7 fintech trends that will transform banking and payment providers Share 7 fintech trends that will transform banking and payment providers 1
Fintech solutions play a significant role in the financial services market and industry in general, today. The world has become one huge marketplace. Customer expectations and new technologies rapidly evolve. Even the highly regulated banking and payment sector has witnessed the constant metamorphosis of its core business models to stay ahead in these disruptive times.
When it comes to the financial services ecosystem, the fintech industry plays a significant role in determining how the sector moves forward.
Now, fintech disruptors are changing how everything works with changing the core of insurance, payments, lendings, credit settlements, and even more. To respond accordingly, banks and payment providers started partnering with fintech companies or developed and deployed their own solutions. A report by PricewaterhouseCoopers states that “… global investments in fintech have more than tripled since 2014 to cross $12 billion.
Fintech solutions now play a significant role in the financial services market”.
Now, let’s see what’s upcoming in the next two to four years. The Banking and Incumbent payment providers transformation is just starting
Today, banks and incumbent payment providers are changing dramatically, but the change is yet to come. Digitalization, Digital Transformation, and the new customer-centric and internationalized business models transformed most industries and will continue to do so.
Meanwhile, boundaries between previously disconnected industry sectors are disappearing because of the rapid technological advancements and changes in consumer preferences and behavior.
Latest industry transformational trends have opened up doors for incumbents and FinTech companies from different industries to collaborate and create value for the market. They are challenging traditional banks and steal customers from them as the go-to place for all related financial services.
Today, people are choosing to go digital more often when we talk about financial services. According to a study published by EY, the average global adoption rate is more than 33 percent compared to 15 percent in 2015. The global FinTech adoption rate is forecasted to reach 52%, suggesting that most of the world population will use FinTech services.
The FinTech revolution is changing the way banks and payments companies have won and retain customers. Thanks to next-generation payment methods that bypass banks and credit cards, technology-driven companies take the lead and shift in the financial services industry.
Today, incumbent payment providers are fiercely competing for a share of $100 trillion-plus market consisting of large and small retail, cross border transactions, peer to peer services, and e-commerce companies.
Smart Contracts and Blockchain technologies that startups introduce every day are redefining the relationship between vendors, suppliers and last but not least customers. Consumer behavior is changing, and the financial industry is experiencing a significant transformation. The industry has moved from traditional checking/savings accounts to seamless “one-click” messenger applications like Alipay, WeChat and PayTM. These incumbents are trying to remain relevant by expanding into adjacent markets, including point of sale and peer-to-peer services.
In the future, traditional banks are likely to adopt or integrate FinTech services as part of their core service offerings if they want to continue to be in business. National regulators will also influence the landscape of the payment industry as they can implement game-changing laws which might give either side an advantage in the market. This is why the FinTech companies should also aim to provide innovative services to banks.
As the industry saturates, we are likely to see a melding of both parties. There will be many interesting innovations to watch in the digital payment space in the upcoming years. The Secure or Seamless dilemma
What’s the main problem with Fraud and Chargeback ? Fraudsters continue to adapt. Even with the growing range of fraud prevention tools that merchants implement in their payment processes and systems, it is getting extremely complicated and costly to protect themselves from fraudulent invasions.
The lack of communication is pointed out as a fundamental problem between card issues and merchants. Even worse, the chargeback processes are broken because they have never been designed to share actionable intelligence. The final result is that both, the card issuers and the merchants suffer from completely avoidable significant losses.
The challenge with the chargebacks is costly and painful for all parties.
Moreover, merchants and cardholders claim that the current process experience is confusing and stressful. And it’s not just about cost! Chargebacks come as a direct expense, due to the high rates of accepted customers disputes leading to loss of revenue. For merchants, this means fewer sales and increased customer friction. For card issuers, it could mean more good customers get turned away due to the high cost of recovering fraud losses.
Fraud and Chargebacks are costly, and they can easily damage the reputation of your business. If you receive an excessive number of chargebacks, your merchant account will be closed. This will kill your business.
New security technologies like EMV (a payment standard that stands for Europay , Mastercard , and Visa ,) and fingerprint recognition have been already introduced to the merchants and aim to reduce fraud and chargebacks. They are used to validate that a payment card is genuine and facilitate the authorization of the transaction. When a payment is made offline – for example in-store, the card is inserted into a compatible card reader, the EMV chip is read, and data is exchanged in a highly secure manner, using encryption.
But when making an online payment, the buyer manually enters card information, so the chip appears to have no benefit. However, EMV still provides an indirect security benefit for online payments.
