What were your latest activities involving money? In our deeply digitalized world of the early third millennium, the overwhelming odds are that performing the lion’s share of your financial operations, you actually didn’t have any bills or coins in your hand. Modern people do shopping over the internet, order a taxi using a mobile app, pay for meals at a restaurant with a credit card, or conduct business transactions accessing their bank account from a desktop or a smartphone.
All these procedures are accomplished within a split second, and we don’t have to waste our precious time contacting financial institutions, let alone visiting their brick-and-mortar offices. The latter are also happy with the contemporary banking routine in the virtual realm since it maximizes their customer reach and enhances the speed of providing their core and auxiliary services. Thus, all stakeholders in the industry benefit from the comprehensive employment of fintech software.
What is fintech: Explaining the basics
The umbrella term “fintech” encompasses all high-tech solutions, algorithms, and business models leveraged in the financial sector. Although many people primarily associate it with digital payment opportunities, it is much broader in scope, in fact. It is true that average banking service consumers see such products as those aimed at boosting their UX. However, financial organizations employ fintech know-how on an ever-increasing scale to significantly streamline and automate their workflow, creating data warehouses or providing a 360 view of their clientele.
As the need for prompt financial and trading transactions of various kinds grows apace, banks and other organizations involved in them robustly introduce fintech products into their regular practices. Such a spike in demand propels the vibrant development of the fintech market that is expected to display a more than solid annual CAGR of 9.2% by the end of 2023 and is likely to exceed $158 million within the next two years.
Naturally, these mouth-watering prospects attract a tidal wave of investors who want to get their share of the huge revenue pie the industry promises.
Trend-setters in the niche: The examples of fintech companies
Conventionally, as far as fintech solutions are concerned, banks become trailblazers in the domain, introducing them for many purposes – from compiling bank statements and tax reporting to supporting trade stock operations. Yet, given the wide gamut of financial activities, this know-how can facilitate, fintech companies today sprout like mushrooms after the summer rains. What are the areas where fintech-focused companies flourish?
- Alternative lending. The leaders in this niche are such marketplaces as OnDeck, Prosper, and LendingClub.
- Mortgage lending. This special type of lending is conducted, among others, by Better Mortgage and LendingHome.
- Business loans. Lendio and Kabbage issue these online.
- Small business servicing. Brex and Fundbox handle credit card operations, payments, and financing in this sphere.
- Stock trade. Schwab, TD Ameritrade, and Robinhood launched apps that earned a high reputation on the online stock market.
- Money transfers. PayPal, Venmo, TransferWise, and others are widely used by people who need to send or receive money from third parties.
- Payment processing and infrastructure. This sector is powered by such brands as Square, Revolut, Stripe, and many others.
- Credit reporting. Credit Karma will help you handle the related documentation.
- Financial security. CrowdStrike, EverCompliant, Forter, and others protect against leakage risks, cybercrime, and money laundering activities.
- Insurance. Companies in this sector (such as Lemonade or Fabric) furnish various insurtech products that simplify insurance practices.
With the expansion of both the range of financial services and their consumer audience, the trends that dominate in the industry start to veer towards broad startup involvement.
What is a fintech startup? By the book, it is a small business initiative that specializes in rendering digital services in the financial sphere. Lacking the reliability and the scope of traditional capital banks can boast of, these ventures have a considerable edge – and that is flexibility. Promptly reacting to opening business opportunities or creating a demand among people for a novel service, fintech startups have all chances to grow into powerful institutions once they tap the promising market and follow a wise business strategy. Some of the present-day fintech behemoths worth dozens of billion dollars (such as Stripe or Square) have gone all the way to becoming top service providers in their niche.
Whatever the type of a financial institution is, most of them encounter numerous pitfalls on their road to bonanza.
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Addressing the challenges of fintech realm
DICEUS, as an IT company with strong expertise in fintech solutions, is constantly monitoring the state of the industry. We know the greatest current challenges fintech organizations face and which ones are likely to persist in the coming year.
Any industry dealing with money always attracts a slew of wrongdoers who crave to scoop some of it. Banks and financial institutions are all about the money, so the number of potential perpetrators here is exceptionally high. They want to get access both to the money customers keep in banks and personal data of clients (such as net worth, social security number, income level, etc.), hoping to further capitalize on the obtained information. And as the number of financial operations continues to grow, cybercriminals intensify their malevolent practices attacking banks and organizations every minute.
And if hackers succeed in breaching, the defenses it spells sheer depredation for the bank. It will have not only to cover the losses their clients suffer (often as a result of lawsuits) but face reputational damage as well – and that is sure to take quite a time to remedy.
Naturally, clients who don’t relish the idea of losing money or having their confidential data compromised place high demands on the security of financial institutions and software they utilize. But while physical banks have an entire complex of protective measures, including guards, surveillance cameras, armored doors, and vaults, their software is more vulnerable to penetration attempts via digital channels.
Solution: The only way to counter the increasing sophistication of cyberattacks is to redouble security efforts aimed to protect the fintech solutions they rely on. Two-factor (and preferably biometric) client authentication, behavioral analysis, data encryption, and real-time security alerts are the major measures to ensure the safety of all transactions and data. Plus, you should update your software regularly and conduct all kinds of testing (especially penetration testing) to be ready for any emergencies.
