Remember the time when financial services (banking in particular) were only available offline? Customers frequented banks and spent hours in queues for simple operations like deposits and withdrawals. Other financial services like insurance, loans, account updations, etc, required multiple visits and extensive processing.
That time now feels like ages ago. But it was only 25 years ago, in 1998, that ICICI Bank first introduced Internet banking to Indian customers.
Our financial lives have transformed tremendously due to the rapid adoption of technology by the finance industry. But this transformation is only accelerating every day. Rapid advancements in technology and increased adoption of digital financial services by consumers have created ample opportunities for growth in this sector.
Statista reported a total of 26393 startups in the fintech space across Americas, EMEA, and APAC as of May 2023 [1].
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What is Financial Technology?
Financial technology or fintech refers to the use of technology to enable and enhance financial services. This includes everything from wire transfers to digital banking, credit cards, trading platforms, and cryptocurrencies. Fintech aims to make financial services more accessible and efficient through the application of modern technological advancements.
The Evolution of Financial Technology
Although the term has gained traction in recent times, the use of technology to facilitate financial services dates back to 1871 when Western Union launched ‘wiring’ to enable electronic fund transfer overseas.
However, technological advancements in finance truly took off with computers becoming more mainstream during the 1970s-1990s. This period saw the widespread introduction and adoption of tech-enabled financial services like digital banking and digital stock exchanges.
But these advancements are just the tip of the iceberg. The introduction of payment systems like UPI and government efforts to move to a digital economy has fueled market growth for the financial technology industry.
Financial Technology in 2023
With consumers demanding more than ever and thousands of fintech startups redefining financial services, industry players must capitalize on technology to stay relevant.
Here’s our roundup of top financial technology that businesses must adopt to survive in this industry.
Robotic Process Automation
Robotic process automation refers to the deployment of software robots to automate routine, repetitive, and manual jobs. The financial services industry is ripe with use cases that offer plenty of automation opportunities. Examples include document verifications, service request processing, invoice processing, report generation, and more. Combined with technologies like OCR and artificial intelligence, process automation can verify most documents and even detect and prevent fraud.
Perhaps the most appealing reason for RPA adoption in fintech is the potential to generate immediate returns on ROI. By freeing up resources engaged in mundane tasks, businesses can immediately deploy them to tackle more productive tasks and generate cost savings.
“Edelweiss financial services achieved a 4x increase in transaction volume by adopting robotic process automation with UiPath.”
Cloud Computing
Investing in technology is a costly affair. Most financial services companies, especially startups, are uncertain regarding the returns that heavy investments in technology can create. Cloud computing is a much-welcome development in this scenario. Businesses no longer have to spend lakhs to procure and maintain costly hardware resources to fuel growth.
Technologies like NoSQL databases, horizontal scaling, on-demand scaling, IaaS, PaaS, and SaaS have made it possible for enterprises to pay for only those resources that are needed at their current growth stage. Further, any immediate surge in demand can be conveniently handled through advanced on-demand scaling capabilities that cloud platforms like AWS and Azure provide.
The tremendous volume of documents that financial services generate requires cheap, reliable, and secure data storage. Cloud computing stands as one of the most viable solutions to solve this problem. Many cloud computing platforms also provide in-built capabilities that enable easy adoption of tech like artificial intelligence and machine learning. Thus, cloud computing is a must-adopt technology for every serious financial business.
Artificial Intelligence
There is barely an industry that AI hasn’t impacted, and finance is no exception. Employing intelligent algorithms, artificial intelligence, and machine learning can help banks and other financial institutions make sense of the voluminous customer data at their disposal. The data insights generated through these methods can help leaders make pivotal decisions like predicting market opportunities and setting future growth strategies.
AI is also routinely used in tandem with process automation to enable tasks like document verification and fraud detection. AI, coupled with OCR, can identify mismatched photographs on financial documents. Another exemplary example of AI in finance is its use in trading platforms to analyze and predict stock market movements.
