Here’s how technology will shape future of Fintech Industry

The pace of innovation and advancement of technology in financial services has been out of the ordinary globally. India has been at the forefront of this global revolution. This high-speed growth has been accelerated by extensive internet usage both in urban and rural regions, cheaper mobile handsets, cheaper 4G subscription charges and the pandemic accelerated digital penetration.

With this increasing globalization and consumerism, there has also been a dramatic rise in both customer and regulatory expectations. The demand for easy-to-use, trustable, fraud resistant, consent driven, and more inclusive systems are a few top ones.

This intensified demand for holistic financial services, better customer experience, and cost-effective solutions have further catalyzed the growth and influence of technology driven financial services. They are broadly categorized as the TechFins in Fintechs.

Covid-19 have wreaked havoc globally starting 2020, global economies are still trying hard and slowly limping back to normal. Economies have been re-routing their expansion plans, businesses trying to stay afloat, higher levels of unemployment, people compelled to stay on bare minimum but for digital-led companies it has accelerated the operations at a remarkable pace, moving them ahead by several years.

During the pandemic with fully curtailed human social interaction the entire customer segment has moved drastically towards online modes of communication and work. Financial Service providers say that over 77% of customer interactions became digital, three times higher than before the pandemic.

Undoubtedly, technology is at the forefront of this Fintech revolution. The contribution of new-age inventions in taking the segment at the top of the popularity leader couldn’t be overemphasized. While digital wallets, UPI payments, prepaid cards and and buy now pay later (BNPL) services are the leading services that have been at the fore-front of this acceleration, below are the list of new-age technologies that is catalyzing this disruptions :

1) Quantum Computing: According to IBM Financial services have had a history of successfully applying physics to help solve its toughest problems. The Black-Scholes-Merton model uses Brownian motion to price financial instruments like European call options over time. Therefore if we are applying emerging quantum technology to financial problems especially to those dealing with uncertainty and constrained optimization—should also prove hugely advantageous for first movers. For example: imagine one is able to make calculations that reveal dynamic arbitrage that competitors are unable to see, greater compliance, employing behavioral data to enhance customer engagement, and faster reaction to market volatility are some of the specific benefits we can expect quantum computing to deliver.

2) Artificial Intelligence (AI): Deloitte survey of Financial Analysts reveals that a whopping 86% consider AI essential to drive the growth of their businesses in the next two years. Further, McKinsey & Company predict that AI has the potential of adding up to $1 trillion of additional value for the global banking industry. This clearly implies that those industry players who are lagging behind in AI-mindset are at the risk of losing their relevance and might face an existential threat in the future. By assimilating disparate data, connecting complex patterns, and building associations across ecosystems, the new-age technology can change the face of the Fintech industry in the near future.

3) Blockchain Technology: Distributed ledgers have already heralded a new era of efficient and secure operations for Fintech companies. Going forward in the future, the technology will help by storing, transacting, and distributing data throughout the value chain at one. Further, with many blockchain networks now achieving interoperability, the sharing of data across networks will facilitate different payment processing systems to become even more efficient and fast than before. In addition, the ongoing evolution in smart contracts, distributed data storage, and zero knowledge protocol will fuel the growth and popularity of Fintech significantly in the coming years. No wonder, Market Research Future, a research and consultancy organization, suggests that blockchain applications within the Fintech sector will have a value of $31.4 billion by 2030.

4) Cloud Computing: The growing popularity of cloud computing will further accelerate as the technology is expected to gain the lion’s share in EBITDA of Fortune 500 companies. The multiple benefits of cloud computing in enhancing cost efficiency, application development, and reducing ideal time will continue to enhance transaction speeds for Fintech firms in the future too. By offering services such as embedded security and full automation, cloud computing will also contribute significantly to strengthening the integrity of systems used by the Fintech platforms. Further, we might witness an expansion in the formats of cloud services as PwC and Microsoft have already announced the arrival of cloud-native digital banks.

5) IoT Devices: With data becoming an asset of strategic importance, the Fintech industry will witness enhanced penetration of IoT devices in the future. The focus of this intensified use will be to deliver Fintech firms a better understanding of their operating environments. By bridging the divide between the physical and digital worlds, IoT will pave the way for enhanced growth and opportunities for the Industry. Many emerging fields such as environmental, social and corporate governance (ESG), carbon trading, and voice assistance are expected to drive the demand for IoT devices. IoT applications will also witness a rise through connected wearable gears, on-demand liquidity, and personalized assistance to deliver better customer experiences. In sum, the focus of future IoT devices will be on holistic communication and distribution of data in a more controlled and secure manner to help Fintech reach new heights of success and user adoption.

However, the Fintech ecosystem does have its fair share of challenges to deal with while using any for of disrupting technologies. Key ones include:

Data privacy and leaks– Dhani - a listed NBFC providing services through a mobile app came under scanner as anonymous loans were displayed on their mobile banking app which led to a decrease in credit scores of users. Players will have to implement stringent rules and regulations and comply with the norms set by the government.

Lack of financial awareness- Over 70% of India’s population lives in villages and are still not part of the fintech ecosystem. The sector thus needs to build awareness and spread financial literacy to even the remotest corners of our country.

Managing Multilevel Compliance- Sambandh Finserve Pvt Ltd’s bank accounts were freezed by ED in connection with financial frauds allegedly committed by its managing director Deepak Kindo and other family members. Allegations suggest that Sambandh Finserve Pvt Ltd’s had raised funds of more than INR 100 Cr from some of the renowned institutions for onward lending but instead chose to divert the fund to its sister organizations.

The Fintech industry has always remained at the forefront of technology adoption. This adoption has helped the industry players to develop innovative solutions for delivering enriching customer experiences. And now with the rollout of 5G technology, advanced handheld devices, and wearable payment systems, technology is all set to play a crucial role in cranking the growth of the industry to new levels of success.

Author: Shubhradeep Nandi - A Datascientist and First Generation Entrepreneur.