When it comes to fintech innovation, we’re seeing changes at warp speed. While many of the developments are incremental, they add up to a potential sea change in the way banks, financial institutions, and consumers interact.
AI, machine learning, mobile banking, blockchain, online-only banks, and touchless payments are providing better consumer experiences, cutting down on fraud and inefficiency, and opening up new markets to financial institutions – all thanks to innovation in fintech.
Here are some of the fintech investments we’re seeing. Many have been underway for a while, but they are set to make big moves in 2022.
Blockchain has the potential to bring dramatic change to the financial sector.
Using distributed ledgers provides the ability for decentralized processes that are making faster payments and lower fees possible. We’re also seeing a movement to tokenize traditional securities, such as stocks, bonds, and assets, and place them in public blockchains.
Blockchain is tech that birthed cryptocurrency. Now more than a decade old, crypto markets for Bitcoin, Ethereum, and others have eclipsed $260 billion in market value with BTC prices continuing to rise.
A survey by Business Insider revealed that 48% of financial executives believe blockchain and artificial intelligence (AI) are poised for the biggest innovation in fintech in the next few years.
Some chatbots have evolved so users often can’t tell whether they’re interacting with a human or bot. Consumer adoption has been faster than expected as most people are comfortable with bots.
If they can get the info they need quickly, many consumers say they prefer bots versus talking to a person. Chatbots are creating significant efficiencies. Financial Chatbots can save more than 4 minutes on every interaction, according to Deloitte, or 7 cents for every query.
AI is also making its mark in the back office in areas such as:
- Insurance underwriting
- Loan underwriting
- Risk analysis
- Fraud detection
- Claims management
- Predictive analysis
- Wealth management
With so much money at stake, cybersecurity is top of the list for fintech – especially as financial institutions move more to cloud environments. AI is increasingly being used to detect fraud.
Mastercard said its AI, Machine Learning, and Decision Intelligence platform has cut the fraud rate in half. That equates to more than a billion dollars worth of fraud detected at just one company.
There is still a significant amount of legacy technology being used by financial institutions. A lot of ATMs are still doing business on software that’s no longer supported.
These are banks doing business online. They’re banks that only exist online. With no need for brick-and-mortar locations, many are offering more competitive and attractive rates for consumers.
43% of Americans are using a digital banking service along with their primary bank., half say they prefer the digital bank overusing the physical location. It’s a small jump from there to using an online-only bank.
Look for online-only banking to grow significantly in 2022. Of those consumers thinking about opening up new accounts, nearly half (47%) of consumers say they would be comfortable with an online-only bank.
In many developing countries, online-only banking is already the preferred method of doing business. Mobile wallets, bots, and AI financial assistance are already here and growing.
COVID-19 made people more comfortable using electronic and touchless methods of payments rather than having to handle cash. Look for this trend to accelerate.
P2P transfers, such as Apple Pay, Google Pay, and Venmo, have also created a group of consumers cozy with mobile banking. Expect more financial institutions to launch two-way video banking via mobile.
This provides convenient service while helping reduce consumer dependence on physical locations. Mobile banking can reduce labor costs and potentially help banks reduce their physical footprint. Combined with AI to handle predictive routing, it’s an efficient way to improve the experience.
One of the world’s largest manufacturers of ATMs and cash registers is planning to launch self-serve banking that can handle loan applications with live video chat to further reduce the need for tellers.
Tapping into New Markets
To continue to grow in a mature market, you can create complementary products or you can find new markets to enter. Fintech has opened up entirely new markets that were previously untapped.
1.7 billion adults don’t have an account with a financial institution or a mobile provider in countries such as China, India, Indonesia, Mexico, Pakistan, and Nigeria. What they do have is cell phones.
More than half (53%) of the people living in developing countries have smartphones. This opens up a significant untapped market for fintech.
Streamlining of Taxation Regulations
More institutions are doing business nationally or internationally. The internet has removed the barrier to entry for consumers that couldn’t visit a physical location.
However, this ability to sell anywhere created a much more complex situation when it comes to financial institutions and interstate and international taxing authorities.
Fintech is streamlining the process for efficiency and savings. AI can verify transactions and make sure proper taxes are being assessed and paid far faster than humans can.
JPMorgan is now using this tech to extract and process data from $6 trillion worth of daily transactions and estimates it has saved $150 million in expenses.
Investments in Fintech
If you’re wondering at all whether the investment in fintech is paying off, consider this final fact: Accenture says that financial institutions that invest heavily in AI and emerging fintech have the potential to grow revenue by 34% by 2022.