If card information is stolen online, it’s much harder for fraudsters to clone and use a card with an embedded EMV chip.
Adyen’s research has found that 60% of retailers across Europe saw an increase in fraud in the past two years. Finextra’s research has also found that retailers are turning to biometrics to help authenticate payments securely. More than half (57%) of retailers are looking to implement fingerprint biometrics, and 56% are looking to use voice authentication to bolster their cybercrime defenses.
However, it’s important to remember that managing payments fraud and chargebacks is not only about keeping out the “bad” from the “good” transactions. It also is an exercise in removing friction. Merchants need to do everything under their power to prevent fraudulent transactions and protect their customers. The problem here is not to go on the overly cautious side and decline legitimate transactions.
In this regard innovation is the key. Machine learning, and advanced data analysis play a vital role in accurately identifying the shopper behind each transaction in real-time, to reduce fraudulent chargebacks. In Fintechnews article, Mr. Lie Wee Chian gives an example of a system consists of 200 algorithms to verify transactions in 1 second.
His Fraud Engine guarantees 100% chargeback protection, which is rare for the industry. This success rate comes from a combination of big data, machine learning, optimization, and fraud detection.
To protect from losses and drawbacks merchants add spending limits to their users. But the problem here is how to set your limits intelligently without losing big spenders for clients. Here you can benefit from machine learning technologies. These technologies are able to look at your customers’ profiles and set dynamic limits to protect you from losses from lost sales.
SuperApps powered by PSD2 & OpenBanking
The future of Banking extends well beyond just Financial Services . It will depend on its ability to leverage the power of customer insight, artificial intelligence, machine learning, advanced analytics and latest digital technologies to provide services that help today’s tech-savvy customers with their finances. The question is not FinTech or TechFin. The question is how the Banking Industry can leverage the latest regulations and directives like PSD2 (Payment Service Directive) and Open Banking Standards .
As you know the banks’ monopoly on their customers’ data disappeared on January 13th, 2018. The date on which the European Commission administered to adopt and to replace the old PSD Directive with the new PSD2 Directive.
Since then, the Banks were obliged to open their customers’ databases and provide API’s to third-party payment providers like Revolut . This way Bank Institutions become infrastructure platforms providing endless business opportunities for third-party service providers.
Here is how Mr. Loic Le Pichoux sees the future of the industry.
PSD2 & Open Banking open great opportunities for FinTech companies and their customers.
For Klear , I see at least 3 major concrete areas where we can benefit from it and provide great improvements in the product and the user experience.
The first one is Credit Scoring.
When someone applies for a Klear personal loan, we use a lot of data points to assess the creditworthiness.
Part of this information is asked to the applicant, he must fill it, another part is automatically pulled from online databases.
With open banking, the applicant could give us a read-only access to his bank account(s) and we would analyse automatically all the transactions to infer for example revenues and expenses. No need anymore to ask him to provide this information.
In this situation, PSD2 & Open banking will save time for the customer and improve the accuracy of the creditworthiness assessment for Klear.
The second one is our PFM Budget tool
We have developed a simple budget tool to help people plan their monthly budget, track their daily expenses and monitor all month long if they will achieve their saving goal.
The tool is useful although it requires to enter manually each single expense.
With PSD2 & Open Banking, the user could connect to his Klear budget tool his bank accounts and any card payment account. No need anymore to enter manually each transaction.
Besides, thanks to the codification of each transaction, we could automatically categorize the transaction and allocate it to the right bucket of expenses.
It’s another example where PSD2 & Open Banking will enable the automation of actions which are now manually performed by the user.
The third one is to automate regular payments
After a customer received his personal loan, he must repay it by sending to Klear his installment each month.
With PSD2 & Open Banking, we would give him the possibility to initiate, from his self-service zone in Klear, regular permanent payments from his bank account. No need to exit our website and to login on his online banking service, enter our IBAN and set up the permanent bank transfer…
There is the similar idea to give the possibility for an investor with Klear to initiate directly from our website regular payments to Klear, with the amount he intends to invest each month in the P2P investments.
This is an example showing how PSD2 & Open Banking will facilitate integration between various platforms to let the customer set up everything in one unique place. Loic Le Pichoux | CEO | Klear
Today, competition for customer touchpoints and secure access to customer data is fiercer than ever. Organizations from diverse industries like media, telco, banking, and other technology-driven companies compete for them.
But customer expectations for secure payments got lifted by industry disruptors and FinTech companies. Attacks from FinTech and Digital Companies having well-established eco-system add additional pressure on market price.
