What is the Force Behind Fintech Revolution

Private lives of people and businesses have become highly digitalized these days. This is increasing the need for flexible digital financial services such as banking, investments, payments, transfers and insurance by customers globally. As a result, financial companies have realized that there is a great potential for a sophisticated platform that can integrate all their services at one place, accessible to customers at all times.

Today's generation may want to bypass the old methodologies of lengthy processes involved in opening a bank account or setting up an appointment with a consultant or advisor. They want to get things done at quick convenience. This is leading to an increase in the demand for financial technology, also called as FinTech which is a powerful convergence of these two in providing faster, reliable and dynamic wealth management services.

The term FinTech officially made it to the Oxford Dictionary by 2016 suggesting its growing popularity, especially among startups. In 2017, the world saw an immense growth in a number of FinTech startups. The funding received from venture capitalists and crowdfunding in these startups has also been at an all-time high. The startups are coming up with innovative digital solutions for better money management. It has already provoked the traditional banks and other financial service incumbents to enter the digital domain.

According to PwC, 95% of such companies are now seeking FinTech partnerships.

What are different FinTech domains?

The Fintech ecosystem has different domains under its umbrella. These include:

– Robo-advisors: provide low-cost asset management solutions

– InsurTech: platforms that optimise insurance requirements

– Digital payments and wallets such as PayPal

– Blockchain and digital currency such as BitCoin

– Digital banks: Alternative finance or alternative lending

– RegTech (Regulatory Technology)

As digital payments became popular, it has paved the way for other sectors like alternative lending, robo-advisors to gain some attention of innovators and subsequent traditional players. Breakthrough technologies started creating a buzz and are completely disrupting the traditional processes. With this, there is an upsurge of sophisticated platforms developed by new innovators. These platforms are showing huge potential and have gathered quick popularity among consumers.

Booming FinTech investment scenario

Big data in financial services of small FinTech companies is expected to make up for the larger investment share in the future. With ample startups making considerable strides, they are now being favored by big financial corporations to leverage their technologies and platforms for business intelligence (BI). They are no more seen as threats but as potential partners as the larger companies are strategizing to harness the advantages of FinTech revolution.

The growth in analytics is causing companies to invest heavily in technologies like artificial intelligence (AI), machine learning (ML), high-efficiency tools which in-turn increases the dependency on big data. These tools undoubtedly are giving heavy returns to the companies that invest in them. We can witness the way they are revolutionizing the Banking, Financial services and Insurance (BFSI) sector with these technologies.

Understanding the role of Analytics

FinTech has AI and ML algorithms at its core. AI is the superset which consists of ML, natural language processing (NLP) and techniques such as neural networks, etc. Automated processes, transactions, chatbots, threat detection are all products of AI and ML. Combined with data analytics, they are making the traditional processes smarter and customer-driven.

Today the asset transfer doesn't just include money. It also includes the transfer of titles, vehicles, homes or precisely any asset owned. Blockchain methods rely on technologies that can maintain the information of transactions, customers, intermediary services and analyze the trends observed through the transactions for improving their services. Data also needs to be gathered from external sources such that the customer behavior and demands can be better understood. This can be achieved through predictive analytics and data mining tools.

Banking industry is the largest beneficiary of the Fintech growth. Technologies like chatbots are greatly contributing in providing a personalized experience to the banking customers. They combine NLP and analytics to tap the large customer data from the archives of banks to make a voice recognition chatbot interface. They also have smarter recommendation engines for targeted marketing of their financial services. Most of the banks are moving towards in-house digital infrastructure for payment systems such as e-KYC services like Aadhaar.

FinTech companies are significantly investing in four main areas of analytics, namely- algorithmic, predictive, descriptive and operational. These can considerably improve services like customer acquisition and retention at several levels. AI and analytics come together in making of robo-advisors that have benefitted the world of investment trading. One of the most obvious predictions is that financial advisors and planners will be less in demand as robo-advisors will be taking over their role at providing much cheaper and timely analysis to an investor.

Takeaway

FinTech is gaining a lot of prominence globally with the application of AI and big data analytics. With so many developments, it is safe to say that the mobile phones in our hands are as important as the credit card for all our transactions. However, there are certain roadblocks that hold back the development such as lack of reliable data and trust from investors and customers, etc.  While this is just the flip side of the technology, the positives are more disruptive and would transform many industries with agile and flexible solutions globally.