Fintech refers to an umbrella term covering various technologies and services in the financial realm, from mobile payment apps like Venmo or CashApp that streamline payments to companies that offer buy now pay later (BNPL) financing or home mortgage loans without banks as part of the equation.
These newcomers to financial services are challenging incumbents by being agile and often serving underserved populations.
1. Artificial Intelligence (AI) and Machine Learning (ML)
Artificial Intelligence and Machine Learning enable financial institutions to automate processes, streamline procedures, increase efficiency and enhance customer service – as well as drive innovation.
Machine learning algorithms can identify patterns in large volumes of data to perform tasks more quickly and accurately than humans could. They can automate regulatory reporting and compliance measures, freeing employees up to focus on more strategic objectives.
However, AI in finance comes with its own risks. Interactions between users and AI may introduce bias into the system; latent bias may arise through correlations; and selection bias could produce results which resemble existing content or don’t make sense (known as black box problems). It is therefore imperative that financial institutions incorporate explainability into their machine learning models to mitigate any such potential threats.
2. Mobile Payments
Financial services industry is rapidly digitizing. People are using fintechs for payments, investments and loans; according to a Plaid study they’re helping consumers gain greater insight into their situations and options leading them to greater confidence when taking action.
Apple Savings, for instance, is helping millions of people save with an easy mobile app; and M-PESA allows banked and unbanked people in Africa to safely send money over mobile phone networks or pay for purchases with cash on delivery.
Fintechs are helping online merchants accept more payment methods – such as cryptocurrency, debit and credit cards, digital wallets and others. Furthermore, fintechs reduce transaction costs by eliminating banks’ need to process a transaction or manage credit/settlement risk management services.
3. Customer Relationship Management (CRM)
Fintech apps enable people to trade stocks and cryptocurrencies while others provide digital banking or financial advice services. Many fintech apps use APIs for safe connection to consumer bank accounts in order to transfer funds securely while verifying identities.
Fintech relies heavily on mobile applications as an easy and convenient way for consumers to access their money and financial services from any location at any time. Many fintechs also provide web-based solutions for those who prefer not to use smartphones for accessing money and services.
B2C fintechs tend to target Gen Z and millennials due to their higher spending power and active use of fintech tools like fintech. Gen Z and millennials use fintech tools as part of a strategy for reaching financial goals faster, and fintech companies tend to be more nimble than their traditional counterparts in responding to customer needs quickly.
4. Data Analytics
Modern fintechs provide businesses with a range of services including data analytics. This technology enables businesses to take advantage of new and enhanced business strategies, improve risk management processes and keep costs at an acceptable level.
Fintechs can now play a critical role in expanding financial inclusion by giving millions of underbanked people access to savings accounts and investment services, while offering nontraditional creditworthiness information (such as rental payment history) that allows those without established credit histories qualify for loans.
Therefore, consumer-oriented fintechs have increasingly targeted Gen Z and millennials. Some firms have adopted a shrink-to-grow strategy by switching from global markets like Europe or Japan to local ones with greater potential. This strategy has allowed firms such as Betterment or German robobank Scalable Capital to thrive.
5. Robotic Advice
AI/ML systems are increasingly being deployed as computer power and data storage capacities increase, creating opportunities in fintech. Machine learning, for instance, can speed up insurance claims settlement timeframes.
Robo-advisers such as Betterment utilize algorithms to automate investment advice and reduce its cost. Fintech firms utilize chatbots for answering frequently asked questions (FAQ) and providing assistance.
Many fintechs are turning to the shrink-to-grow strategy when their expansion strategy doesn’t pan out as planned or when local markets present greater potential for expansion. This approach can help cut operational costs while still providing customers with valuable services – something especially crucial given the current funding environment.