Aggregated super apps are not something new. Peer-to-peer lending and investing platforms too.
Zopa , Mintos , and Iuvo Group are good examples of providing financial services to individuals and businesses through the latest technologies. All of them have websites and sophisticated platforms, but they also provide their customers with personal experience through aggregated super apps.
Super task-specific aggregated apps using PSD2, Open-banking, Machine Learning, and Artificial Intelligence provide their customers with Higher returns to the investments, More accessible source of funding and Lower interest rates. This way these innovative companies win market share and earn competitive advantages over the Banking Industry.
Next-gen consumers prefer P2P lending platforms over traditional lending platforms. No one enjoys the cumbersome and long-lasting tasks of filling numerous forms and providing a whole lot of documents and then the indefinite wait. Even after all this, you are not sure if the bank will approve the loan. With P2P lending platforms, everything happens almost immediately – online.
In most of the cases, your loan can be approved in up to 72 hours.
According to The Global Treasurer “UK Investors aged between 18 and 34 are four times more likely than those aged 55-plus to put money into the peer-to-peer asset class.” According to a survey from P2P platform ThinCats, which focuses on secured business loans, 29% of millennials cited the ability to cut out banks as the sector’s biggest attraction, while 28% like that they can lend directly to businesses and 23% have had P2P recommended to them by a friend.
There are no hidden fees and charges, and no penalties for repaying your loans before the stipulated time. Banks charge huge interest rates on personal loans. They consider them as unsecured loans.
With PSD2 and P2P technologies, you often get competitive interest rates.
And last but not least, Machine Learning and Artificial Intelligence allowed FinTech’s apps and platforms to gain a competitive advantage over Banks because this way they can offer their customers highly personalized services. Time-to-Market for forking applications enabled by Digital Transformation The future of payments – Merchants’ PoV as a centerpiece
Today, with the astonishingly quick adoption of next-gen fintech solutions, everyone can be a merchant and receive payments with utmost ease. Almost every mobile device with internet can accept payments. Now, merchants are in control of their own destiny when it comes to set up payment methods for every point of sale. In a world of Stripe , Square , PayPal , and Venmo , there are countless ways for individuals and small businesses to accept payments.
Most of these companies are processing billions in online transactions every year.
Moreover, card payments are accepted from entrepreneurs selling out stuff out of their basements to Corporations like Amazon, Etsy, Shutterstock, and Lyft, moving to the market huge amount of goods and services on a daily basis.
Previously, payments were location bound. Today, they are device enabled. Everyone can pay from everywhere.
We are gradually moving to the future with universal payment methods that will alter relationships between merchants, customers and payments intermediaries.
All it takes for a merchant is to create a next-gen point of sale is to have good internet connectivity and a portable card reader.
Technology will continue to evolve. The trends in the latest years show that card growth has outpaced merchant outlet growth. In the future, there will be more cards than places to accept them.
The only way for merchants to close this gap is to start universal acceptance. With that, the payment network will become bilateral for the first time.
Merchants’ point of view focuses over words like contactless, cryptocurrencies, artificial intelligence , machine learning , open banking, and PSD2. There is a strong desire to revolutionize the in-store checkout process according to 300 US and Canadian merchants interviewed by Paysafe. Their prediction claims that contactless card acceptance will rise by 74 percent between 2018 and 2020.
They also declare that the acceptance of mobile wallets will grow even further, raising from 29 percent to 62 percent through the same period.
Here is how Dr. Hilmi Erdem, Principal from nGen.Consultin describes the future of Financial Technologies from the merchants’ point of view.
” The trend to enhance digital selling capabilities with AI will accelerate in 2019 and beyond.
The two areas that will benefit most from AI and Machine Learning capabilities are improving customer experience and securing online payment transactions.
Customer Experience
Chatbots are already widely used: the AI engines driving the user interaction will be enhanced making the dialogue appear more seamless; integration with service desk and learning from recorded dialogues are actively pursued.
Classical statistical learning technique such as A/B testing, using historical data to better segment customers and position products/services, real-time recommendations will further be augmented by the seamless integration of tools for brand perception and sentiment analysis.
These improvements will be provided seamlessly across all channels: web sites, mobile apps.
Securing Online Payments
The most significant enhancements to be brought about by AI and ML will come in the area of fraud detection and prevention.
Old rule-based fraud detection and prevention engines will fast be replaced by ML-based classification systems exploiting vast amounts of data to detect potentially fraudulent transactions and help prevent such transactions in real-time without having to reprogram the anti-fraud engine” Dr. Hilmi Erdem | Principal | nGen.
