FinTech and Disruptive Technology

- Synergy and Disruption: Trends Shaping Fintech

FinTech (FinTech) is an economic industry composed of companies that use technology to improve the efficiency of financial services. It is usually applied in technology startup scenarios to disrupt industries such as retail banking, lending and financing, payment and transfer, wealth and asset management, market Trading with exchanges, insurance, blockchain, etc. Refers to a new application, new process, new product or business model in the financial services industry. However, the term fintech has begun to be used for a wider range of technological applications in the space – front-end consumer products, new entrants competing with existing players, and even new paradigms such as Bitcoin. The financial services industry is one of the last areas that new technology has yet to fully conquer. Fintech companies are trying to disintermediate the existing financial system and challenge traditional companies that are less reliant on software. 

Internet-based technologies have made it cheap to gather information and network. This empowers the sharing economy, allowing fintech companies to snatch intermediary business from banks. But both fintech and “sharing economy” businesses manage information centrally—they act as middlemen—just like traditional financial institutions. The FinTech revolution is forcing the financial services industry and everything involved to evolve rapidly.

- Digital Lending

Banks have historically processed most consumer and small business loans because they have the resources to assess the creditworthiness of borrowers and obtain regulatory approval to fund the loans. However, this model has some key inefficiencies - interest rates are not individualized, underwriting loans is expensive, loan decisions can take months, and especially small businesses are excluded from the process. This leaves room for a market for online lending — known as peer-to-peer (P2P) lenders — to use the internet to offer better deals to borrowers and investors.  

Digital lending is characterized by a focus on providing cheaper loans through a completely digital approach. It also focuses on automating the entire processing of this low-cost asset. Alternative lending is a collective term used to describe the wide range of loan options available to consumers and business owners beyond traditional bank loans. Alternative lending models, such as peer-to-peer (P2P) lending and business-to-business (B2B) lending, provide cheap loans to audiences who are cash-strapped or traditionally viewed as invisible to credit. FinTechs may have discovered a new market segment and created a new ecosystem, but banks remain key to thriving and evolving throughout the lending cycle.

- FinTech Automation

As automation technologies such as machine learning and robotics play an increasingly important role in everyday life, it is no surprise that their potential impact on the workplace is a major focus of research and public attention. Automated processes can help augment the work of human financial advisors or replace them entirely. Companies are using automation to improve the efficiency and accuracy of business processes. Automation is the replacement of most repetitive tasks with machines. It will continue to evolve from simple rule-based systems to complex augmented and autonomous decision-making systems. 

Automation aims to replace more management functions with artificial intelligence (AI). AI is about replacing human decision-making with more sophisticated technology. These are not repetitive tasks, but judgment-based jobs that require a more sophisticated set of algorithms and machine learning that can use a variety of inputs to identify patterns, predict future outcomes, and make decisions. For enterprises, AI is expected to continue to serve functions such as business intelligence and predictive analytics. Merchant services like payments and fraud detection also rely on AI to find patterns in customer behavior to weed out bad transactions. AI could help banks with their anti-money laundering or employee misconduct detection efforts by replacing expensive functions currently done manually by humans.  

Financial companies are using artificial intelligence to manage customers' funds. AI evaluates communications with customers through emails, text messages, and other notes. It then applies machine learning to evaluate other ideas it can suggest to clients. Machine learning is a type of artificial intelligence that provides computers with the ability to learn (or grow and change) without being explicitly programmed when exposed to new data. Natural language technology is one way to test how artificial intelligence handles human requests. Now, the technology is moving towards more complex problems to replace human interaction. For wealth management clients, this means more immediate responses to everyday requests, such as rebalancing your portfolio or selling stocks, via a mobile app, website or voice. 

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- The RegTech Revolution

Regulatory Technology, also known as “RegTech,” is a subcategory of FinTech that uses technology, particularly information technology, in regulatory monitoring, reporting, and compliance to benefit the financial industry. Just as fintech is being used to digitize customer-facing financial services, regtech promises to digitize back-office regulatory compliance, simplify regulatory reporting, and enable employees to better assess risk and monitor regulatory compliance. RegTech is another example of an industry rapidly being transformed by software. 

After the 2008 financial crisis, financial regulators wanted to ensure that the industry would not face the same problems again. New regulations were created to improve risk control, maintain capital and create a more transparent financial sector. As financial regulation continues to change, banks and financial institutions are under constant pressure to keep up with the latest rules. Now, a new wave of technology is emerging to help these organizations ensure they understand the rules and can manage risk. 

RegTech companies were born out of a combination of regulatory change and more efficient technology. There are many companies that offer such services. Some offer solutions for financial institutions to help them comply, while others are designed to help policymakers monitor those they are regulating. RegTech companies work with financial institutions and regulators to share information using cloud computing, big data and data visualization technologies, and blockchain. RegTech is an exciting development that embraces the following characteristics: agility, speed, integration and analytics. Ultimately, RegTech will leverage these characteristics and information to enable more efficient and effective regulation and compliance. 

When applied to current compliance and risk management practices, the adoption of RegTech will provide operational efficiency and cost-effectiveness. It is expected that regulation will only continue to increase as the demand for regulatory data, reporting and operational processes increases. Fund managers and banks are seeking support and partnering with regtech startups to address growing regulatory and compliance needs and help promote adoption of regtech solutions for payments and governance. 

The application of RegTech is still in its infancy. Some ideas require the support of regulators and the maturity of the technology, while others are as simple as giving compliance officers better information — and are available today.

- Embracing the FinTech Revolution

If you are in banking, you should pay close attention to the fintech industry. In addition to providing innovative new technologies and ideas for the banking industry, these exciting fintech startups also offer innovative solutions to small business owners. If you're looking for low-cost solutions for your business accounting and finance needs, from invoicing to payroll to investing, the fintech industry is an exciting field. 

There are four broad categories of fintech users: (1) banks B2B and (2) their business customers; (3) B2C for small businesses and (4) consumers. The trend in mobile banking, increased information, data and more accurate analytics, and the decentralization of access will create opportunities for all four groups to interact in unprecedented ways. Connectivity, simplicity and personalization are three fundamental trends in fintech. Connectivity is the ability of anyone or anything to interact, trade, or exchange information anytime, anywhere. Technologies such as APIs and IoT are driving factors. To simplify is to reduce complexity. There are many processes and technologies that can be simplified, and blockchain is just one of them. Personalization is making services easier or closer to users through technologies such as big data and machine learning. 

It is clear that a digital revolution in financial services is underway. Digital disruption has the potential to shrink the role and relevance of today’s banks, while helping them create better, faster and cheaper services, making them a more important part of institutional and individual daily lives. To have a positive impact, banks need to shake off institutional complacency and recognize that simply riding the wave of regulation and waiting for rates to rise will not protect them from obsolescence. Embracing openness and collaboration and making smart investments is a great place to start. The fintech industry has orchestrated a radical shift in customer preferences and expectations of the modern “banking” experience in just a few years. The next decade will demonstrate the impact of this disruption, as customers choose financial services based on product experience rather than product breadth.

[More to come ...]