Meet Cleo and Erica - top financial assistants that never sleep. Erica is a thoughtful Bank of America representative who gives information about transaction history, cash flow, and actually about anything connected with your bank account in a polite and professional way. Cleo, on the contrary, is a friendly advisor who can prevent you from going on a spending spree with $100 on your bank account. They are not just regular assistants who can help a limited number of people a day. They can process hundreds and thousands of requests a day in and day out. They are robots. Financial institutions and banks all over the world are deploying these kinds of new financial technology trends in their fintech software to meet the future that is impending with great speed. In today’s blog, we’ll discuss top finance industry trends which are a Holy Grail of successful BFS companies.
Fintech Trends that are Going to Dominate in Banking and Financial Services in 2022 and Beyond
Trend 1: Internet of Things
A special place among financial industry trends has been taken by a giant system of the Internet of Things. According to the analytics, the IoT market has experienced rapid unexpected growth, reaching $151 billion in 2018, and is foreseen to grow to $1,567 billion by 2025. Such rising popularity is driven by the ability of IoT devices to collect and analyze massive amounts of customer data. Through processing this data, banks and financial institutions can reduce NPAs, prevent frauds, increase operational efficiency, and completely redefine the customer experience.
IoT could offer banks up-to-date information about the projects or persons in whom they are investing, allowing them to precisely calculate the return on investment. Mobile banking software now syncs with credit and debit cards, allowing users to make wireless payments using only their phones, with the goal of making transactions as simple as possible. The function has been extremely useful during the COVID-19 epidemic, as it has allowed for the preservation of cleanliness in stores and other busy areas.
Mastercard has used the technology to build strategic partnerships with market-leading companies such as General Motors, Samsung, and Coin. The purpose of these partnerships lies in the willingness to streamline some of the everyday activities. For instance, Samsung’s smart refrigerators have an in-built functionality through which you can order groceries. Customers can shop and select needed items, add them to the cart and then have them approved by a 4-digit pin and paid for in a single checkout experience. The groceries are delivered to the customer’s home directly by the store, completely redefining the grocery shopping experience.
Trend 2: Open Banking
In 2015 the EU adopted the second edition of the Payment Services Directive. Since then open banking has become one of the most desired financial technology trends. The Directive aims at regulation of online banking and payments within the EU and establishment of uniform rules for payments and transfers. According to PSD2, banks are to open access to their systems, giving their APIs to non-bank third parties for those to integrate their services to create a faster, safer, and more enhanced customer experience.The exposure of APIs to third-party developers obliges banks to more speedily innovate to meet the expectations of their customers and remain relevant in the digital economy. In return, they get a chance to monetize existing assets, enlarge new revenue streams, and become players in a large, interdependent ecosystem. According to Accenture, 90% of financial chairmen believe that open banking can increase organic growth by 10%. Customers also receive great freedom as they have the whole scope of financial services available for them. A good example is DBS in Singapore. They have recently set up an API developer portal that gives their customers access to more than 150 services such as money transfers, rewards systems, deposits, and many more.
Trend 3: Robotic Process Automation
RPA is one of the most commonly applied Fintech industry trends. Robotic process automation may either considerably improve a variety of back-office operations that were previously a major source of frustration for bank workers. Banks can drastically minimize the need for human engagement by transferring most of these repetitive manual processes from humans to machines, which has a powerful effect on everything from productivity and efficiency to staffing difficulties and expenses. Robots significantly improve customer experience, eliminate repetition, and reduce expenses. Compared to the salary of the in-house full-time employee, robot software “charges” employers nine times less not to mention expenses for company perks, vacations, sick leaves, etc. The quality of data processed and provided equals 99,5% accuracy almost eliminating the possibility of errors. They are much faster than humans due to automation of a big part of standard task performance.
In the financial sector, RPA has a number of advantages:
- Enhanced operational effectiveness
- Economic effectiveness
- Hazard and compliance accountability
- No infrastructure expenses
- More rapid implementation
- The growth of business utilizing inherited information
As per recent research by Grand View Research, Inc., the worldwide robotic process automation in the Banking, financial services, and insurance market is estimated to reach $1,123 million by 2025, with a CAGR of 31.3 %.
