Financial Technology Is Now More Innovative Than Ever Before
In recent years, probably financial services have undergone maximum transformations compared to all other industries. Earlier most financial service tasks were done via extensive paperwork and human interaction and then processed in bulk using computers. Getting a loan processed or availing insurance was a time-consuming task because of the number of checks and interfaces and also because the financial services industry is governed by heavy regulations.
However, with the increasing digitalization of work, there have been massive upheavals in the financial space. This industry has witnessed innovation and disruption like none other. Indeed it is not surprising that a maximum number of startups are focused on some form of financial technology or services. Now a majority of tasks are done through digital interfaces. Almost all kind of financial activity like banking, payments and wealth management are being transformed by start-ups. Not surprising then is the fact that financial services based startups have seen a good inflow of investments.
Startups are offering new ways of doing things and financial firms are coming up with new products of their own. The challenges faced by startups are different than those faced by established players. Banks and other financial institutions are investing more in innovation. Startups not only have an upper hand in innovation, they are trying to find ways to navigate the regulatory landscape and traditional business models. Automation is a key area of investment for financial services - it is estimated that more than 80% of financial services can be automated using Robotic Process Automation tools. This will not only cut costs but also result in faster processing speeds, greater accuracy, and reduction in human errors.
Another area of interest has been blockchain technology. Traditional methods of payment are based on a centralized authority acting as an intermediary however blockchain offers a decentralized system for validating and verifying transactions based on a peer to peer network. Almost all major banks in the US and Europe are seriously looking at means to leverage this technology and it is expected to be a major disruptor in the finance sector.
Financial institutions and startups around the world are exploring new technologies which store and record bitcoins transactions. This technology could help lower the cost of financial activities.
This could have a dramatic effect on big banks which have high operating costs. Overall, Bitcoins have seen a huge resurgence in recent times and there has also been an increase in their value. Many payment processing platforms, merchants and service providers today accept Bitcoins as a currency for payment transactions.
Challenges In Financial Technology
Fintech investments today are focused on how to get maximum benefit from being digital and how to avoid becoming outdated. Disruptive technologies in financial services have transformed the way in which money is managed and this affects every financial activity. Banks need to develop new platforms to help overcome infrastructure limitations. Startups, on the other hand, will have to find ways to scale out their business as per the regulations, cost, and infrastructure.
Cybersecurity is another item that is at the top of the agenda for financial service companies as they gear up to keep pace with the latest digital technologies such as blockchain, connected IoT devices, big data, advanced analytics and deep learning. Most banks today have legacy IT systems sitting on legacy infrastructure. As has been seen in recent times, the biggest risk with legacy systems is their security vulnerability. This makes cybersecurity a top priority for fintech companies.
If legacy firms have to keep pace with startups in innovation, then they will definitely have to look at fintech very seriously. Fintech companies and startups are expected to garner a lot of attention in coming years. There are many reasons why financial firms will set up their investments in fintech companies. The most common reason being fear of disruption. This threat is making companies invest in financial technology like never before.