Do we still need banks? Fintech innovation might make you think the answer is no—but you may be surprised to learn the truth. As of 2021, 2.5 billion users worldwide access their banking services digitally. The need for a physical bank and its old infrastructure has undeniably changed, but that’s not a bad thing for banks.
Traditional institutions have begun to adopt new trends like automation, predictive analytics, and digital-only banking to better communicate and engage with customers.
Organizations that refuse to accept the evolution of the industry might fall behind in a fast-paced consumer market that demands online access from any device.
Read on to learn how financial technologies have irrevocably altered the banking industry and how you can use fintech innovation to improve your customer experience.
Artificial Intelligence
Artificial intelligence (AI) is an intrinsic aspect of the design of most financial technology applications. A recent McKinsey survey states that 60% of financial sector companies have embedded at least one AI capability into their infrastructure.
Here are four everyday use cases where companies use machine language to address complex business problems:
1. Fraud Detection
Global fraud attempts increased by 149% in the last four months of 2020, with increased online activity due to remote work and ecommerce attracting the attention of hackers and cybercriminals.
But with AI and its ability to track large amounts of data, banks can identify and defend against security breaches and other types of identity fraud. Plus, advanced risk analytics help protect personal identifying information, keep banks compliant, and flag any suspicious activity.
As the need for better security increases, fintech innovation is critical to protect your company’s infrastructure and any customer data.
2. Payments
Artificial intelligence can help increase payment processing efficiency and transfer speeds through automation. Over time, machine learning can complete tasks faster and with fewer errors than humans, improving business operations.
For instance, traditional invoice processing requires an extensive amount of labor and paper handling, leaving your documents vulnerable to mistakes, loss, or damage.
Since AI can automate invoicing workflows, you can solve invoice issues through enhanced decision-making, image recognition solutions, and accurate document management.
3. Investing
Investors now rely on AI-powered robo-advisors to analyze millions of data points, helping simplify complex investments decisions. Machine learning forecasts prices, predicts trends and executes trades at optimal price points—tasks that used to require immense amounts of time, research, and knowledge to complete.
As the technology improves over time, machine learning can make trades that offer better results with improved efficiency. It also removes any reliance on human support teams, making it cost-effective to short-term investment holdings.
4. Automated Customer Support
Chatbots are well and truly in the mainstream now, as you can find them offering support on many websites. And now, they are a prominent feature in banks and financial institutions. Customer service channels are turning to AI-enabled customer support because of the many benefits chatbots offer, such as:
- Lowered costs
- Improved issue resolution efficiency
- Personalized customer experiences
- 24/7 online assistance
- Reduced human error
Most banking clients prefer an AI chatbot to help resolve issues. In one report, 68% of customers stated they liked how a chatbot could resolve their problems quickly.
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Chatbots can now also handle an average of 68.9% of customer interactions without the aid of humans. The efficiency of customer service and client satisfaction that AI creates presents clear advantages in the fintech age, where people expect speed, security, and convenience.
The Internet of Things (IoT)
As the services included within smartphones and other application devices improve, users have more financial management options outside of the standard operations of traditional banking.
Let’s explore three areas where fintech innovation in IoT is changing the financial services landscape.
Bluetooth Beacons
Bluetooth beacons are small wireless devices that can transmit information to your smartphone. Patrons who connect to a beacon via a QR code can access helpful information such as business opening hours, shop discounts, or upcoming events. In return, merchants can collect offline data for online retargeting, audience profiling, and payment processing.
BLE Bluetooth beacons helped proximity-aware event apps deliver 235% higher engagement at public events when compared to regular mobile apps. Kontakt.io and their popular Bluetooth beacons can process payments faster, eliminating queues and wait times as well.
The BLE Bluetooth beacon industry will reach a market size of $15.49 billion by 2025, at a cumulative annual growth rate (CAGR) of 26.8%. With such an aggressive growth rate, it’s clear that many businesses see the vast potential of this IoT technology.
Security
As customers demand better access to online services, financial institutions need innovative solutions for security and data protection. IoT and its ability to analyze data from multiple devices have helped banks devise applications that can protect endpoint information.
Armis, a device security platform, integrates with banks, financial institutions, and businesses to spot and limit compromised devices on a network. The IoT technology compares data behavior to identify threats, helping you take preemptive measures to avoid security incidents.
As cybersecurity and data compliance laws become more restrictive, we can expect an increase in the volume of IoT security applications within the financial sector.
Innovative Partnerships
Businesses are leveraging IoT to strike mutually beneficial partnerships. For example, Samsung and MasterCard partnered to enable the Samsung smart refrigerator, a digital appliance that can automatically reorder groceries.
MasterCard continues to invest in similar IoT-based payment partnerships, such as their IoT-powered key fobs with General Motors and their association with Coin to build contactless payment infrastructure.