Consultin
When selecting an online service payment provider (PSP), merchants prioritize security as the number one priority.
Security is everything for them. In a report called Lost in Transaction by Paysafe , 59 percent of surveyed in the US, Canada, UK, Germany, and Austria name security as a critical differentiator when selecting a PSP.
Another solution that will become more prevalent by 2020 and continue to be a solid fintech factor in payments is Automation. Merchants consider Automation as an important trend.
It is almost everywhere, but if you don’t restrict some automation processes in your organization, you may experience the effect of losing control over most of your business process.
Merchants also consider Blockchain as a trendy technology and look for it in the fintech solutions they choose to rely on. Data breaches and the increasing need for privacy as well as online verification that provides an outdated user experience, are opening doors for companies offering services based on blockchain technology.
Mobile ordering and mass personalization will be part of the competitive advantage of every merchant.
Consumers already are familiar with in-app payments. This will allow them to purchase a variety of products from vendors and have them delivered directly to them via localized curated marketplaces. Every order will be highly personalized with the help of Artificial Intelligence. Personalization alternatives will be close to infinite. The future of Digital Money: Beyond the Horizon
Over the last decade, the growth of the digital economy and mobile devices have already enabled an explosion in nontraditional financial services, allowing fintech companies to thrive. New forms and methods of payment and interactions between individuals were adopted.
Devices become connected and the Internet of Things (IoT) took off. There are expectations for the second round of machine-to-machine transactions. Some people call it a digital-only world.
The physical money concept is becoming redundant. Today, transactions are invisible. The act of paying cash is disappearing.
Digital-money already takes a substantial amount of our life. Applications let customers book tables at restaurants, hotel rooms, flight or event tickets and buy products and all kinds of stuff online without actually paying with real money. Money as a physical form of exchange become just a number with digits in your bank accounts. Crypto
Digitalization and transformation of our world introduced new types of money and currencies – the Cryptocurrencies.
Blockchain technology that underpins new currencies like Bitcoin, Ethereum, and Litecoin opened the doors to endless opportunities. Moreover, they already gained some traction. Their impact has already demonstrated the opportunity for all sides of the financial ecosystem.
They help to reduce costs, improve efficiency and extend the reach of financial services.
In a survey by Capgemini Financial Services Analysis, from 2016, non-cash worldwide transactions between 2010 and 2014 raised: from 282.1 billion USD to 387.3 billion USD worldwide from 116.4 billion USD to 139.
8 billion USD in North America from 77.0 billion USD to 93.
6 billion USD in Europe from 27.2 billion USD to 41.3 billion USD in Mature Asia-Pacific from 25.7 billion USD to 38.3 billion USD in Latin America from 16.4 billion USD to 38.3 billion USD in Emerging Asia from 19.
4 billion USD to 35.
9 billion USD in CEMEA*
The explosion of FinTech companies, digitalization, and virtualization of the money, accelerated the growth of the digital economy. Operating in a world beyond physical cash raises important questions for the role of regulators and traditional financial services intermediaries.
Governments across the globe are very interested and try to put limits and to create different types of regulations. This endeavor is hard for them because Blockchain technology is decentralized. It enables you and any user on the network to make and verify transactions that are permanently recorded on the ledger.
To reduce cost and time of verifying transactions across a wide range of industries and users, most blockchain applications so far have been on public ledgers.
While the short- and the long-term potential of investing in digital-money and cryptocurrency remains heavily debated, the volatility of Crypto markets and the possibility of quick gains investing in crypto have attracted significant attention from some of the biggest names in business and finance. Here are some Pros and Cons investing in cryptocurrency:
Pros: The potential for huge returns Cryptocurrencies are very liquid The Crypto market is open 24/7/365 The potential to withstand financial and political instability Investors are able to clearly and accurately evaluate cryptocurrency companies
Cons: The Crypto market is extremely volatile Security is a major issue Most Crypto Exchangers do not provide insurance Government regulation may negatively affect stock prices If cryptocurrency ICOs run out of resources or fail to raise money, stock prices will plummet The quantum computing power
The future of digital-money surely is beyond the horizon. Now, quantum computing is a reality thanks to the work of Paul Benioff. As of 2018, the development of quantum computers is a fact.
Famous physicists and engineers give quantum computers a hypothetical competitive advantage against classical computers. Back in 2017 Google announced that they expected to achieve quantum supremacy by the end of the year. In 2018 IBM said that the best classical computers would be beaten on some practical tasks by quantum computers.
