
In a deeper dive into AI use, just over 40 percent of respondents found the use of AI for fraud and risk prevention to be extremely important, with another 32 percent saying that AI was very important. In fact, fraud, security and biometrics were two of the top three functionalities found to be important globally.
Figure 2 AI Solutions in Use in Fintech. Source.
4. PSD2 and Open Banking
Open Banking will fundamentally change the way services are designed and delivered.
Europe’s new Payment Services Directive (PSD2) will fundamentally change banking as we know it. Forever. Life will be different in 2018 when banks are to allow approved third parties to offer services to their account holders. Perhaps too few banks have understood the scope of the changes they will face. The consequences are obvious: Not all banks will survive.
Learn more here.
Mobile Technology and Frictionless Transactions
The term “rise of mobile” has become common. However, it not only refers to the increasing number of smartphones and mobile devices but also to how everyday tasks are going mobile, such as paying for purchases at your local department store. Fintech companies are integrating mobile technology into their solutions and optimizing their offerings for mobile platforms. This initiative brings them closer to their customers than traditional financial institutions. There are opportunities for mobile technology venture capital firms to target Fintech companies. A recent report on mobile payments reveals that they are expected to reach US$92 billion in 2019.
5. Visual and Voice Search
Over the past decade, the shift from desktop to mobile has changed how people search. By May 2015, Google reported over 50 percent of its search inquiries were from mobile devices, a figure that has been growing steadily. This has made search not only more readily accessible at any time or place but also more contextually relevant, thanks largely to the GPS location service on our phones. Naturally, many search marketers adapted their SEO and targeting tactics to capitalize on the opportunities mobile search has brought.
By 2021, early-adopter brands that redesign their websites to support visual and voice search will increase digital commerce revenue by 30 percent.
With visual and voice search on the way to becoming dominant mobile search modes, enterprises should identify the best ways to capitalize on this shift. Visual and voice search enables marketers to gather more robust information about consumer habits, and early responders will see an increase in conversion rates, revenue, new customers, and customer satisfaction.
6. Augmented Intelligence in the Payments Ecosystem
Unfortunately, traditional fraud and money laundering controls can’t always adapt to new payment types, speeds, and channels. For instance, many legacy credit card fraud solutions struggle to handle card-not-present fraud now that chip cards have been introduced in the U.S. Many automated clearing house (ACH) fraud solutions don’t handle real-time transport protocol (RTP) and Zelle payments.
Here’s why adapting faster matters: All frauds are predictable, but only in the window between first detection and the time a countermeasure is put in place. The longer it takes, the more money the criminals make. With the launch of iOS 11 supporting the development of augmented reality (AR), this is a increasingly important topic in fintech. Expect to see value-added use cases in banking and fintech in the next year.
Learn more about augmented intelligence for financial advisors here.
Figure 3 Augmented Intelligence Revenue Forecast. Source.
7. Reinvigorated Focus on Security
In July and August 2017, ZDNet’s sister site, Tech Pro Research, surveyed tech workers about the IT budget for the 2018 fiscal or calendar year in their organizations. More than half said their organization would dedicate more funding to IT. Fifty-three percent of respondents said security will be a top priority in the 2018 budget.
Within IT departments, there is a premium on security spending. This isn’t terribly surprising after high-profile events in 2017 such as the WannaCry or WannaCrypt attacks and the Equifax consumer data breach. Respondents listed hardware purchases, cloud services, and software purchases as other high priorities for IT funds.
And one additional trend that should be considered in 2018 for fintech industry is gamification.
Gamification is alive and well in banking and may maintain or even increase its significance as fintech continues its attempt to attract millennials and to improve its relationship to customers. As one source puts it, “Gamification is not a brand-new idea in banking.” Another notes that “ … it appears that as techniques improve fintechs are still open to leveraging gamification to motivate user action.” Yet another says, “It’s good to know that gamification still has skin in the game … “