Financial technology, or fintech, is a rapidly growing industry as banking and other financial institutions work to meet customer needs and incorporate emerging innovations. Just a few of the solutions possible include lending applications, cryptocurrency exchanges, savings apps, investment platforms, and money exchange tools. The development of such solutions is giving rise to new trends all the time, and in the sections below, we explore fintech trends we are likely to see in the coming months.
Digital-Only Banks Offer an Online-Only Experience
Digital-only banks, otherwise known as neobanks, provide the same services as traditional banks but without a physical footprint. Instead, customers perform transactions and communicate with bank representatives exclusively online. These institutions pass the resulting cost savings along to customers, who benefit from higher interest on their accounts.
Neobanks have many advantages over the brick-and-mortar variety, including low startup costs, fast response time for customers, a high-quality user experience, high levels of security, and lower fees. Over the next couple of years, as more of these banks open and more people get to know their benefits, their penetration within the financial market will increase.
Embedded Finance Is a Win-Win for Companies and Customers
One of the biggest trends in fintech is embedded finance, which enables businesses to offer financial products along with consumer products without customers having to go to a separate provider. For instance, a retail store like Home Depot might offer customers the ability to purchase insurance on a new appliance along with the appliance itself. Another example is retailers offering payment plans on smaller-ticket items such as clothing or cosmetics.
This process is a win-win for companies and their customers. Companies get to offer an all-in-one package that speeds up purchasing and increases customer satisfaction and loyalty. Customers get convenience and the ability to make purchases faster. Because of these benefits, the outlook for the growth of embedded payments is good. The following video explains more about embedded finance.
Blockchain Technology Changes the Financial Landscape
Blockchain technology enables numerous actions related to financial activity, including verification, traceability, data protection, and contract execution. Data stored on a blockchain can’t be altered or deleted, providing transparency for all activities. Many of these abilities make it possible for individuals to complete transactions without the need for an intermediary such as a bank. Therefore, systems built using this technology form the basis of an environment that could replace traditional banking.
Also, blockchain technology provides the basis for cryptocurrency. More banks are offering crypto and more consumers are becoming comfortable with using banks to invest in it. Additionally, decentralized finance (DeFi) platforms present an alternative to the current financial system that relies on blockchain technology. According to BankDirector.com, “Users can trade, lend, borrow and exchange assets directly with each other over decentralized apps, instead of relying on an intermediary.”
Open Banking Offers New Options
Through the use of application programming interfaces (APIs), open banking enables banks to share data with other financial institutions for the benefit of customers. The process delivers a shortcut to help customers get faster service when they look for new financial products and to help them get recommendations for financial vehicles appropriate for their situations. Experts say open banking forces banks to be more competitive and, therefore, provide better services and products.
Part of the benefit of open banking is the aggregation of data from various accounts. Such activity helps lenders get a better overall picture of a potential borrower’s finances and helps consumers get a better understanding of their own financial landscape before, say, taking on additional debt.
Technology for Innovative Fintech Business Models
Businesses that want to take advantage of the trends in fintech mentioned above are using a variety of technologies, including those listed here.
- Augmented reality (AR)/virtual reality (VR). These alternative reality tools can help people monitor real-time market movements.
- Big data. The fintech industry generates a huge amount of data about each consumer or business that can be aggregated to provide a comprehensive view of that entity’s financial status.
- Internet of Things (IoT). Sensors allow companies to collect useful data, such as how many people use ATMs.
- Robotic process automation (RPA). As in other industries, RPA helps professionals in fintech accomplish tasks faster, more accurately, and more efficiently.
- Voice-enabled transactions. Using platforms like Alexa, people can issue voice commands to perform financial transactions, such as making payments. Voice recognition will become a security method as well, as computers become more adept at recognizing unique voice patterns.
Most Innovative Fintech Companies in 2022
Companies that enable these fintech industry trends are leading the way in innovation. Which are the “top” companies depends on who you ask, but the following are a few examples of these pioneering firms.
- Stripe. Helps businesses process online payments as well as other functions such as initiating loans and collecting sales tax.
- Klarna. Enables consumers to “buy now, pay later,” even on relatively small items such as sneakers and cosmetics.
- Blockchain.com. A British crypto exchange and popular crypto wallet that allows users to manage their private crypto keys for several currencies.
- Chime. The largest digital bank in the U.S., this company offers free checking accounts with no overdraft fees.
- Venmo. Enables individuals to easily transfer money without using cash.
- Earnest. Helps college students find affordable loans to pay for their education.
- Robinhood. An easy-to-use and commission-free application that enables individuals to purchase fractional shares.
- Digit. Based on spending analysis, this app helps users save by automatically transferring small amounts of money into a savings account.
- Mollie. Enables payment processing for merchants and provides user-friendly payment options.
- Credit Karma. Provides users free access to credit scores and makes recommendations for insurance, loans, and other financial services.
What Do Fintech Trends Mean for Your Business?
So, what do these new developments in fintech mean for your business? The answer is as unique as your company. To determine how some of these technologies might work for you, ask what your goals are for the next few years. Are you a retailer looking for greater customer loyalty? Perhaps an embedded finance option could keep customers coming back. Are you a small business that wants to cut costs? Consider using a neobank to take advantage of low banking fees. Bottom line, don’t just use new tech because it’s new. Use it because it will help transform your organization to match your vision.