The financial industry is undergoing a significant transformation due to rapid technological advancements. This is not unexpected since financial technology (fintech) is altering how we conduct business, handle our finances, and carry out transactions.
With new advancements in fintech, it is clear that the future of finance will be vastly different from the present. In this blog post, we will explore 5 fintech trends shaping finance’s future.
1. Digital Banking
In recent years, the rise of fintech has changed how we think about banking and financial services. One of the most significant trends in fintech is digital banking. Digital banking, also known as online banking or internet banking, refers to using digital technology to deliver banking services to customers.
The rise of digital banking can be attributed to several factors, including the increasing adoption of smartphones and other mobile devices, the growth of cloud computing, and the development of new technologies such as biometric authentication and artificial intelligence.
Digital banking can revolutionize how we bank, making it faster, more convenient, and more accessible.
Benefits of digital banking
Digital banking offers several advantages over traditional banking methods. For one, it's much more convenient. Customers can access their accounts and perform transactions from anywhere, at any time, without visiting a physical bank branch.
Digital banking is also faster and more efficient than traditional banking methods. Transactions can be completed in a matter of seconds or minutes rather than hours or days. Additionally, digital banking is often more cost-effective than traditional banking, as it eliminates the need for physical bank branches and reduces the overhead costs associated with running a bank.
Digital banking and financial inclusion
Digital banking also has the potential to promote financial inclusion by making banking services more accessible to underserved populations. Traditional banking services are limited or nonexistent in many parts of the world, leaving many people needing access to basic financial services such as savings accounts and loans.
Digital banking can help bridge this gap by allowing people to access banking services through their smartphones or other mobile devices. This can be especially important for people living in remote areas, where traditional banking services may be difficult to access.
Future of digital banking in fintech
The total value of investments in fintech companies around the world has increased dramatically over the past 15 years and reached $216.8 billion in 2019. However, in 2020, the investments of fintech companies decreased by more than a third, associated with the global crisis amid the pandemic.
Despite little progress in 2021 and rising investment costs, 2022 has been another slow year for fintech.
The future of digital banking in fintech is bright. As technology evolves, we expect to see even more innovations in digital banking. For example, the use of biometric authentication, such as facial recognition or fingerprint scanning, could make digital banking even more secure.
Artificial intelligence (AI) is also likely to play a significant role in the future of digital banking. According to Mordor Intelligence, AI in the Fintech market is expected to register a CAGR of 25.3% during the period from 2022 to 2027.
AI-powered chatbots could be used to provide personalized customer service and support, while machine learning algorithms could be used to analyze customer data and provide insights into customer behavior and preferences.
2. Blockchain Technology
Blockchain technology is a distributed ledger system that allows parties to transact with each other without the need for a centralized authority or intermediary. Each transaction is recorded on a digital ledger, and replicated across a computer network. The ledger is secured by complex cryptographic algorithms, making it virtually tamper-proof.
How blockchain technology is changing fintech
One of the most significant benefits of blockchain technology is its ability to enable faster transactions. With blockchain, transactions can be settled in seconds instead of days or weeks with traditional financial systems.
Blockchain technology offers enhanced security by utilizing a decentralized network that is not controlled by a single entity. Each transaction is verified by multiple nodes in the network, making it virtually impossible for hackers to compromise the system.
By removing intermediaries from financial transactions, blockchain technology has the potential to significantly lower costs associated with transactions. This is particularly beneficial for cross-border transactions, which can be expensive due to the involvement of multiple intermediaries.
Blockchain technology offers increased transparency by allowing all parties to view and track transactions in real-time. This not only reduces the risk of fraud but also makes it easier for regulatory authorities to monitor transactions.
Blockchain technology enables the creation of smart contracts, which are self-executing contracts with the terms of the agreement between buyer and seller being directly written into lines of code. This reduces the need for intermediaries and helps to automate the contract execution process.
Fintech applications of blockchain technology
Blockchain technology has several fintech applications, including:
Blockchain technology can ensure a secure digital identity, which can be used to verify the identity of users in financial transactions.
Blockchain technology can be used to process payments, eliminating intermediaries and reducing costs.
Trading and Settlement:
Blockchain technology facilitates the trading and settlement of financial instruments, making the process faster, more secure, and more transparent.
Supply Chain Management:
Blockchain technology improves supply chain management by enabling real-time tracking of goods and services.
2. AI and Machine Learning
Artificial Intelligence (AI) and Machine Learning (ML) are revolutionizing the fintech industry. These technologies allow fintech companies to enhance their products and services and provide more personalized experiences to their customers.
For example, Netflix saved $1 billion due to its machine learning algorithm for personalization and content recommendations.
AI and ML are being used to detect and prevent fraud in the financial industry. Machine Learning algorithms can analyze patterns in financial data and identify anomalies that may indicate fraudulent activity. This helps financial institutions prevent fraudulent transactions, saving them millions of dollars.
