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Changes in Fintech: The 4 Greatest Challenges

by Pedro Ferreira
  • Are there changes in fintech happening and to what extent do these affect services?
blockchain
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As the fintech industry paves the way towards financial inclusion, its digital breakthroughs have made it clear that money management, whether on an individual or institutional level, is changing.

As financial technology evolves, business processes begin to be automated and services expand at an incredible rate.

Changes in Fintech Industry

However, expansion and consolidation aren’t always straightforward, and there are still some challenges that remain to be tackled by the industry.

We narrowed them down to 4, so read on to find out what is hampering fintechs growth, what are the main issues businesses are struggling with, and where can it all go from here.

Fintech and Data Security

Handling sensitive data in a secure fashion can present itself as a real challenge to fintechs.

System and internet vulnerabilities are very real issues which can directly affect both the clients’ money as well as personal data.

fintech as a service, FAAS

The shift from the good old bank vault to mobile banking has made it clear that security needs to be taken to a whole new level.

Data breaches, system vulnerabilities, and cyberattacks have become a newfound reality which fintechs need to address seriously.

Accordingly, modern problems require modern solutions, and the future of financial tech companies seems to be connected to security features such as:

  • Data obfuscation
  • Data encryption
  • Biometric identification
  • Behavior Analysis
  • Two-factor authorization and Real-time notifications

Fintech and Compliance

Regulation puts fintechs in check and the finance industry is regulated like no other.

Accordingly, in what concerns regulation, fintechs can expect two types of interference in their activities:

  • Governmental: it goes without saying that governmental regulatory frameworks will always exist, but with new technologies like the blockchain, fintechs should anticipate interference. In fact, they some might argue that they should be the ones setting the agenda in that regard, instead of waiting for a poorly formulated framework to be legislated.
  • Online: fintechs are also reliant on big search engines such as Google and being delisted from search results, for example, would be catastrophic. As such, adhering to online best practices also becomes quintessential not only for compliance factors alone, but to create a safer environment for all participants.

These two factors alone require fintechs to be at the top of their game with their compliance officers and legal departments as being up to date in what concerns their operating countries’ regulations is critical.

Fintech and the Blockchain

Blockchain has become a buzzword and despite its growing popularity and obvious upside, some still do not see it as a viable solution to their business.

Moreover, and circling back to regulations, given its near nascent status, implementing a blockchain needs to be done meticulously.

And, while we do see blockchain being prevalent in the future of finance, between banks and fintechs, blockchain implementation might still be going at two completely different paces.

The shift from legacy systems to the blockchain might still be dependent on tackling at least 4 things:

  • Consumer confidence
  • Interoperability
  • Transactional costs
  • Performance issues

Fintechs, Big Data, and Service Personalization

AI is most likely to reformulate the way the financial world operates on the back of how banks are gathering data.

Whether it's their clients’ financial behavior or their habits, data has become essential as it goes much further than profiling users by helping to manage transactions and even fight against fraud.

However, this shift requires a thorough integration and change in processes which isn’t always easy due to a multitude of technical factors but also due to personal ones (ex: customer consent).

Machine learning and AI requires the ability to capture incredible amounts of data but also the capacity to process it, meaning capital requirements may be significant. Luckily, smaller-scale solutions can be found in the form of learning models with tighter parameters.

Nonetheless, service personalization will become increasingly dependent on how detailed fintechs' and banks' customers' insights are.

Knowing a user’s behavior, socioeconomic status, social connections, and many other elements is key to delivering tailored solutions at the right time and via the right channel.

These insights, when provided with the right user experience (UX/UI), will certainly correlate with greater user retention.

Final words

Fintechs VS traditional banking has always been an interesting subject.

And, while the first tends to trailblaze and present disruptive technologies, the latter absorbs relevant features after careful consideration.

Perhaps one could learn from the other since revolutionary tech is much needed in traditional banking, and regulatory prudence and processual farsightedness are required in the fintech world.

As the fintech industry paves the way towards financial inclusion, its digital breakthroughs have made it clear that money management, whether on an individual or institutional level, is changing.

As financial technology evolves, business processes begin to be automated and services expand at an incredible rate.

Changes in Fintech Industry

However, expansion and consolidation aren’t always straightforward, and there are still some challenges that remain to be tackled by the industry.

We narrowed them down to 4, so read on to find out what is hampering fintechs growth, what are the main issues businesses are struggling with, and where can it all go from here.

Fintech and Data Security

Handling sensitive data in a secure fashion can present itself as a real challenge to fintechs.

System and internet vulnerabilities are very real issues which can directly affect both the clients’ money as well as personal data.

fintech as a service, FAAS

The shift from the good old bank vault to mobile banking has made it clear that security needs to be taken to a whole new level.

Data breaches, system vulnerabilities, and cyberattacks have become a newfound reality which fintechs need to address seriously.

Accordingly, modern problems require modern solutions, and the future of financial tech companies seems to be connected to security features such as:

  • Data obfuscation
  • Data encryption
  • Biometric identification
  • Behavior Analysis
  • Two-factor authorization and Real-time notifications

Fintech and Compliance

Regulation puts fintechs in check and the finance industry is regulated like no other.

Accordingly, in what concerns regulation, fintechs can expect two types of interference in their activities:

  • Governmental: it goes without saying that governmental regulatory frameworks will always exist, but with new technologies like the blockchain, fintechs should anticipate interference. In fact, they some might argue that they should be the ones setting the agenda in that regard, instead of waiting for a poorly formulated framework to be legislated.
  • Online: fintechs are also reliant on big search engines such as Google and being delisted from search results, for example, would be catastrophic. As such, adhering to online best practices also becomes quintessential not only for compliance factors alone, but to create a safer environment for all participants.

These two factors alone require fintechs to be at the top of their game with their compliance officers and legal departments as being up to date in what concerns their operating countries’ regulations is critical.

Fintech and the Blockchain

Blockchain has become a buzzword and despite its growing popularity and obvious upside, some still do not see it as a viable solution to their business.

Moreover, and circling back to regulations, given its near nascent status, implementing a blockchain needs to be done meticulously.

And, while we do see blockchain being prevalent in the future of finance, between banks and fintechs, blockchain implementation might still be going at two completely different paces.

The shift from legacy systems to the blockchain might still be dependent on tackling at least 4 things:

  • Consumer confidence
  • Interoperability
  • Transactional costs
  • Performance issues

Fintechs, Big Data, and Service Personalization

AI is most likely to reformulate the way the financial world operates on the back of how banks are gathering data.

Whether it's their clients’ financial behavior or their habits, data has become essential as it goes much further than profiling users by helping to manage transactions and even fight against fraud.

However, this shift requires a thorough integration and change in processes which isn’t always easy due to a multitude of technical factors but also due to personal ones (ex: customer consent).

Machine learning and AI requires the ability to capture incredible amounts of data but also the capacity to process it, meaning capital requirements may be significant. Luckily, smaller-scale solutions can be found in the form of learning models with tighter parameters.

Nonetheless, service personalization will become increasingly dependent on how detailed fintechs' and banks' customers' insights are.

Knowing a user’s behavior, socioeconomic status, social connections, and many other elements is key to delivering tailored solutions at the right time and via the right channel.

These insights, when provided with the right user experience (UX/UI), will certainly correlate with greater user retention.

Final words

Fintechs VS traditional banking has always been an interesting subject.

And, while the first tends to trailblaze and present disruptive technologies, the latter absorbs relevant features after careful consideration.

Perhaps one could learn from the other since revolutionary tech is much needed in traditional banking, and regulatory prudence and processual farsightedness are required in the fintech world.

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