We are in the midst of an exciting and transformative year.
Scratch that - a decade.
With users becoming more tech-savvy and keen on testing the latest fintech solutions, the banking industry is experiencing a massive surge in interest in modernizing financial tools.
The fintech industry revenue has increased by over 100% since 2017, with investments in new financial solutions reaching 210 billion in 2021. Experts further predict that the value of the fintech technologies market will reach $698.48 billion by 2030, growing at a CAGR of 20.3% from 2021 to 2030.
The adoption rates significantly differ across the globe and fintech categories. In China, for instance, the use of fintech banking and payment solutions surpassed 90%. On the other hand, just a bit over 50% of U.S. citizens are using fintech to manage their day-to-day financial transactions. Nevertheless, the industry is still experiencing staggering growth, with an increasing number of people regularly using modern financial tools worldwide.
Despite the industry taking a hit in 2022 when the value of investments slowed down, we are again looking at a rising interest in developing fintech solutions.
The biggest trends developers focus on today include:
At all times, at least one of our developers is involved in a project aimed at transforming the way people manage their finances. The fintech apps and software we build are intended to improve the usability and safety of financial services. To ensure that they are up to par, we monitor the latest fintech trends as they affect our strategic approach and the specific tech stack that we plan on using.
So what’s been dictating our work this year?
McKinsey projected that by 2030, cloud adoption could generate around $3 trillion in EBITDA value.
Container technology is driving innovation by enabling the simultaneous execution of multiple workloads on a single operating system instance. Public cloud providers are actively promoting the implementation of containers, which leads to reduced overheads and enhanced efficiency. This advancement in cloud technology contributes to improved productivity and cost-effectiveness.
Early cloud tech acquisition enables the adoption of other tech, like AR, VR, blockchain, AI, and ML. The effective use of the cloud also helps increase fintech app development and maintenance efficiency, reducing infrastructure costs and downtime.
Add big data analytics to this mix and you get cloud-based elastic computing which allows dynamic adjustment of computing resources to respond to the constant changes in market demand.
By accessing cloud storage and computing services at a lower cost, fintech companies are becoming less reliant on data centers and existing IT infrastructure. As a result, new banking formats like Banking-as-a-Service (BaaS) and open banking are growing in popularity, establishing a new kind of relationship between the bank and its customer.
Open banking, in particular, has been the talk of the town.
The concept revolves around the controlled, secure exchange of financial information with 3rd parties. Open banking proposes that everyone should have all-time access to their bank data, and it is used by fintech businesses that offer budgeting, expense tracking, lending, financial planning, and other services.
How it works: users agree to share their data with nontraditional financial institutions that utilize accessible APIs to access that information. By sharing data, banks get a chance to offer more personalized services and better financial products. This also allows building a single platform to unify multiple financial services, making them easily accessible to its users.
For banks, this means creating new opportunities that require leveraging customer info; for customers, open banking lets them decide where their data is stored and they can easily allow access to it when necessary.
Users were slightly skeptical about sharing their personal information at some point. Still, they quickly unpacked the benefits and realized that open banking revolutionizes interaction with financial institutions by providing unparalleled transparency and control.
According to McKinsey, AI technologies will potentially deliver up to $1 trillion of additional value each year. Artificial intelligence is becoming an integral part of the world, driving the financial revolution. To stay relevant, banks will have to employ AI tech to tailor their services and meet the new requirements.
In the broadest sense possible, we believe that AI is indispensable because it:
Some financial institutions use AI for specific use cases. On the other hand, banks are starting to realize that implementing AI in all their digital operations will give them a competitive advantage and will unlock untapped opportunities to deliver unique and customized customer experiences. By becoming “AI-first”, banks will utilize these benefits to enable omnichannel experiences, boost their profits, achieve at-scale personalization, and accelerate innovation.
It is evident that AI will influence front, middle, and back-office operations:
Knowledge graphs and graph computing will also play a significant role, owing to their ability to assist in pattern identification across complex financial networks. AI-powered software has the ability to pull from a range of disparate data sources and analyze vast amounts of data.
When it comes to Machine Learning technologies, they are typically utilized for training financial models to pull only the most relevant user data, minimizing data usage and maximizing security. Investing in advanced encryption, secure, multi-party computing, and the use of privacy-aware data analysis tools will help improve privacy protection. Federated learning, a form of decentralized ML, is specifically used to address privacy risks associated with centralized datasets.
Due to its distributed nature, blockchain represents a more secure and cost-efficient way to manage digital assets.
In the banking industry, blockchain technologies optimize the execution, costs, and transparency of all transactional processes. DLT allows the storage of financial transactions in the public ledger (i.e., multiple places at once). In other words, blockchain acts as a single database that is not under the control of a single authority. With all database entries protected, users get an extra layer of security compared to traditional financial services. At the moment, the greatest emphasis is placed on enabling and perfecting:
In April 2023, the value of DeFi reached an all-time high of $53.63 billion. It enables access to financial products and services without the involvement of traditional financial institutions. But to facilitate the development of modern fintech products, like digital wallets, non-fungible tokens (NFTs), and decentralized finance, blockchain relies on smart contracts, zero-knowledge proof, and distributed data storage.
DeFi fintech applications enable the standardization of smart contracts and use them to eliminate the central intermediary. Smart contracts manage and govern the execution of agreements made virtually between two or more parties. The agreements are signed using cryptographic keys, meaning that these transactions don’t require paper trails or attorney involvement. Contracting is automated and third parties are eliminated from the process (e.g., bank or loan officers), thus reducing the risk of one or more parties failing to fulfill their duties, as the payments will be processed automatically.
Zero-knowledge proof requires users to only share the required info and keep other data secure on the server. These authentication techniques eliminate the need for divulging vital information to authenticate user identity online.
While each of these technologies delivers value and high returns on its own, when combined, fintech institutions can benefit from the ability to quickly scale their infrastructure, develop, and launch new solutions faster and at a lower cost.
We cannot deny that challenges and risks are present; cybersecurity threats are major concerns, and hacking and data breaches can lead to the theft of users' personal and financial data, causing significant financial losses, reputational damages, and legal troubles.
But we assure you: alongside their fintech clients, developers are continually working on building robust fraud detection and prevention solutions, and solutions that would reduce the risk of system errors, delays, and outages.
And yes, we are one of them.
Featured image by Burak The Weekender