Rather than making banks irrelevant, the rise of fintech will continue to create new opportunities for partnerships between banks and technology companies.
Quantum Computing
Quantum computing is a computer technology based on quantum theory principles, which solves complex computations that regular computers can’t address.
Financial institutions with extensive unstructured data can benefit from quantum computing as this advanced technology can spot trends, aid in data encryption, and help your business make informed decisions.
Here are two crucial quantum computing applications currently in use in multiple fintech applications.
Risk Assessments
Quantum computing has had a direct influence on the introduction of data-driven credit card profiling. The computational power of a quantum-based computer can run thousands of risk assessment situations, helping forecast and predict the behavior of a card user.
For example, a mortgage bank can make a lending offer based on the vast amounts of data compiled from a customer’s online spending activities.
With such accurate and advanced algorithmic computation power, you can assess risk with insights far beyond the standard accounts supplied by traditional loan institutions.
HF and FX Trading
High-Frequency Trading (HFT) is a trading method that executes large order volumes for a competitive edge. Forex trading involves the exchange of global currencies as global prices fluctuate. Both types of investments use advanced algorithms where computers take buy/sell positions in a trade based on market intelligence.
Quantum computing offers traders an advantage over those relying on traditional computational power. With quantum-based algorithms, traders can use predictive analysis to enter trades, make buy/sell decisions, and exit trades with improved results.
Consumer-Focused Tech
Consumers want to bank via digital channels, and banks can improve customer engagement by implementing fintech application solutions.
Here are a few innovations that the majority of financial institutions have adopted.
Virtual/Voice Assistants
Chatbots already dominate the online customer service markets, but voice assistants such as Amazon Alexa Voice and Google Home can now help customers manage their finances.
As conversational AI continues to improve, you can expect AI to perform more service functions, such as:
- Providing financial updates like account data and account balance information
- Setting up recurring payments
- Handling conversational customer support
- Authenticating customers by voice to authorize or validate transactions
- Rerouting money between accounts
As a customer service solution, future advancements in conversational applications are sure to grow—you may want to think of implementing a virtual assistant with your own business.
Open Banking
Open banking refers to the network of shared data and consumer insights between banks, fintechs, and third-party stakeholders. Open access allows different institutions to improve the services offered to their customers.
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For example, a digital-only bank has far more agility than a traditional institution but less financial might and infrastructure. Open banking allows both businesses to integrate, allowing for collaboration. Access reduces the cost and complexity associated with bank services such as payroll management, payment collections, invoicing, and bank transactions.
While open banking has lots of room for growth, creating applications through APIs that can connect banks and fintech companies has helped drive innovation in the financial sector.
Biometrics
You’ll find an increased usage of biometric fintech innovations in payments and mobile banking solutions. The technology enables reliable and fast transaction authentication.
Traditionally, biometric authentication relied on fingerprints, but voice-enabled biometric authentication is now prevalent. Other growing biometric authentication systems include eye scans, facial recognition, and palm or finger vein pattern recognition.
In financial management infrastructure, banks use advanced biometric authentication technologies to protect physical vaults. In contrast, at a consumer level, mobile banking solutions use facial recognition or fingerprints to protect sensitive data and make service access easier.
What FinTech Innovation Means for Traditional Banks and Investors
Fintech applications have disrupted how financial institutions function forever. Digital-based companies can offer services with enhanced engagement and convenience for customers, giving market advantages in an industry that continues to shift into digital spaces.
But this evolution of the financial sector doesn’t spell the end for traditional institutions. Banks have established customer loyalty and possess a wealth of customer data that fintech solutions can utilize. Also, a bank can draw upon greater access to intellectual resources, networks of partners and branches, government support, and financial wherewithal.
Partnerships between fintech innovation providers and banks would yield much better results than competition. Banks would gain immediate access to solutions that boost their agility and competitiveness, while fintech startups could leverage a bank’s immense resources, including its customer base, network, and historical data.
Such collaborations are already happening. Zelle joined with Bank of America to make mobile money management easier for the bank’s customers. In the first quarter of 2020 alone, the fintech company helped the bank complete 102 million transactions worth $27 billion.
Blend is helping the Bank of Montreal (BMO) turn the application process easier for customers. As a result, BMO saw a 253% year-over-year boost in their digital equity applications and reduced their home equity and mortgage cycles by five days.
How Financial Companies are Finding Partners
Your organization can build partnerships with agile technology companies in the financial sector to tap into the benefits of fintech innovation and improve the user experience for your customers.
For many banks, the prospect of taking groundbreaking new ideas to reality remains impossible due to ineffective decision-making and a lack of streamlined investment approval processes.
In truth, banks don’t need huge ideas—they need marketable products. Instead of nurturing a culture of innovation in-house, traditional institutions can embrace fintech innovation by partnering with experts from outside the company.