AI and ML are also being used to improve the accuracy of credit scoring. Machine learning algorithms can analyze a vast amount of data to determine an individual’s creditworthiness. This includes factors such as income, employment history, credit history, and more. By analyzing all of this data, AI and ML can provide a more accurate credit score than traditional credit scoring methods.
Chatbots are becoming increasingly popular in fintech, and they are powered by AI and ML. Chatbots are used to provide customers with quick and easy access to information and support. They can answer frequently asked questions, help customers to make payments, and provide personalized recommendations based on the customer’s financial data.
Personalized investment advice
AI and ML are also being used to provide personalized investment advice. Machine learning algorithms can analyze a customer’s financial data and provide recommendations based on their investment goals and risk tolerance. This can help customers to make more informed investment decisions.
AI and ML are being used to improve customer service in the fintech industry. Machine learning algorithms can analyze customer interactions and identify trends in customer behavior. This helps fintech companies to provide better customer service and to identify areas where they can improve their products and services.
3. Open Banking
Open banking has several benefits for customers, financial institutions, and third-party providers. For customers, open banking means they have more control over their financial data and can access new services and products tailored to their needs. It also means they can benefit from better rates and services as providers compete to offer the best deals.
For financial institutions, open banking provides an opportunity to innovate and create new products and services that meet customers’ changing needs. It also enables them to reduce costs by outsourcing certain functions to third-party providers.
For third-party providers, open banking provides an opportunity to create innovative new products and services tailored to customers' needs. It also enables them to access a wider range of customer data, which can be used to create better services and products.
What is the future of open banking?
Open banking is still a relatively new concept, but is expected to grow rapidly in the coming years. As more financial institutions adopt open APIs, customers will have greater control over their financial data and will be able to access a wider range of services and products. This is likely to lead to increased competition and innovation in the financial services industry.
One of the key challenges for the future of open banking will be ensuring that it remains secure and transparent. Financial institutions will need to continue to invest in security measures to protect customer data, while customers will need to be educated about the risks and benefits of sharing their financial information.
4. Mobile Payments
Mobile payments, also known as mobile money, refer to transactions made through mobile devices such as smartphones or tablets. Mobile payments have become increasingly popular in recent years, and fintech companies have been at the forefront of this trend.
Mobile payment transaction volume reached $1.7 trillion in 2021 but is expected to slow. Most of the revenue comes from small interchange fees that each provider charges per transaction.
With the rise of fintech, the traditional banking industry has been disrupted, and mobile payments have played a significant role in this disruption.
Benefits of mobile payments in fintech
One of the main benefits of mobile payments is convenience. With mobile payments, customers can make transactions anytime and anywhere without having to carry cash or visit a physical bank branch. This is particularly useful for people who live in remote areas or have limited access to traditional banking services.
Mobile payments are also faster and more efficient than traditional payment methods. Transactions can be completed in a matter of seconds or minutes, which is especially useful for businesses that need to process a high volume of transactions quickly.
Mobile payments are also more secure than traditional payment methods. Most mobile payment platforms use encryption and other security measures to protect customer data and prevent fraud. In addition, many mobile payment platforms require two-factor authentication, providing an additional security layer.
Challenges of mobile payments in fintech
Despite the benefits of mobile payments, several challenges are associated with this technology. One of the main challenges is the lack of standardization across different mobile payment platforms. This can make it difficult for businesses and customers to use multiple payment platforms, which can be inconvenient and time-consuming.
Another challenge is the risk of fraud and security breaches. While mobile payment platforms are generally secure, there is always a risk that hackers could find vulnerabilities in the system and exploit them. In addition, mobile payments can be vulnerable to social engineering attacks, such as phishing scams, where hackers trick users into giving up their personal information.
Future trends in mobile payments in fintech
The future of mobile payments in fintech is bright, with several trends expected to shape the industry in the coming years. One of the main trends is the integration of mobile payments with other technologies, such as artificial intelligence and the Internet of Things (IoT). For example, mobile payments could be integrated with smart devices like wearables or connected cars to enable seamless and secure transactions.
Another trend is the increasing use of biometric authentication in mobile payments. Biometric authentication, such as facial recognition or fingerprint scanning, could provide customers with a more secure and convenient way to authenticate their transactions, reducing the risk of fraud and improving the user experience.
Finally, blockchain technology is also expected to play a significant role in the future of mobile payments. Blockchain technology could provide a more secure and transparent way to process transactions, reducing the risk of fraud and increasing the efficiency of mobile payments.
These fintech trends are just a few examples of how technology is changing the financial industry. With the continued evolution of technology, we can expect to see even more advancements in the future. As a result, businesses and consumers need to stay up-to-date with fintech industry trends, as they will undoubtedly shape the future of finance.
If you are ready to take action and invest in software development in 2023, Axon engineers can choose the best-fit functionality for your product. Get a free consultation in one click!