The power of quantum computing is considered to break many of the cryptographic systems in use today. The digital-money world, the cryptocurrency world, today’s most sophisticated protection, and encryption algorithms will be easily cracked by quantum computing.
Therefore, quantum-based cryptographic systems could be more secure than traditional systems against quantum hacking. Processing and Operations Optimization and Automation
Ten years ago, the average consumer had only a few interactions with financial services companies. Through that time consumers interacted with just one or two institutions at all. But today, FinTech companies are disrupting the industry. They are focusing on specific services that banks haven’t done yet and deliver them to the market with great ease.
The result is that the average consumer today deals with numerous financial service providers, each with a clear-cut purpose.
The FinTech revolution started right after the 2008 financial crisis. Through that time banks pulled back dramatically on almost all of their activities to reduce risk. This left a significant gap in the financial marketplace and allowed the FinTech companies to step into the market and bring new ideas to life. But today, we live in a world where the economy changes its direction and banks are aggressively running into that gap to recapture what they lost.
The problem is that both sides realize that the business is much more customer and customer relationships oriented than offering great products or services.
Now we are living in a World, where every week a new tool, application or web service using artificial intelligence or machine learning is introduced to the market. To shrink the cost and to improve the volume, speed, and quality of customer information financial services providers like Banks and FinTech companies are implementing machine learning and artificial intelligence. This way they can automate key business functions and save time and other precious resources.
According to Capgemini’s Digital Transformation Institute Report, the financial services industry can reach up to $512 billion in new revenues by 2020 through automation.
The report called “ Growth in the Machine ” gives valuable information about automation and operations optimization. There, you will find out that robotic process automation, artificial intelligence, and business process optimization will be the technologies that will add great impact in the future.
Plus, what would be the advantages of applying them for your business? Robotic process automation
Robotic process automation (RPA) or bots for short, the most desirable and ubiquitous fintech-based thing in the financial services industry today. They are providing digital speed to market and cost take outs for financial institutions, but the successful financial institutions of tomorrow will be those who embrace the next wave of robotics technology and future technology to drive business outcome.
FinTech companies, Insurers, Pension funds, Banks, and other financial services providers operate in a highly regulated industry and are faced with high demands for security, data quality, and operational resilience. Robotic process automation allows modern financial companies to meet these demands easily and achieve significant operational efficiency.
The benefits of RPA are: Cost saving – reduce the cost up to 80% Higher quality – Increase quality by reducing human errors Time-saving – Reduce time to perform tasks up to 80-90% Scalable solutions – Solutions that fit into your current set up Integration – Runs on top of existing IT infrastructure and requires no IT transformation projects Local competency – Keeping competencies and control locally
What financial companies find as exciting about the robotic process automation technology is that it is capable of not only delivering cost and productivity benefits, but it also is driving more transformational client engagement and personalized services. Adaptive reconciliation automation
No matter how efficient an organization’s finance team is, it carries out reconciliations mostly manually.
It is a necessary evil. There are no two opinions that this process is slow, costly and prone to human errors.
High transaction volumes, different transaction types, multiple bank accounts, multiple currencies, and different types of bank formats add even more problems. These are some of the reasons why you need to consider a tailored but affordable automation alternative in your reconciliation activities.
To automate your financial processes, you need software with rich functionality. It will allow you to integrate your main systems with a number of reconciliation-specific modules. This will provide you with transparent and accurate information.
Implementation of automated reconciliation systems will deliver a number of tangible benefits for your company. It will effectively support your finance team, will cut processing costs, will increase productivity, will improve data accuracy and add greater financial control. Financial companies that do not have automated reconciliation processes will fail to have an ongoing accurate result. For instance, VSA, a Scottish social care charity , has cut reconciliation of its 15 bank accounts at the end of each month from two whole days to just 30 minutes by using a financial management system with integrated reconciliation functionality from Advanced Business Solutions (ABS). You can achieve similar results too.
Conclusion
Now, you are aware of the fintech trends for the next several years. You already know that they are going to change the shape of the financial industry and many others with it. If you are looking for a guide or starting point to build your corporate strategy, you can give us a call or write to us from the form below.
Please, focus and consider the following: put the spotlight on cyber-security take advantage of Learning to cut your operational costs apply automation and robotics to manage customer requests faster be client-oriented and provide omnichannel services consider seriously and act accordingly make sure that the level of expertise your team have complies with today’s demands
If you don’t feel ready and still don’t know where to start, you can just drop us a line from the your business needs and offer you a high-class tailored made solution.
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