FinTech Part 1: A New Payments and Banking Landscape

The FinTech industry is booming. According to PwC, over a third (37%) of all global financial institutions already have a FinTech service available to their customers. And FinTech is growing, with over $70 billion being invested across the sector in 2019 alone.

According to the UK FinTech State of the Nation report: “Technology is evolving at an unprecedented pace, and in an age of digital disruption, innovation can change an industry overnight. As a result, the majority of financial services CEOs in the UK (62%) believe that a focus on emerging technologies is the number one driver that will separate high-performing firms from the rest. It is, therefore, no surprise that UK financial services CEOs are keen to remain at the forefront of the technology adoption curve, more so than their global peers.”

In-app purchases, M-commerce, cryptocurrencies and challenger bank services are all converging to create a new financial landscape. This landscape is defined by incumbent banks and other financial service providers. However, more importantly, by dozens of new FinTech start-ups that aim to transform the financial landscape for all, not just for Millennials who have been the focus of these technologies and services.

FinTech is transforming the digitisation of money and banking services. The use of APIs, the blockchain and AI are all impacting on how payments and banking services are delivered to customers.

Businesses that are outside of the financial services sector won’t be able to ignore the rise of FinTech. Many of the products and services they have today and, will develop shortly, could have a component that could interface with one or more FinTech services.

Says Gaurang Torvekar, Co-Founder and CEO of Indorse: “When people hear about the words ‘Fintech’ and ‘trends’ together, the top three contenders, more often than not, are AI, Blockchain and digital banking. Although this is undoubtedly true, we cannot overlook a new trend shaping up the industry. I am referring to the acquisition of Plaid by Visa for $5.3 billion, which was one of the first significant news to hit the industry as we begin the new year.

“No one can deny that up and coming technologies like AI and Blockchain are definitely reshaping the industry and how consumers interact with the applications within payments, banking as a whole. In spite of that, one cannot overlook the API technology companies which work behind the scenes and not as appealing to consumer applications and bottom lines. Although the acquisition of Plaid took place in the USA, the Fintech start-ups on the other side of the pond are already getting ready for the trend to follow.”

For CTOs and CIOs tasked with understanding and then implementing FinTech services, the environment they are developing within is in a constant state of flux. As FinTech challenges every aspect of finance, technologies such as blockchain and AI will increasingly merge into new FinTech products and services.

The providers of these new services will have to embrace initiatives like Open Banking and support the demands of consumers who see companies like Google and Apple as the new banks able to offer them the financial and payment services they want, fully integrated into their digital lives.

Yehuda Amar, Chief Technology Officer at Bruc Bond commented to Silicon UK: “The top priority right now is preparation for the regulation of technology. Underlying technologies and their implementations are going to be regulated, just like other services and products, and it’s going to happen soon. Trust me; it’s keeping many of us up at night. After that comes keeping up to date with technological disruptions and data issues. High data quality and data analysis quality are crucial for good service, scalability, automation and everything else.”

Technology and trends

The propensity for increasing numbers of consumers to use their mobile devices to make purchases and manage the financial aspects of their lives means the banking and payments landscape is rapidly changing. Small FinTech start-ups are now just as influential as incumbent commercial service providers.

More agile banking services will become the norm. And in the broader social context, FinTech is delivering to the unbanked a level of financial freedom not seen in the past. According to the Payments Council, a body that represents the UK payments industry, cash transaction volumes are expected to fall by a further 30% over the decade to 2024.

For businesses, developing for the FinTech and allied sectors means being able to innovate fast. “The FinTech approach to digital innovation has many advantages over the traditional in-house approach that most established organisations are used to,” explains Marcus Treacher, SVP Customer Success at the global payment provider, Ripple.

“But the main advantage is speed: Fintech solutions are often developed on the cloud, using complete sets of state-of-the-art technologies that are unhindered by legacy. This makes them incredibly fast-moving compared to the traditional incumbents. Combine this with the ‘can-do, fail-fast’ mind-set of the FinTech sector, and you get a very formidable set of competitors to the old guard in all industries.”

The FinTech sector is also being embraced as something completely different from traditional banking services. The mistrust that continues with the big banks is pushing consumers to look for alternative services.

Dr Paul Marsden, a consumer psychologist at digital agency SYZYGY, suggests that FinTech and challenger banks are disrupting the wider banking sector not because of technology, but because they are finding innovative ways to win customer trust.

“In our SYZYGY research on the Rise of TrustTech – technology designed to facilitate and foster trust – we found that the real Achilles heel of traditional banks is customer trust. Only a third of customers trust their bank to act in the best interests of their customers, and only 7% say the situation has improved in the last three years. Unhindered by legacy systems and mistrust, the new crop of FinTech and challenger banks is emerging with fresh-faced, customer-first value propositions designed to win the trust of customers.

“For example, FinTech and challenger banks are explicitly dissociating and distancing themselves from toxic banks, and instead positioning themselves as providers of financial wellness services that deliver genuine and trustworthy financial care. A good example is the new credit card from Apple that displays financial fitness rings on its app to encourage customers to pay less interest. In this vision, the future of banking is not banks, it’s financial wellbeing.”

