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Top Trends Shaping the FinTech Industry’s Future

There’s a quote about innovation that rings true time and time again for me. 

“Never before in history has innovation offered promise of so much to so many in so short a time.” – Bill Gates, Founder of Microsoft
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Innovation in personal computing. Innovation in the dot com era. Innovation in Internet of Things (IoT). Social media. Smart phones. Gamification. Artificial intelligence. 

Now is the time for fintech, an evolution of the financial industry. Fintech is booming and there is no stopping it. Today, there are north of 26,000 fintech start ups globally, more than double the number five years ago.1 With an anticipated compound annual growth rate of 20.3%, the fintech market is expected to reach $698.5 billion by 2030.2 That’s no small feat.

The expansion of e-commerce, the increase in smartphone use and the rising demand for inventive financial technologies has propelled the fintech industry into the digital world. That means more transactions, data generated, security needed, and more pressure on financial service provider IT infrastructures than ever before.

What is Fintech?

Fintech, also known as financial technology, describes software and application innovations designed to digitally transform traditional financial industry processes. Relatively simple in concept, fintech promises more efficient, flexible and personalized service to consumers than the status quo. Doing so requires a plethora of solutions. 

digram of fintech solutions
Fintech solutions driving the digital transformation of the financial industry.

For example, there are companies that seek to replace traditional payments with digital wallets, cryptocurrencies and even short-term loans. Others use crowdfunding to help consumers receive loans without having to go through a traditional bank. Robo-advising and other trading apps provide personalized recommendations and portfolio management. In essence, if there is something that can be made easier, there’s probably an app for that.

While fintech’s focus on a digital-first mindset may dismantle the conventional banking and financial models, it also drives modernization within these classic institutions. Global banks now seek out fintech partnerships rather than building technology themselves, so they can keep operating costs down while more easily deploying digital capabilities to remain competitive. 

As the industry vastly evolves, prepare to witness a transformation energized by the latest ideas and advancements in the world of finance and banking. Here are some top fintech trends to watch.

Open Banking

Open banking is a concept that allows account holders to safely share financial data with non-traditional financial institutions. Through APIs, third party business can access the client’s financial data to assist with specialized tasks such as budgeting, financial planning, lending and other services, within a single platform. This gives clients a more personalized and seamless banking experience.

The goal of open banking is twofold. First, it gives clients greater convenience, choice and control over their financial information while preserving privacy. Second, it gives banks the opportunity to retain clients by providing more flexibility and transparency in their services.

While three-quarters of today’s APIs are currently used for internal bank purposes, banks are planning on increasing sharing of APIs to partners and the public by almost 50% in the next three years.3 Rife with possibilities, open banking leverages the best of both traditional banking and fintech start up services. Clients can lean on the dependability and stability of their bank while accessing digital financial experiences from an innovative service provider. 

Payment Diversification

Not long ago, three preferred payment types (cash, credit, debit) dominated the payment landscape. Increased adoption of technology and other forms of currency has since accelerated innovation in the digital payment ecosystem. The idea is that casting a wide net with several payment options influences and enhances buyer behavior.  

Thanks to fintech innovations, buyers can now access apps that not only accept traditional credit and debit card payments, but also blockchain and cryptocurrency services, digital wallets, peer-to-peer transfer, tokenized card payments and other exchanges. 

Want another option? Buy now pay later (BNPL) services allow buyers to purchase an item and pay for it in interest-free installments. Trending among Millennials and Gen Z’ers, BNPL gives them more freedom in managing cashflows by deferring payments without the credit check, commitment and interest fees of traditional credit cards. According to an Ascent survey, 67% of consumers think BNPL could replace their credit cards. 

If it continues to catch on, there’s no doubt more payment innovation and collaboration will follow. Who knows what could be next? 

Hyper-Personalized Tools

Undoubtably, today’s businesses know more and more about us through the data we share. Machine learning (ML) and artificial intelligence (AI) help companies provide more personalized interactions with their customers.

In a nutshell, customers want financial products that are simple, frictionless, engaging and designed to help them accomplish their personal tasks. Apps designed to automate processes, improve decision-making, and enhance customer experience leverage AI and ML to do so. That includes operations like:

  • Personalized banking uses AI to evaluate customer data to propose customized financial advice against a client’s objectives and expenses.
  • Smart trading enables investors to leverage enormous amounts of data using ML to predict and automate buying and selling stocks without the human bias in those decisions.
  • Chatbots solve unique customer issues through ML’s recognition of patterns in emotions and language to provide human-like responses for better customer experiences.
  • Fraud protection utilizes ML to analyze thousands of data points to understand transactional history and more quickly flag unusual activity to better protect customers. 

Whether we know it or not, fintech companies are using AI and ML in many of the applications we use today. In fact, 70% of financial services firms are already using ML to predict cash flow events, fine-tune credit scores, and detect fraud.4 But to us, it gives us, as consumers smarter, safer, and more convenient ways to access, spend, save and invest money. And fintechs are gobbling that up. 

More Data Means More Storage

All this wonderful innovation doesn’t come without a cost. All this new technology requires rapid access to the enormous (and growing) amounts of data. And that data has be to be stored and processed somewhere. More than a third of fintechs and financial institutions report a 50-100% increase in their data usage and storage needs, with more than a third predicting a two-fold increase in the next three years.5

Digital transformation journeys increasingly rely on hybrid IT infrastructure to support modernization strategies within the financial world. Learn more about the growth of financial services digitization and how the right IT infrastructure can deliver the biggest bang for the fintech buck. Contact us about how we can support your data storage needs.

The CoreSite Team
Combining expertise, research and thought leadership to inform and advance hybrid IT.