The aforementioned Erica, a Bank of America’s chatbot has a highly advanced feature set deeply integrated with other financial technologies and users’ bank accounts. Therefore, it doesn’t behave like a usual chatbot that is able to play out only a pre-programmed scenario, vice versa, Erica uses machine learning, cognitive messages, and advanced analytics so that to adapt to every conversation with a bank’s customer. The chatbot can remind users to pay the bills, show transaction history, upcoming bills, and even monitor recurring payments.
Trend 4: Extended Application of Artificial Intelligence
Artificial Intelligence technologies have become a key part of finance trends and banks have no other choice except to implement AI in order not to run a race with a wooden leg. Pursuant to one poll, AI is used by 75% of banks with $100 billion in assets, and 46% of smaller banks. Moreover, 80% of respondents claimed they are at least conscious of the potential benefits of AI implementation. According to McKinsey, artificial intelligence might contribute $1 trillion to the banking industry annually. The technology allows banks to meet the demands of customers who are looking for smarter, safer, and more convenient ways to access and manage their money. There are countless ways of AI implementation in the financial sector. Most of us have already been actively using some features that rely on AI solutions such as chatbots, biometric authentication, authorization, voice banking, etc. AI also helps banks to improve various daily processes such as reporting, data extraction, document classification, credit scoring, and many others that also have both direct and indirect impacts on customer satisfaction. AI improves compliance monitoring processes, timely identify potential fraud or money laundering transactions, and prevents banks from cyber attacks.
The deep learning technique, which applies fraud detection with machine learning (ML ), was found to be 50% higher effective at identifying fraud and had a 60% lower probability of false alarms. An analysis of banks that use AI credit underwriting found that it increases loan accessibility. AI algorithms accepted 27% more applications while lowering lending rates by 16%.
Undoubtedly, AI application in banking is not limited only by those use cases, there are a lot more areas where AI solutions may improve efficiency and create new opportunities.
Trend 5: RegTech
Regulatory management is one of the emerging trends in the banking sector that aims at restricting fraudulent activities with the help of machine learning algorithms produced on the basis of big data. The evolution of digital solutions is followed by an increasing number of data breaches, cyber-attacks, and money laundering. ID Theft Resource Center states that in the period between January 2005 and May 2020 there were 11,762 data breaches. Therefore, the technology has become actively used in the financial sector for regulatory monitoring, reporting, and compliance.
A Canadian startup Mind Bridge leverages Artificial Intelligence and Machine learning to build a data analytics platform for auditing. The platform integrates accounting data and domain expertise to find mistakes and detect possible risks. With the help of the startup, companies can have the entire set of their clients’ data analyzed and get a summary of possible risks and ways to omit them.
Trend 6: Blockchain
Blockchains are essentially databases with a few unique traits. To begin with, data are scattered, which means they are kept on several devices with no single person in charge. Next, data is encrypted, which means that only those with the necessary cryptographic keys may change or update it. Finally, they are regulated by consensus, which means that modifications to the data may only be made if everyone who has a say in the subject accepts. Because of these features, blockchains pose a significant threat to the financial services sector, which has typically been centralized and managed by bank owners and regulators such as monetary authorities. It might also be extremely advantageous, allowing infrastructure to be streamlined while reducing fraud, boosting transparency, speeding up fundamental procedures like settling and clearing transactions, and increasing security.
For a long time, banks and other financial institutions have been testing and evaluating blockchain initiatives, with many of them already in operation. HSBC and Wells Fargo employ the innovation to resolve foreign exchange deals, while Paypal and Mastercard, as well as JP Morgan, which has its own cryptocurrency, allow payments to be made using blockchain cryptocurrencies on their networks. AXA, meantime, has developed its own blockchain technology to streamline the process of compensating clients whose flights have been postponed.
More new use cases for this extremely transformative technology will undoubtedly emerge in 2022. Even when it was primarily restricted to cryptocurrencies and digital money, its financial services potential has now expanded significantly.