Also, the technologies that FinTech is utilising are rapidly developing, as Danny Healy, Financial Technology Evangelist, MuleSoft explains to Silicon UK: “Multi-cloud is on the rise among FinTechs and established banks alike. Yet CIOs and CTOs are finding that multiple clouds are challenging to manage and moving workloads between them can be challenging.
“To get around this, some FinTechs are using APIs in tandem with containers to navigate this complexity. APIs will unlock the data and unique functionalities of applications residing in multiple cloud environments. At the same time, containers will neatly package up code and all its dependencies, so the application runs quickly and reliably from one computing environment to another.”

Healy concluded: “For example, HSBC has built a multi-cloud application network to meet growing customer demand. Turning to the cloud to accelerate IT delivery, HSBC has built and published thousands of APIs that were deployed across multiple environments using containers to unlock legacy systems and power cloud-native application development.”

FinTech Futures

The future of financial services is inexorably tied to the development of the FinTech sector. “Traditional banking business models risk becoming obsolete as a result of major disruption in the industry by FinTechs and challengers. Our research shows one in 10 bank branches across Europe are set to disappear by 2024, as banks transform from in-store to digital.”

Alex Kwiatkowski, Principal Industry Consultant, Global Banking Practice at SAS concluded: “The traditional retail banking model is disappearing. If established players don’t begin approaching data differently, it is likely we’ll see some banks who are current leaders fade away.

“Modern financial institutions cannot operate without the requisite levels of analytical capability. Only then can they make the best decisions quickly, whether it’s meeting compliance demands, satisfying increasingly demanding customers or deploying resources efficiently to deliver shareholder value.”

The FinTech sector has such a far reach it will touch every enterprise and organisation. As consumers continue to move their lives to mobile devices, innovative FinTech solutions will attract these consumers who are looking for efficient and secure financial and payment services. Those companies that can embrace FinTech and all it has to offer will reap the rewards.

Silicon in Focus

Jill Docherty, Head of Business Development, Visa UK & Ireland.

What are the key trends within FinTech CIOs and CTOs should be paying attention to?

One trend that is likely to be top of mind for CIOs and CTOs is the move away from disconnected retail banking products in favour of services tailored to consumers’ purchasing and financial habits. CTOs will be looking at how data can be used effectively to provide the hyper-personalised experiences users demand.

CTOs should also be looking at how to bring Open Banking capabilities to life for consumers ensuring that their own platforms integrate seamlessly with other services giving their users more control and choice over how they manage their financial lives.

Finally, one thing CTOs cannot ignore is the incoming wave of regulation. Strong Customer Authentication – due to come into play this year- will be front and centre for many FinTechs so a critical priority for CTOs will be to deliver Strong Customer Authentication in a way that allows consumers to continue to shop and make payments with ease.

What are the core technologies FinTech services are being built with?

Banks are increasingly taking advantage of new technologies like artificial intelligence (AI) and Blockchain to ensure users can still manage their finances with ease.

FinTechs are leveraging AI to make banking simple and more secure. Already a crucial part of many FinTech’s customer service offering, AI has the potential to revamp how banks onboard new users, manage system issues and even prevent fraud. Our own AI solutions have already assisted providers in preventing an estimated US$25bn in annual fraud.

FinTechs are also utilising blockchain technology to make back end processes more efficient while improving the overall user experience. Our Visa B2B Connect Platform [https://globalresponse.visa.com/B2BConnect] simplifies cross border payments, is one of the ways we’re working with FinTechs to explore how blockchain can improve the payments experience for businesses.

What are the pressure points CTOs feel as they develop products and services for the FinTech sector?

CTOs will likely be under pressure to develop products that support their business in scaling up. Given the competitive banking environment in the UK, there will be an increased focus on products that will aid customer acquisition at low costs. Products will be evaluated on their potential for revenue growth, and CTOs will be under pressure to find avenues to make efficiencies using new technology.

How FinTechs navigate the regulatory environment will also be a pressure point for CTOs who will be looking to get the balance of ensuring compliance while continuing to build products with excellent user experience.

How are FinTech companies and the challenger banks disrupting not just payments, but banking as a whole?

Technology as a whole has reshaped how we bank with FinTech’s leading the charge. One of the biggest changes is how we access financial services with many of us choosing to do so through our phones, computers or other devices. It is not uncommon for the modern consumer to make a payment, order a new card or even sign up for a new service like a loan or insurance product through an app on their phone.

Another impact that FinTechs and challengers have had in this space is the focus on customer experience. One of the early differentiators between challenger banks and incumbents was how quick and easy it was for consumers to open an account or transfer money.

Users were able to complete transactions within a few taps on a mobile phone. We’ve now seen many incumbents catch up as most banks have revamped their digital offerings aiming to match and even better the experiences consumers were getting from FinTechs.

What are the top priorities for CTOs as FinTech develops and expands?

Many FinTechs will now likely be looking to evolve from start-ups focused on customer acquisition and building a strong brand into businesses with sustainable income and revenue growth.

The payments landscape is increasingly competitive, and ultimately customers will decide which players will be able to take the leap from challenger to market leaders. Hence, CTOs will need to keep their consumer front of mind, developing products that offer the slick, personalised experiences the modern user has come to expect.

In part 2 of this series, Silicon UK takes a look at how the FinTech ecosystem is being built.

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