Jamie Hutton, Chief Technology Officer at Quantexa
FinTech is bringing disruption and innovation across the financial services industry, from lending, payments and insurance, to credit settlements and crime prevention. In 2018, the UK FinTech industry experienced record levels of investment, securing $16 billion in the first six months of the year and bearing witness to its first two billion-dollar unicorns, Monzo and Revolut. As one of the industries most impacted by digital disruption, and with the fast-paced innovation brought about by Open Banking, 2019 looks on course to be another record-breaking year for the FinTech industry.
Open Banking regulations require big banks to permit their customers to share their own transaction data with third parties, which is made possible through application programming interfaces or APIs. These APIs enable third-party developers to build applications and services around the financial institution, resulting in greater financial transparency for account holders.
Going forward, Open Banking will continue to gain more traction in many more countries and economic regions. Accenture predicts that banks taking advantage of Open APIs will experience potential revenue uplift by 20 per cent. Consequently, 2019 will see more partnerships between banks and FinTech companies, as well as with other professional service providers, all operating in an ecosystem through interconnected APIs.
AI and data
2019 will see AI and machine learning being adopted more widely across businesses large and small. Artificial Intelligence as a service (AIaaS) will allow businesses to take advantage of AI technology more quickly and affordably. Businesses will make use of AI-enabled services in the cloud, allowing them to enhance their product capabilities, better interact with customers, streamline business operations and create precise business strategies. With McKinsey forecasting that over the next few years, machines will perform 10 to 15 per cent of bank work, AI is predicted to improve operational efficiency and accuracy through automating all tasks which are repetitive or require intensive manpower. This will allow banks to shift resources and focus on activities that are more value-generating.
Meanwhile, the combination of data analytics, artificial intelligence and the Internet of Things (IoT) will also continue to reshape the financial sector. For example, big data is increasingly being used to create better credit models and determine loan qualifications and suitability with greater accuracy. This is instead of relying on traditional (and often basic) credit bureau scores. Banks will now be able to use a broad range of external data and combine this with data from IoT devices including wearables and smart devices to gain a more comprehensive view of consumer needs and lifestyles and thereby assess reliability. Big data and AI are also being used to detect fraud and money laundering, with machine learning algorithms monitoring patterns of customer behaviour and detecting suspicious activity.
Adoption of cloud-based technology by top-tier organisations has been surprisingly low thus far, often being limited to third-party Software-as-a-Service (SaaS) applications. Until recently banks were reluctant to move all their sensitive data to the cloud due to compliance and security challenges. However, the maturity of the major cloud vendors has been increasing at an astounding rate and many organisations are starting to realise that a private cloud, when used correctly, can in fact offer greater levels of security than traditional on-premise infrastructure. Furthermore, traditionally conservative organisations are realising that to compete with the new challenger banks, they need to become fully digitalised and be able to make complex AI-driven decisions at a scale that would be unthinkable on-premise.
Voice assistants are being developed to handle banking functions; OCBC Bank recently partnered with Google to launch the first AI-powered voice banking in Singapore. This enables customers to discuss problems about bank services and gain help in real-time with increasingly accurate solutions.
The use of artificial intelligence to power these systems will allow call centres to direct calls more quickly and efficiently than ever before, while the technology can also calculate loan interests, plan future savings, and search for nearby bank branches or ATMs. 2019 is likely to see businesses continue to use AI technology to further develop new commerce interfaces, while the number of companies beginning to utilise voice assistants is set to increase as consumers become more at ease with the technology.
New payment and security technologies
With the development of new digital payment solutions, as well as the rise of cryptocurrencies, individuals are increasingly using alternatives to traditional banking systems to transfer money more conveniently and efficiently. The widespread adoption of contactless cards has sped up transactions and contributed to a further decrease in the use of cash, while large banks will continue to push into real-time payments, letting more clients transfer money instantly.
Meanwhile, with banking increasingly being conducted online, FinTech has been challenged by cyber-attacks and security in general. The use of biometrics, such as fingerprint or iris identification, for faster and more secure authentication is increasingly being in-built to FinTech solutions and will become more widely adopted as more banks start to invest in the technology.
The rise of blockchain has been swift and 2019 will increasingly see the technology become integrated into existing banking systems. Blockchain facilitates the reduction of paperwork, since it updates the digital ledger in real-time while storing records. Consequently, wire and transfer fees have been decreased by using bitcoin, clearing settlements happen instantly, loans and credit applications can be accessed on the spot, and consumers have instant access to the funds they need and to the answers they require. With numerous companies rolling out pilot programmes in 2018, IBM predicts that 65 per cent of banks will have adopted blockchain technology by 2019.
2019 will see the FinTech industry continue to challenge established banks and financial services, with early adopters likely to see major gains in terms of innovation and better service provision. To keep up with consumers increasing demands, tech-based banking and more efficient digital finance solutions are becoming a necessity.
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