As we continue to use our mobile devices, IoT technologies and taught cars to drive without human intervention, the financial sector also came under the influence of innovation. This confluence of technology and financial services today is called “FINTECH” (FinTech). In fact, FINTECH has become so popular that Merriam-Webster dictionary in 2018 have the word with the definition: “Products and companies that use newly developed digital and online technologies in banking and financial services.”

It makes FINTECH a very broad field, because technology has so deeply penetrated our everyday life that clearly define where the end of traditional banking and FINTECH starts, is simply impossible. This and more actively discussed at the last 9-11 October in Sochi, “Pinopolis” forum of innovative financial technologies.

Since the advent of the first banking cards, the financial services users take for granted online and voice banking, live chat for customer service, new security features that protect against fraud, financial documents, forwarded to any application, and analysis costs. Moreover, in 2018, only 18% of customers visited the Bank to conduct transactions, all of his other actions conducted online. Today it is clear that FINTECH is much more than just online banking. With so many innovations in technology, there are some really interesting trends in Finance that is worth paying attention to in the coming year.

The use of the Finance of major high-tech companies

Amazon offers small business loans to improve the quality of service to its customers and help them expand the capabilities of the sales on its platform. Apple issues its own credit card for the security solution clients, providing its clients with best-in-class experience with financial products. Facebook and Telegram strive to launch its own currency. Such monsters as Apple, Facebook or Amazon (with deep pockets, strong relationships with customers and huge amount of collected information) can pose a real threat to traditional banks. To survive, banks will have to abandon the traditional product-oriented approach in favor of customer-oriented.

FINTECH for the protection of vulnerable consumers

There are new services that are helping to protect the elderly from financial fraud. The idea is to keep our parents, grandparents and financial independence while protecting their assets. These services are also popular for teenagers and young College-age people that are still funded by parents to help parents control costs and ensure accountability. One of the most popular services — Visa debit cards service True Link Financial, which allows you to block or allow only certain sellers.

The use of AI in the financial sector

It is no secret that banks use AI as a way to simplify the work with customers and partially automate simple financial products, freeing up scarce banking professionals. Risk assessment using AI also allows more flexibly and dynamically to regulate the lending business to minimize the influence of human factor.

But AI is no longer the monopoly of large banks. AI as a service now available in Google, Amazon and other companies that enables developers without experience with these, to include AI in their products. AI has great potential to automate simple processes, allowing FINTECH companies to offer better, easier and faster customer service than traditional banks.

The rate of youth

People 23-38 years, often called “Millennials” are the largest working-age group. But compared to previous generations, their financial behavior has changed considerably: they do not seek to buy property, preferring greater mobility, they are much more willing to invest in their own education and are extremely dissatisfied with the high cost of living. This age group is also less likely to be entrepreneurs than older people, despite polls showing that they would like to start a business. They observed a clearer trend to save money and minimize costs, than to risk spending. Accordingly, services that are popular with the millennial generation, must comply with fairly simple requirements: have the most simple and user-friendly interface to be focused on savings, financial planning and optimization of costs.

P2P technology

Peer-to-peer lending (P2P) industry-FINTECH is becoming an increasingly important source of financing both for individuals and for enterprises. P2P lending is a fast growing industry in which online platforms to directly connect borrowers with lenders. This is particularly attractive for small businesses. P2P lending is currently a real alternative to traditional financial instruments, because it allows businesses and individuals to borrow money without using financial institutions as an intermediary.

The model of P2P lending is very simple — a natural or legal person is registered in the service P2P lending as a borrower or lender. The borrower submits a request with detailed description of the requirements for the loan. The service evaluates the request and provides credit rating, the amount they recommend to borrow, the term and corresponding interest rate. The whole process can be completed in just a few minutes. Investors, based on the recommendations, and then can Fund the loan. Often, those who borrow money, invest in a few different loans to spread your risk.

Monetization FINTECH products

After several years of FINTECH boom, after many UPS and downs, investors have become much more selective. Despite the fact that overall funding for Finance remains at a historically high level, technology investors tend to invest in already proven companies that have demonstrated growth potential and profit.

Data collected by PitchBook show that, despite the apparent increase in total funding in venture capital, investment in financial technology in its early stages has halved from a peak of more than 13,000 transactions in 2014 to approximately 6,000 in 2017. Plank Finance is growing rapidly, and companies that have no clear path to monetization is becoming more difficult to overcome. This is especially frustrating for an ambitious new digital banks. Some of them have collected a considerable amount, but still trying to find ways to effectively monetize their product, others are not even provided the product due to difficulties related to the licenses and legal restrictions.

Blockchain

The adoption of the banking sector is truly innovative business models takes time, and startups need significant investments in infrastructure over a long period before beginning to receive a steady income. For example, the blockchain startups attract a significant number of venture capital thanks to a radically new infrastructure for payments and other applications. However, investors, not without loss having survived the boom of cryptocurrencies, become more cautious. While blockchain technology, despite the huge prospects remain rather interesting innovation that do not bring significant profits.

Licensing activities and relationships with government

Despite his interest in business development in General, the state with the fear of looking at the new financial technologies, fearing loss of control over the financial market. On the basis of those fears and pressure of traditional banking lobby, the government can take measures to protect the existing players, by limiting the entry of new participants.

For example, the Commission on securities and stock exchanges of the USA (SEC) has suspended ICO Telegram Pavel Durov, considering their sale illegal, in spite of attracted to the project investments in the amount of $1.7 billion. According to the SEC, the issuers of crypto-currencies are required to comply with the same requirements that apply to issuers of any securities.

Similarly, the French government explained its desire to block Facebook Libra cryptocurrency, saying that it threatens the banking sector of the country and can be used for illegal financial transactions.

Asset management

Investment banks began to pay more attention to digital consulting services. With the introduction of new technologies able to significantly lower the minimum investment threshold for the use of the services that attracted a significant number of small and medium-sized investors. In 2017 Morgan Stanley has launched in the US Investing Access, digital platform management of assets with a minimum investment threshold of $5,000. In the same year, Merrill Lynch (Merrill Edge Investing Guided) and Deutsche Bank (Robin) has launched a similar proposals. Assets under digital control volume reached $120 billion in 2018.

FINTECH in banking infrastructure

Like a giant tower of Jenga blocks, a legacy IT stack of a typical Bank consists of many individual products, some of which are purchased in finished form, and some developed in-house. As in Jenga, removing, or replacing “blocks” of the IT stack can be risky and complex. Digital innovation is often hampered by legacy information technology, in particular core banking system (CBS core bank system), and the cost of changes is high.

A financial institution plans to replace its main IT systems in the next five to ten years. There are several FINTECH-technology CBS, which inherited the banks consider IT a problem as a great opportunity to earn. Like those people who provided the picks and shovels to miners during the gold rush, they don’t compete with existing players in the banking sector, but seek to build a profitable business, helping banks to upgrade their technological capabilities.

Banks, or FINTECH

Financial institutions interact with FINTECH start-UPS either as investors or through strategic partnerships. According to McKinsey, nearly 80% of financial institutions entered into a financial technological partnerships. Compared with $1.8 billion in 2011, and 2018 was a stellar year for FINTECH companies: with more than 1,700 transactions totaling nearly $40 billion.

In 2010-2020 years FINTECH has become one of the most rapidly developing areas, and the next decade should not be different. Although not every FINTECH startup threatens small and medium-sized banks, the banking community is now forced to keep abreast of the latest trends in order not to miss the moment when some new technology will be able to shake the very foundations of their business.

Author: Firsova Kristina

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