Technologies shaping the future of FinTech

As FinTech gains widespread use worldwide, different technologies have been used to meet the needs of the industry. They include consumer demands, regulatory approvals, safety improvements and competition. The advanced technologies that drive the ecosystem have become smarter and more adaptable. The most important trends for the future of FinTech can be classified into the following categories: Artificial Intelligence (AI), Cloud Computing, Blockchain, Internet of Things (IoT) and Open Banking. Let’s dive into these FinTech technology trends in more detail.

Important FinTech trends

#1: Artificial intelligence for smarter solutions

90 percent of FinTech firms are already using AI in some form, according to the Cambridge Center for Alternative Finance. The most potent aspect of artificial intelligence is that it learns to work efficiently and better than any human can. By learning from data, AI models are able to perform tasks efficiently without additional human intervention. This results in work being done faster, more efficiently and more accurately, making FinTech solutions smarter.

Some of the use cases of AI in FinTech include the following:

• Using chatbots for virtual assistants to answer customer questions, make suggestions and complete repetitive tasks
• Deploying Natural Language Processing (NLP) to enable human-like communication with virtual assistants and increase customer engagement
• Using AI algorithms to detect suspicious activity to prevent fraud, such as flagging suspicious transactions or insurance claims
• Customer segmentation to offer tailored products based on risk score profiling and to facilitate faster loan approval

According to Mordor Intelligence, the value of the global AI market is expected to reach $26.67 billion by 2026 as more companies embrace it as an integral part of their business.

#2: Cloud Computing Improves Security

In addition to speed, scalability, flexibility and faster deployment, cloud computing significantly increases security through automated and built-in security controls. FinTech is always associated with the risk of managing sensitive data and complying with industry regulations. Cloud data warehouses have proven to be more reliable than traditional IT ecosystems. Thanks to features such as data encryption and zero-trust verification, the cloud more reliably protects against data leakage and fraud.

Now that cloud technology is more accessible than ever, it is changing the way we live our lives. It enables organizations to unlock digital transformation use cases by providing a path for secure data sharing and dynamic applications that can be used in any industry or industry, no matter what you do now!

Cloud technology also contributes to the scalability of FinTech solutions and will greatly influence the future. Any startup that wants to grow requires an infrastructure that can grow with them. Cloud infrastructure is easier and cheaper to upgrade. In addition, this agile environment allows businesses to more easily adapt to market changes, including consumer demand, regulatory compliance and the implementation of new technology.

#3: Blockchain disrupts outdated financial systems

The power of blockchain in disrupting legacy financial systems is immense. Through the use of Distributed Ledger Technology (DLT), it is possible to record, share, synchronize and distribute data across different data stores in real time. Moreover, it eliminates challenges associated with outdated financial systems, such as the reliance on a centralized system that means a single point of failure, lack of trust and higher operating costs. This results, among other benefits, in more revenue, improving the end-to-end experience and reducing business risk.

The introduction of blockchain has led to an increase in the investment appetite of traditional players such as institutional investors, increasing the capital allocation of digital assets in their portfolios. Today, the most progressive FinTech solutions have blockchain modules to attract an audience of crypto-enthusiasts and enter the fast-growing cryptocurrency markets. Traditional financial institutions are also not missing this trend and should keep an eye on this in the future of FinTech. Initiatives such as the central bank digital currency (CBDC) are being tested by central banks around the world. Another example is JP Morgan using blockchain to improve transactions by reducing payment processing and confirmation time for large payments.

#4: IoT collects customer data more efficiently

Among FinTech firms, Internet of Things (IoT) communication options have become widespread, enabling multiple devices to communicate across connected networks, from wireless devices and endpoint devices to centralized control management. Moreover, embedded systems and smart technologies are developing rapidly, enabling intelligent and seamless communication between different nodes.

In the financial sector, IoT is used to generate meaningful customer data, reduce the need for human effort to solve financial problems, for fraud detection and to provide robust data protection, among other things. Meanwhile, insurance companies are increasingly adopting IoT in risk assessment, while optimizing customer engagement and simplifying the complex underwriting and claims process. For example, car insurance companies have historically used indirect indicators such as the driver’s address, age and creditworthiness to determine premiums.

#5: Open APIs drive industry growth

As the world moves towards an open banking system, open banking APIs and services are becoming commonplace. These APIs are critical to establishing a seamless user experience while securing information via endpoints. Open banking allows banks to open user data for third-party providers via APIs at the request of the users themselves. Thus, you can easily connect your favorite personal financial management fintech application to your bank account for more accurate money tracking.

For banks, Open banking provides an opportunity to learn and collaborate with FinTech rather than compete. This creates a win-win solution as the banks are often slow to innovate. At the same time, FinTech firms are quick to innovate but lack financial muscle, so cooperation with traditional banks only plays into their hands. There is also the possibility of creating a revenue sharing ecosystem where established operators extend to the customer’s third-party developed services while receiving revenue from referrals, infrastructure or subscription services. Also, APIs can be shared across industries or with trusted external partners. This promotes ecosystem conditions, which opens the door for innovation.

The FinTech ecosystem

The future of the FinTech ecosystem rests on various building blocks, without which the solid progress driving the sector would not be possible. Incorporating Artificial Intelligence, IoT, Open APIs, Cloud Computing and Blockchain will further revolutionize the ecosystem. To compete effectively, improve customer experience, reduce risks and meet regulatory requirements, forward-thinking companies must embrace FinTech innovation software solutions that promise to shape the future of FinTech and achieve a range of benefits.