AI remains a powerful game changer in the finance industry, capable of providing a much-needed competitive edge in a heavily saturated market.
Open Banking API
Traditionally, financial services institutions had access to volumes of customer data. However, access to this data was limited to the institution due to privacy and security concerns. This meant that cutting-edge features like data-enabled insights had to be developed within the institution. Understandably, this was a time-consuming and costly affair. Consequently, customers lost access to useful features, and financial institutions had a hard time fulfilling customer demands.
However, the introduction of open banking API regulations by the European Union laid the foundations for effective collaborations within the financial industry. Businesses can now securely share required customer data with their partners after obtaining customer consent. Banks can partner with fintech startups to provide services like intelligent data insights and customized product offerings. With Open Banking, financial institutions can now offer advanced capabilities to their customers at no additional cost.
Open Banking allows effective collaborations within the finance industry and is a welcome change. Businesses must take advantage of effective partnerships through Open Banking API to gain a competitive advantage.
Blockchain Solutions
Blockchain has created disruptive solutions like cryptocurrency that could transform financial services forever. Blockchain significantly enhances the security and immutability of transactions and increases trust by removing the need for a centralized control authority.
Blockchain-based solutions like smart contracts can help businesses establish trusted agreements that are executed automatically when predetermined conditions are met. The lack of a central regulatory authority makes these transactions less prone to bias and lobbying. Every transaction is further backed by the near-immutability of blockchain networks.
With the increased adoption of cryptocurrencies and a push towards a cashless economy, the potential for blockchain adoption within the finance sector is only growing. Blockchain-based solutions can also significantly enhance the security of financial services. Every business in this sector should seriously consider foraying into this space to future-proof its products and services.
Internet of Things
The Internet of Things (IoT) allows extensive data collection that can be used to generate insights and create customized product offerings. The most obvious example of the use of IoT in finance is IoT-enabled credit and debit cards. Samsung has already launched an IoT-enabled AMEX credit card that can be located easily in case of theft [2].
With IoT, the applications are only limited by your creative potential. For example, analyzing a customer’s health patterns can help create customized insurance services. Analyzing the spending patterns of a customer can help envision new card offerings better suited to his needs.
IoT is also crucial in generating data that is necessary for generating effective insights from AI and ML. It’s time businesses in the fintech space must put a plan in place for IoT adoption over the short and long term.
Mobility
Mobility solutions are a no-brainer in today’s era. Consumers now demand access to services anywhere and anytime. Any business that lacks a presence in mobile markets is seriously undermining itself and granting the competition a free pass to sabotage its market share.
Technologies like responsive UX and progressive web applications have significantly lowered the entry barrier to mobile markets. Businesses can now create and manage a single codebase that serves customers across platforms. With so many benefits at one’s disposal and a relatively low entry barrier, there really is no excuse for any company to shy away from the mobile markets.
Consumers are increasingly demanding access to their favorite services on mobile. Businesses in the finance sector must embrace mobility as soon as possible to avoid loss of market share.
Cybersecurity
Finally, the last technology the finance industry must embrace has never been optional. Every financial services company operates in a sensitive space, handling customer financials and deploying all possible safeguards to enable secure transactions. The larger a company grows, the more costly recovering from a cybersecurity attack is.
“According to an IBM report, the global average cost of a data breach in 2023 was estimated to be 4.45 million USD” [3]
Finance enterprises must strive to secure every digital offering across the internet, mobile, cloud, IoT, and others. This is possible by working with a responsible technology partner capable of proactively addressing these issues. For example, the DevSecOps approach adopted here at Cloudesign strives to incorporate cybersecurity early on in the software development process.
That’s a Wrap
That concludes our roundup of 8 technology trends that financial services must adopt right away. Adopting a new technology can often be disruptive and daunting. Partnering with a responsible technology provider can go a long way in helping you prioritize your technology goals.
If your organization is considering foraying into these uncharted territories, don’t forget to avail our free expert consultation. Expert insights can save you from committing strategy errors that cost you time and opportunity.
