C-Letter 2023 – Fintech: Benefits and Challenges
Fintech, a portmanteau of “financial technology”, refers to firms using new technology to compete with traditional financial methods in the delivery of financial services. Artificial intelligence, blockchain, cloud computing, and big data are regarded as the “ABCD” (four key areas) of fintech. The use of smartphones for mobile banking, investing, borrowing services and cryptocurrency are examples of technologies designed to make financial services more accessible to the general public. Fintech companies consist of both startups and established financial institutions and technology companies trying to replace or enhance the usage of financial services provided by existing financial companies. A subset of fintech companies that focus on the insurance industry are collectively known as insurtech or insuretech companies.
Blockchain and cryptocurrency
Blockchain and cryptocurrency serve as the most important examples of what FinTech exactly is. FinTech companies make it possible for users to buy or sell popular cryptocurrencies, such as Bitcoin or Litecoin. Another thing that is very important to mention here are blockchain services that keep the provenance data on the actual blockchain to reduce fraud. The biggest Fintech companies include: GoTo Indonesia, Visa and Mastercard, USA and Ant Financial, China.
The use of mobile phones for payments has never been more excessive. Everyone is always on their smartphones right now, regardless of what they are doing. According to research conducted by E-marketer, 38.4% of smartphone users in 2020 conduct mobile payments, which is 4% more than in 2018. In the same manner, the percentage of smartphone users that will be using their mobile phone to pay for certain services or goods is expected to rise to more than 42% in the following three years. Some of the most popular ways of mobile payments also include E-wallets (such as PayPal and AliPay), credit, debit, and bank transfers.
In addition to the examples mentioned above, it would be quite informative to mention other popular models:
• Crowdfunding platforms such as Kickstarter or Patreon allow users to either send or receive money from others on the same platform. This is how a certain percentage of small businesses or individuals get funding to continue offering their services. • Stock-trading apps represent one of the biggest innovations in FinTech, and it revolves around the possibility of an investor investing, buying, or selling market stocks with just one click from their computer or mobile device. • Budgeting apps are somewhat new to the world, and they have been created as a result of FinTech. Consumers used to create their budgets or gather checks in the past. At the same time, everything is much simpler nowadays as the FinTech revolution gave birth to some of the best financial services apps that will help consumers efficiently keep track of all their expenses and income.
Some Fintech Challenges
(1) Data Security
Data security has become one of the major concerns in the Internet world – be it mobile banking, payment apps, or Fintech in general. As we know, traditional banking systems are confident with security guards, CCTVs, vaults, and heavy bulletproof doors to keep their data safe and secure.
But when we talk about virtual security, things are not as easy as we think. Vulnerabilities are much more discreet and have potentially more impact on users, as not only their money is at stake but their personal data too. Solution
You can establish a high-level security app with the help of the Fintech app development company. The app may consist of the following factors to make it more secure: • Two-factor authorization • Biometric authentication • Data encryption and obfuscation • Real-time alerts and notifications • Behaviour analysis
(2) Compliance with Government Regulations
Finance is one of the most regulated sectors. There will always be interference from the government even if you leverage the traditional Fintech software that doesn’t use blockchain and other crucial technologies. Solution
Before creating an application or utilizing the software, make sure to check it for legal compliance. Moreover, if it’s needed, you can hire a legal consultant to lead you through all the basic details and policy. Before entering the market, make sure your legal department is aware of the latest government policies so you can amend them immediately.
(3) Lack of Mobile and Tech Expertise
In the fintech industry, some of the finance companies or banks don’t have proper or convenient mobile banking services. However, some banks try to replicate websites, but in this digital world, nobody would prefer a mobile application. Every user wants a seamless and convenient option to use.
Therefore, a lack of expertise in fintech mobile app development services results in non-user-friendly applications that don’t use mobile devices to their fullest potential. For example, apps may not benefit from NFC chips, geolocation features, fingerprint unlocking, and other features. A fintech bank can offer amazing experiences using these features and technologies. Solution
(4) Big Data and AI Integration
According to Accenture, 82% of US bankers and 79% of bankers globally believe that AI will revolutionize the way banks fetch data and interact with customers. As we know, big data and AI have made their impact in every organization. Using big data, organizations can collect personal information about users, social status to financial behavior, habits, and in-app activity. This data is very important to banks, especially when it comes to credit ratings and offering other high-risk banking services. With the help of big data, AI automates the whole process to detect fraud, perform a risk analysis, and manage transactions effectively. However, fintech organizations face various challenges to implement these technologies. They require expertise and constant maintenance.
If you are already in the banking industry, it will not be easy to integrate the latest technologies into your existing system. Implementing this will require not only technical adjustments but will reshape your business and require adaptation from you and your customers. Solution For AI and big data to combine, you will need to teach AI through machine learning. For this, you will need large amounts of data to train your system. Most banking apps are unable to process and fetch a large number of data sets. Hence, you can solve this problem with the utilization of a one-shot learning model that allows you to train your machine learning system on smaller amounts of data.