How FinTech is Changing Financial Services
A smorgasbord of products and solutions, FinTech describes the dynamic landscape of financial services driven by technology. From startups offering existing services at lower costs, to disruptive innovations shaking up the way we manage our finances, the FinTech industry is set to radically alter consumer behaviour and business processes.
Global investment in FinTech hit a whopping $5.3 billion (link) for Q4 of 2016. JP Morgan, alone, invested $600 million (during FY 2016) on Fintech initiatives they said included things like developer API’s and “interesting developments” in the bill payments area.
Things are continuing to rosy for FinTech in 2017, as financial institutions continue to invest in new and emerging technologies (chart) that will either disrupt or protect them from disruption. Here are seven ways that Fintech will (continue to) change the financial services industry in 2017.
Enhancing the customer journey
N26, a mobile-first bank, allows users to open a line of credit in 5 minutes. The process involves specifying how much money you need, your marital status, if you are a homeowner etc. You are then instantly provided with an annual rate and cost (for the credit line). The money then appears in your account within an hour of acceptance.
Consumers are well accustomed to the simplicity provided by services like Amazon for finding and buying what you want, when you want it and they are starting to demand the same from their banks.
2017 will continue to see disruption from startups (like N26) as well as the traditional players who will scramble to adapt their customer journey for the digital age.
McKinsey describes a fantastic hypothetical scenario where a business traveller walks past a billboard for her bank (at the airport) and instantly receives a text message offering a credit card with better travel perks – which she upgrades to with a simple tap on the “apply” button and by taking a selfie to authenticate herself (see full article).
Chatbots for banking
“How much did I spend on lunch this week?”
“I went to Chicago last month. Did I spend any money at the bar?”
“Can I afford to spend $80 on new shoes?”
Finie allows you to use natural, conversational language to interact with your banking app. Unlike traditional chatbots in the FinTech space, Finie uses data-driven artificial intelligence (AI) rather than rule-based approaches to understand what the user is asking. This means users are no longer restricted to asking things in a certain way, or met with frustration when the bot fails to comprehend complex requests.
At Clinic, they created an experience where the user can push a button, ask a question without thinking about how they have to ask it, and get a precise answer. The voice-activated personal assistant can track spending, provide personalised financial recommendations, and carry out banking tasks like transfers and cheque deposits.
The technology is being sold to banks and financial services to promote better customer service, usability and delight. Customers no longer need to wait in line or abide by trading hours to receive tailored advice. In the field of wealth management, users can easily keep track of their investments by asking things like “I recently sold some Netflix shares and was wondering when the proceeds from this sale will be reflected in my account balance”, or “Show me some headlines so I can see how well Intel has been doing”.
According to a new report by BI Intelligence, chatbots could decrease expenditures on commodities, securities and financial services representatives from $32 billion to $15 billion.
Popular messaging platforms like Facebook, iMessage and WeChat already allow their users to send money to one-another. Both Google’s Assistant and Apple’s Siri allow voice initiated payments like “Hey Siri, pay Keith 5 dollars for coffee” .
Paying for goods and services is also expected to have increased reliance on mobile payment technologies (such as Apple Pay – which experienced a 500% growth in volumes last year). So far this has proven to be a hot topic for the traditional players. As highlighted by Ken Chew, the managing director of DBS Banks consumer finance division:
“…Payment is probably on top of the whole food chain. Banks use current or savings accounts for their funding purposes…Payment also generates a lot of data for banks to understand their customers”
The Australian consumer watchdog recently rejected an appeal from three of Australia’s big-four banks to have an exemption from anti-cartel laws so that they could collectively negotiate and bargain with Apple for use of their Apple Pay technology (highlighting the uneasy relationship between disruptor and disruptee).
Continued rise of InsurTech
Imagine you are staying with friends while on holiday and would love to drive their car down to the beach, but you’re not insured! Bummer right? Think again, as InsurTech players like Cuvva allow you to purchase insurance for any car, by-the-hour!
Insurers are starting to combine big data, computing power and mobility to offer cover to the previously uninsurable (like the guy that wanted to borrow his friend’s car). Another example is Trov, an app that lets you insure individual items you own (like your phone or bike) with a few taps.
Reacting to the threat of disruptors, traditional players like AXA, AIG and Metlife have established in-house venture capital arms committed to investing in Insurtech startups. AXA’s “Strategic Ventures” business has invested in around 20 startups in the last couple of years (full story).
Rise in personal finance apps
Why worry about “ETFs”, “ASX” and “diversifying your portfolio” when there are apps that automatically invest your spare change? Or why spend hours a month saving each receipt and manually logging your spending when there are apps that automatically track and categorise your transactions – and then provide suggestions on how you can save?
Apps in the personal finance space continue to increase, answering our ever-growing need for ease and convenience.
Millennials, in particular, are drawn to these simple and low-cost solutions for investing and managing money. While they are a saving-savvy generation, they would much rather spend their time on their career and passions. As such, these new apps cater to their “set and forget” attitudes towards finance.
Competition in this niche will intensify in the coming years as Millennials are eager to adopt new products and services into their financial practices. Brands fighting for this demographic will not only need to offer highly competitive prices, but also resonate with their preferences and values.
Innovations in security
FinTech relies on lots of computing power and data. This means that, in order to be viable, most FinTech initiatives will live on the cloud – which obviously translates to customer data living on the cloud.
Naturally, this is a cause for concern for both customers and regulators (who will struggle to keep pace with the rate of change and innovation) and a new breed of cybersecurity pioneers are already clamoring to provide technology to address these concerns.
Using artificial intelligence to predict and alert companies to security threats is a good example. Researchers at MIT recently teamed up with a company called PatternEx to use machine learning to predict cyber attacks with around 85% accuracy (a task that would otherwise rely on human analysts to make judgement calls).
Both traditional players and disruptors will also continue to research and test new ways to secure data, like “Homomorphic Encryption” which would allow data not only be stored in an encrypted way but also used for performing calculations whilst still encrypted. Apple recently talked about using Differential Data Privacy which allows them to learn as much as possible about their users, while learning as little as possible about any one individual (user).
Taking a step into the physical world sees the emergence of IoT devices like Nymi, which provide a wearable authenticator that uses the individual’s heartbeat (ECG) for authentication.
Rally behind emerging markets
Four of the top five companies in KPMG’s 100 Leading Global Fintech Innovators report are from China, including the number one spot – Ant Financial. FinTech is not just for the rich in the First World. It is an opportunity for financial inclusion for hundreds of millions of people around the world, some of whom have never had a bank account.
FinTech is finding a natural and welcoming home in emerging markets where traditional banks and insurance services are less established and 2017 is likely to see continued growth in areas such as:
- Digital Banking and payroll – for example, Dopay, a UK company providing digital payroll services to the “unbanked” in India (link)
- Payments – such as AliPay and WeChat Pay
- Cryptocurrencies – like BitPagos in Latin America
- Microfinance – where companies like Tala who use mobile phone data to approve micro-loans in Africa and south-east Asia.
Competing on both innovation and cost reduction, startups and legacy providers alike are racing to deliver greater convenience and service quality at a lower price point. The coming years will undoubtedly be an exciting time for consumers as these solutions pave the way for new ways in which we can interact with financial services and our money.
Which FinTech innovation are you most excited for?