Because of the potential high risk in a critical sector, the financial industry is a heavily regulated one. Each country has dozens if not hundreds of laws and ordinances every bank is to comply with. And if your financial institution is an international agent, the legal framework you are to function within becomes vast and intricate. Here, together with some national or regional rules, the regulations issued by supranational organizations (such as the EU of FATF) come into play.
With the advent of the fintech revolution, the compliance headache doesn’t grow less, rather the opposite. Moreover, legal ordinances often fail to keep pace with the rapid development of the domain, which often makes developers and users function in the grey zone.
Solution: A dedicated person or even a whole department must watch for regulation compliance of fintech software your organization employs or the novel one that you are going to onboard. They should also keep their eyes skinned for the updates in GDPR, AML, KYC, and any other area governments and international organizations legally standardize. Hiring a legal consultant is another viable option to address this challenge.
Each of us wants to feel unique while interacting with vendors or service providers. The same is true of financial services, where clients appreciate communicating via the channel they prefer at the right time, leveraging a fintech solution tailored to meet their special needs. However, boxed software in the industry is hardly fit to offer such personal experience to all and sundry overwhelming customers with a deluge of options that can only confuse them.
Solution: To add a personal tinge, you will first need to become aware of the exclusive requirements of every customer. State-of-the-art fintech solutions can provide plenty of insights into their needs, demographics, social interactions, and customer behavior. These data then become a benchmark for shaping personalized offers and recommendations that will suit this very client to a tee. Naturally, the software you utilize must allow such endeavors.
Tech expertise deficiency
Fintech is innovation incarnate, so many old-school financial institutions find it hard to come to grips with the novel trends that are disrupting the industry now. Moreover, the landscape of services and customer preferences changes so rapidly that even top IT professionals find it hard to keep abreast of all of them. This is especially true about fintech mobile apps that have quickly become the most wanted high-tech product of the smartphone-reliant civilization.
Solution: If you can’t find proper talent locally or maintaining an in-house IT department isn’t financially feasible, think about outsourcing. Specialists of DICEUS have relevant skills and a decade-long experience in the field to deliver a top-notch custom fintech solution at an affordable price that will satisfy all your needs and clients’ expectations.
Winning and nurturing customer trust
In the sphere where fraud is abundant and exceptionally hurtful, it is a tough row to hoe for fintech-powered organizations – and especially for startups – to attract first users and persuade them of their reliability. Besides instilling trust, it is also mission-critical to prove the high quality and security of their services in general and the software in particular.
Solution: Trust isn’t won overnight. It comes with systematic efforts along with three principal directions: credibility, collaboration, and customer experience.
Credibility can be earned through absolute transparency of the organization’s activities. Customer testimonials and high-end site content can contribute greatly to building an image of a solid business with extensive clientele.
Collaboration is promoted via creating customer communities, hosting events, and – most importantly – interacting with your clients on a daily basis.
Positive customer experience is delivered by striving to meet their needs halfway and adding a human touch to customer service (like employing people to handle complaints and requests instead of chatbots). Plus, appealing UI and seamless UX people get while interacting with a fintech app or website are sure to strengthen your company’s image.
It is important to realize what challenges the industry is to overcome by and by. But it is no less important to be aware of the opportunities the digital revolution has in store for fintech organizations in the nearest future.
Fintech industry opportunities to look out for in 2022
Here are the top 3 high-tech advancements that are likely to shape the contours of the domain in the oncoming year.
IT experts are far from having a common attitude about this phenomenon, but there is no denying that the fintech industry can greatly benefit from its advent. The chief asset of this technology is its decentralized nature. Thus, once entered into the distribution ledger, all transactions and other account activities are verified piecemeal to be then shared with all users. Consequently, the system remains more secure against hacking attempts adding one more layer of fraud and penetration safety.
Besides, blockchain technology is the foundation of cryptocurrency that is all the rage in the IT world nowadays. Since many financial institutions include operations with it into their roster of services together with fiat money, fintech solutions that enable this option are sure to be in high demand among technology-savvy consumers.
Access to accurate information about their clientele is crucial for banks. The availability of the complete dossier on each customer will help them in their personalization endeavors as well as reinforce their anti-money laundering and fraud detection defenses. Current disparate databanks are unlikely to furnish such information, so the only solution is to leverage big data – a huge collection of various reports, statistics, and demographics related to a user’s persona. Such a move is a must-have step in KYC algorithms utilized by organizations that specialize in credits, loans, and other high-risk financial services.
Artificial intelligence and machine learning
Processing enormous amounts of data is impossible manually. That is why employing AI for such purposes is going to become part and parcel of all fintech solutions one of these days. Moreover, these mechanisms must be able to adapt themselves to new circumstances and make conclusions based on the input data – the very procedures that ML was created for. Implementation of both technologies is sure to tell positively upon service personalization and UX in general.
Summing it up
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The financial sector is undergoing radical changes moving in the wake of the across-the-board digitalization drive. Having overcome the major challenges it will face in 2022, fintech software can drastically facilitate the workflow of banks and financial institutions and enhance the quality of services their customers receive.