Five emerging tech trends that will shape the future of fintech

Exciting opportunities are arising from the take up of emerging technology, Olivia Fletcher surveys five trends that will shape the future of the sector

Emerging tech trends will shape fintech's future. Olivia Fletcher surveys five trends that will redefine fintech in years to come.

AI reshapes customer service interactions

The UK government’s 2019 Fintech State of the Nation report identified a raft of areas in which artificial intelligence (AI) could have an impact on the financial services sector, ranging from delivering customer support through to underwriting loans and providing real-time fraud and risk management.

These developments are underpinned by “machine learning”, which allows computer programs to teach themselves by examining data.

AI is a topic already being explored by many financial service providers, with 56 per cent believing it will reshape the sector, according to a survey from a “Big Four” accountancy firm.

The poll found many companies plan to use AI to deliver automated advice to clients – having a “bot” deliver information online could cut costs which could be passed on to customers through lower fees.

Banks using AI could examine data about young people’s spending habits and enable them to qualify for personal loans or mortgages even if they have a short credit history, while start-up

businesses could benefit through lenders or investors using AI in a similar fashion.

Financial services is highly-regulated and the use of AI can cut the cost of compliance dramatically.

Regulation technology – otherwise known as “regtech” – software can not only be used to improve risk modelling for lending, but also to record all of the information needed to ensure compliance with regulations. And this can remove any unconscious basis from the system to help make finance more accessible.

Open banking portal to new era

The concept of open banking has given consumers access to their financial data like never before, with application programming interfaces (APIs) allowing information from their bank accounts to be shared between pieces of computer software.

This lends the banking industry the opportunity to analysis spending patterns and offer more tailored products and services.

But while open banking is powerful, it’s simply the beginning of the wider “open finance” movement. Giving consumers access to other pieces of their financial data – from investments to pensions –

is the next step in not only giving the public more control over their money, but also in creating opportunities for financial service companies and technology providers.

Scotland is at the forefront after a £22.5 million UK Research and Innovation grant to get the Global Open Finance Centre of Excellence in Edinburgh up and running.

The investment market is ripe for transformation. Independent financial advisors (IFAs) are already using “wrap platforms” to manage clients’ investments through a single piece of software. Open finance could allow consumers to compare pension funds or investment schemes more accurately, using their personal financial data. IFAs and other gatekeepers will need to offer ever-more tailored advice and insight to maintain their place in the market.

The 2020 World Fintech Report, compiled by the European Financial Management Association and consultancy firm Capgemini, said the expansion would create an “Open X” era, in which banks need to go beyond collaborating with tech companies and create their own platforms – otherwise they will end up as utility providers, transferring data from one point to another without any input.

Connecting to the internet of things

While it’s the “fin” side of fintech that consumers and businesses need to access, it’s often the “tech” side of the equation that catches their attention or provides innovations. Technologies being applied in the wider world could yield further opportunities for fintech providers.

The internet of things (IoT) – in which devices like washing machines, fridges and central heating thermostats are connected to the internet – creates opportunities for products and services to be delivered on a personalised basis.

While it’s useful for your fridge to reorder milk in the next online shopping delivery if you’re running low or for your central heating boiler to turn itself on if the weather forecast predicts a cold snap, it’s equally as useful for banks, insurers and investment managers to be able to analyse data from clients and customers.

One major survey found that 36 per cent of financial service firms already think the IoT will drive change in their sector, which highlights that the topic is already high up their agenda. Examples could include turning watches or other wearable devices into payment methods, identifying clients through mobile phones so they get a personal greeting when they enter a branch or office, and helping customers find cash machines in unfamiliar cities.

Flexible pricing is another one of the key scenarios, with financial service companies able to charge customers according to usage, or to vary prices to stimulate demand; there could be tax implications here, as finance providers stray into telecom taxation areas.

Insurtech flies beyond simple drone images

Switch on the television, fire up the PC, or access the mobile phone app and log on to Netflix and it’s hard to escape the impact that drones have had on the media. From sweeping vistas of dramatic landscapes to live footage of breaking news, unmanned aerial vehicles (UAVs) have revolutionised how we see the world.

They have also had practical implications across dozens of industries, including allowing maintenance companies to assess giant wind turbines, delivering medicines and other urgent supplies to islands during the pandemic, and helping farmers to know when to harvest potatoes to maximise their yield. Insurance is no different.

Drones can help insurers to more accurately assess risks by flying over sites and transmitting back images and other data about the facilities or equipment that need to be insured. If the worst happens and there’s a catastrophic event such as a hurricane, UAVs can be used to assess the damage and aid with loss adjustment.

Yet drones aren’t the only piece of technology with the potential to transform insurance technology or “insurtech”. Consumers are already enjoying discounts on the cost of their life insurance policies by sending their insurer data from Fitbits and other wearable devices to prove they are exercising to look after their health.

Drivers are also already having their performance monitored by sensors

inside their cars, with

careful motorists being rewarded with discounts

on their insurance.

On-demand and

usage-based insurance

are the next steps for the

wider insurtech industry, allowing consumers to

only pay for the services

they use or need.

When disruptors get disrupted

Once upon a time, shiny new fintech start-ups disrupted the traditional banking, insurance and investment markets by introducing products and services that pulled customers away to the new services. And they all lived happily ever after.

But what happens after “happily ever after”? Traditional providers didn’t become incumbents without resilience and we’re already starting to see the disruptors being disrupted by longer-established rivals.

In the banking sector, if a start-up’s unique selling point was a swanky app to help you manage your money, and then one of the high street banks introduces their own version, the newcomer could soon find themselves on a shoogly peg.

The fields of technology, media and telecoms

(TMT) and financial services were once well defined, but no more, with TMT companies applying for financial service

licences and financial service providers describing themselves as tech companies.

Now, those lines are blurring even further, with the UK government’s 2019 Fintech State of the Nation report revealing that

56 per cent of traditional financial institutions have put disruption at the heart of their strategy.

In the past, the answer has been collaboration, with disruptors working with incumbents to develop products and services. As the fintech sector matures, those collaborators could develop into partners, with roles becoming more defined and expertise more highly valued.