The fintech market is booming with both, collaborations from leading banks and formidable start-ups vying for an industry-first advantage in the latest technology. In the U.S. alone the annual investment in fintech amounted to $15.2 billion in 2017 which represented almost half of the total global investment of $31 billion. Traditional financial institutions face a significant threat from non-banks, such as fintech startups, that are offering innovative and more customer-focused solutions for today’s empowered customers. To put this into perspective, six of the 10 largest mortgage lenders in the U.S. are non-banks. Staying ahead of the tide will require financial institutions to reinvent themselves by embracing various digital capabilities. Here are some of the key emerging technology trends that are changing the dynamics of the financial services industry.
B2B payment systems
SMEs are the driving force of most economies. However, after the 2008 Recession, most banks in the U.S. have tightened their lending criteria, eventually compelling small business start-ups to resort to alternative lending options. Moreover, non-bank lenders like Liberis and Dealstruck are valued by SMEs for their flexibility and seamless technological capabilities in making credit acquisition an effortless experience. The common thread that binds these fintech lending startups is increased accessibility and transparency, tailored products, and innovation in collection methods.
Another hindrance to SME productivity is delayed payments. B2B payments are more complex than consumer payments, as they typically rely on invoices and are restricted by terms that vary from company to company. Electronic invoicing and payments have helped mitigate these issues to a great extent and are leading the shift away from paper checks. As B2B payment systems continue to evolve, they will help enterprises combat challenges better with flexible payment options, more robust security and increased efficiency. As a result, banks will continue to partner with innovative technology providers to facilitate smoother B2B transactions and build a competitive edge.
Gaining ground as a disruptive technology across industries, blockchain has empowered financial companies with improved security, zero data duplication, and a shared digital ledger that opens the doors to a host of opportunities. From remittances to insurance claims and more, the immutability of blockchain makes it an incredibly viable solution for verifying, reconciling and disbursing payments in real-time across the globe. Early adopters of this technology are already witnessing a growth curve in their customer loyalty benchmark. R3 is one such blockchain consortium player invested by financial magnates like Bank of America Merrill Lynch and Wells Fargo to build proprietary ledger-based applications. Similarly, Ripple is another blockchain expert whose network is leveraged by financial majors like American Express and Santander to make funds flow at the speed of information, globally.
Motor telematics insurance
Taking a quantum leap in the sphere of auto insurance, motor telematics is the best answer for both car insurers and owners. The technology uses onboard diagnostic (OBD) devices to monitor parameters like driving behavior, speed, mileage etc., via sensors while also analyzing the vehicle’s health to avoid mishaps. The technology allows insurers to adopt usage-based insurance (UBI) models, which translates into more customized services and accurately-priced insurance premiums. According to Netscribes research, the global telematics market is expected to be worth US$ 233.24 billion by 2022. Embracing telematics-based insurance programs will, therefore, play a key role in attracting customers and reducing losses through better risk assessment. One of the forerunners in this sphere is insurance major AXA, having introduced AXA FlexiDrive – Malaysia’s first telematics motor insurance that promises its customers up to a 20% premium discount.
To a technology savvy audience, digital mortgage services may seem like one more addition to the app list. Yet, it is a concept waiting to be explored in many other financial markets apart from the United States. Digital mortgages are gaining popularity through marketplaces, online lenders, comparison sites and mortgage technology providers. These platforms are constantly competing to offer the best deals, tailored loan options, and speedy processing. Moreover, digital transformation has made it easier for loan providers backed by analytics to conduct asset verifications, check compliance, and evaluate risks to ensure quicker loan closures. While the industry is burgeoning in the U.S. with 43% digital mortgage customers in 2017, a report by J D Power states that the number of satisfied customers is decreasing by 18 points year after year. This poses an interesting challenge for new entrants and existing lenders to build profitability through CRM expertise.
An increasing number of first-time investors research investments online than opting for a dedicated financial advisor. Robo-advisors are rapidly capitalizing on this market. With affordable with fees starting from 0.25% of Assets Under Management (AUM), robo-advisors make wealth management services accessible to individuals across the financial hierarchy. These platforms make investing effortless as they are accessible at any time, in any location. Moreover, the latest slew of robo-advisors are equipped with self-learning algorithms that minimize risk and offer automated investment options. By offering to collaborate with forerunners like WealthFront and Personal Capital, financial institutions can provide a comprehensive package of wealth management services to enhance their proposition.
With the onset of GDPR, Regtech has become the next buzzword as the levels of regulation rise to focus more on data and reporting. The advancements made in RegTech with AI in tow are aimed at reducing financial crimes by simplifying compliance and offering banks real-time updates. A recent survey by Baker McKenzie stated that among the “senior executives from financial companies, 49% said they expect their firms to use AI for risk assessment within the next three years, 29% that their firms will apply AI to learn more about their clients and to prevent money laundering, and 26% anticipate AI will help with regulatory as well as risk and compliance issues.”
AI-based customer engagement/ chatbots
The power of predictive analytics is what makes artificial intelligence superior to a run-of-the-mill CRM platform. Banks and financial institutions are increasingly realizing the sweeping difference made by proprietary chatbots versus regular customer service. Moreover, these chatbots are equipped with machine learning and real-time decision-making capabilities that synchronize across myriad touch points at any hour of the day. In 2016, Bank of America launched its AI-powered chatbot, Erica to go beyond customer support and help inculcate better money habits through timely assistance and reward plans. However, before companies plunge into integrating AI with their customer engagement efforts, it’s important to chalk out the differences they expect in terms of ROI, marketing initiatives, and automating human tasks, in order to harness the maximum potential out of this technology.
While integrating new technologies creates risk, a proactive approach will help financial institutions convert this risk into high-performance value for their companies. Finally, the future of the next financial path-breakers depends on the willingness to combat legacy issues while gauging the technology landscape to partner with firms that offer a competitive advantage.
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