Fintech Nexus highlights a move towards greater financial access and flexibility

Introduction

Fintech Nexus, formerly known as Lendit, gathered over 4,200 attendees in New York City for its 10th annual financial technology conference. Financial access and flexibility were core initiatives driving almost every fintech provider present. The event demonstrated how digital banks are disrupting traditional banking models to make banking more accessible, as well as how fintech providers, both large and small, are finding ways to better serve the underserved and bring more people into the financial system. Furthermore, companies are using artificial intelligence and machine learning, or AI/ML, to establish new ways of evaluating financial health; transactions accelerate towards real-time; and fintech firms are racing to meet financial challenges and bring offerings to market. In this report, we delve deeper into several themes that emerged during the conference.

At Fintech Nexus, it was to spur financial inclusion via improved financial access, flexibility and affordability for large and small banks and fintech providers. In addition, the event demonstrated innovative ways organizations are leveraging data and technology to better predict lending risk, combat fraud and improve the customer experience. Decentralized finance also emerged as a top theme. While there is still some uncertainty about what Web3 will look like, it is clear that organizations are preparing for a more blockchain-centric future.

Financial access and flexibility

Perhaps the most prominent theme at Fintech Nexus was better serving those underserved by the current financial system by making financial products and services more affordable and accessible. Access to more data makes this possible. Companies, for example, are using AI/ML to improve lending models and more accurately predict consumer risk, seeking to maximize loan approvals while minimizing lender risk. Conference leaders SolasAI and Zest AI Inc. shared how they are using AI/ML and connecting multiple data sources to make lending fairer. Correspondingly in collaboration with American Express Co., Nova Credit Inc. launched Credit Passport, a platform that helps standardize international credit data for US underwriters so immigrants can access credit more easily.

In addition to the emphasis on lending, the conference also featured a strong focus on helping individuals and businesses better manage, save and use their finances. Plaid Inc. has played a major role in powering many fintech platforms and connecting consumers with financial products and services. Plaid users SaverLife, a nonprofit that helps low-income households save money and build financial security, and Padsplit, a company that helps low-income households and individuals secure housing, both sat on a panel at the event.

Digital banking

Offering financial flexibility, accessibility and mobility through digital banking was a core theme throughout the Fintech Nexus. New banks and traditional banks develop low-cost financial products and services while helping consumers build credit and better manage their finances. Eliminating overdraft fees and offering fee-free checking and savings accounts are a few ways banks are making financial products more accessible. Banks of all sizes are realizing the opportunity to better serve the underserved and bring more people into the financial system. Below, we highlighted several digital banking fintech firms that spoke at the conference:

* Chime Financial Inc. — Although Chime offers checking and savings accounts, it does not consider itself a bank; It does not have a bank charter, but said it may pursue one in the future. Instead, it considers itself a consumer technology provider that offers financial products via partnerships to make basic banking easy and free for consumers. The partners include regional banks. Instead of making money on net interest margin like a traditional bank, Chime structured its business model around earning interchange fees when cardholders use their cards. It focuses on deposits primarily for non-discretionary expenses and offers short-term liquidity. By offering no-fee accounts and zero overdraft fees (for overdrafts up to $200), the company has been able to serve subprime customers and new/early account holders. It also offers Credit Builder, a Chime-branded Visa card, to help account holders build their credit with everyday purchases.

* Nubank — Nu Holdings, better known as Nubank, is a Brazil-based start-up bank that aims to make financial products and services simple, affordable and secure in what has historically been a slow-moving, consolidated market. It has raised an astonishing $3.9 billion to date and ranks as one of Brazil’s largest fintech banks, with approximately 60 million customers in Brazil, Mexico and Colombia. The supplier offers credit cards, digital accounts and immediate payments via Pix, the the Brazilian central bankits digital payment method.

* Marcus of Goldman Sachs – Goldman Sachs Group Inc. launched its online bank, Marcus by Goldman Sachs, in 2016, offering loans, high-yield savings accounts, and financial tools and tracking tools through Marcus Insights to help consumers better manage their finances. Going forward, Goldman Sachs reports that checkout will soon be available and is also looking to better serve the merchant ecosystem. The firm plans to continue building its “buy now, pay later” offering, via its acquisition of GreenSky Inc. in 2021, targeting higher-ticket verticals like home improvement.

Prevention of fraud

Balancing fraud prevention and the customer experience is an ongoing battle, with fraud prevention all too often coming at the expense of the customer experience. Consider that over three in five (61%) merchants sometimes or often prioritize fraud prevention over user experience, according to 451 Research’s 2022 Merchant Study. Fintech Nexus demonstrated how technology is making fraud prevention and the customer experience less of a zero-sum game, and how fintech firms are finding more innovative ways to prevent fraud while minimizing customer friction.

Similarly, our research indicates that organizations are using AI/ML to improve the customer experience beyond fraud prevention. More than one in three (34%) financial services organizations indicated that evaluating new AI/ML capabilities was one of their top technology-led priorities for improving customer experience, according to our Voice of the Enterprise: Customer Experience & Commerce, Budgets & Organizational Dynamics 2022 survey . We also found that over one in three (34.5%) plan to use AI/ML for fraud prevention in the next 24 months, according to our 2022 Merchant Study. Fraud prevention extends beyond multi-factor authentication to more behind-the-scenes digital identity-based verification.

Prove Identity Inc., Arkose Labs Inc. and Datavisor Inc. discussed ways to reduce fraud risk by deploying AI and looking at behavioral patterns such as purchase history (e.g. dollar amount and time of purchase) and digital footprint (e.g. devices previously used to log in) to prevent account takeover and fraudulent transactions without to add friction to the customer experience. These companies noted that while behavioral information analysis is an important component of fraud prevention, a combination of technologies and processes are needed to combat fraud, especially in an emerging Web3 environment where personal information and behavior may be more difficult to acquire and predict due to decentralization and improved data protection.

Decentralized economy and Web3

There is still some uncertainty about what Web3 will look like or how it will happen, but many organizations are already preparing for it. Over half (51%) of merchants strongly agreed that Web3 will play a strategic role in meeting their organization’s e-commerce needs, according to our 2022 Merchant Study. However, only one in three sellers (33%) have a formal Web3 strategy. Although Web3 is still in its infancy, organizations are beginning to plan for a broader decentralized future where information lives on blockchains. There is still a lot of interest in cryptocurrency, but the event highlighted a number of use cases for blockchain beyond cryptocurrency.

For example, blockchain tokenization can be used to transfer not only currency as well, but ownership titles in a fraction of the time it would traditionally take to transfer a title. Smart contracts, or self-executing digital contracts on a blockchain, can eliminate third parties and execute almost any contract instantly. Decentralized autonomous organizations built with smart contracts on a blockchain can sustain operations without top-down management. Each of these use cases points to greater agility and efficiency. However, integrating and using cryptocurrency and other blockchain applications with today’s technology remains a challenge.

Fintech firms are finding ways to help bridge the gap between traditional finance and decentralized finance via application programming interfaces and blockchain technology. Interoperability platforms such as Polkadot enable interactions between blockchains. Stablecoins such as Acala’s aUSD and Dai combine the freedom and decentralization of cryptocurrency with the stability of the US dollar. Simplifying the cryptocurrency user experience and making decentralized finance more mainstream are top initiatives for many fintech firms looking to accelerate Web3. Although Web3 as it has been presented may not come to full fruition, blockchain will undoubtedly become more common for a number of use cases in the financial services segment.