In recent years, the fintech sector sees massive growth and its market size is expected to reach $556.5 billion by 2030, according to the Vantage Market Research. This growth is fueled by many factors, including the advancement of technology. By using technological advances like Artificial Intelligence and big data, fintech companies make their services more accessible and personalized, thus increasing user interest and engagement. Below we list the biggest fintech trends that the financial industry will adopt or continue to use in the future, so if you are a fintech business owner, take notes on potential innovations.
AI-based assistance: what is a robo advisor?
Modern customers expect personalization from almost every service they receive and this is why AI-powered assistance is among the biggest finance trends these days. By using Artificial Intelligence and robo advisors in fintech, companies can offer their clients not only 24/7 support but help them manage several processes, such as:
- Budget planning: based on the customer’s spending habits, income, and overall expenses;
- Investing: AI advisors can analyze the customer’s financial goals, consider current investments, and provide useful recommendations;
- Management of debts: through analysis of the customer’s expenses, income, and spending behavior, robo advisors can recommend the best way to pay off debts while retaining a stable financial situation.
You may be asking what is a robo advisor and how do robo advisors work? Put simply, it is specialized software (automated financial advisor) that is programmed to analyze the customer’s data and use it to assist the customer with specific tasks. The robo advisory software is usually powered by the machine learning technology which is capable of processing big data and delivering meaningful insights from it.
AI-based automation
One more use case of AI in fintech is smart automation. What is means is that AI helps automate certain tasks, like operations processing or quality control. In this way, companies can significantly increase speed, efficiency and quality of their operations while human employees can focus on more critical tasks. Also, the use of automation greatly improves customer service and user experience since the client’s request is processed immediately despite the timezone and does not rely on the availability of a human operator.
Embedded finances
Since the financial services industry strives to make finances more accessible, transparent, and easy to manage, no wonder embedded finances are on the rise today. Embedded finances imply the integration of banking services in non-financial applications and products. This enables users to perform transactions or manage earnings right in the app. A good example of embedded finances is Uber that allows its drivers to manage earning deposits directly from the app. One more big benefit of embedded finances is the expansion of revenue streams for both banks and non-financial companies since users can access financial services from various sources.
Growth of fintech apps
The popularity of fintech applications was greatly fueled by the pandemic in 2020 and since then, they have become an integral part of our lives. In the future, we can expect to see even more fintech apps and their functionality will keep expanding.
Customers use fintech apps for a variety of reasons: to check their current balance, monitor expanses, and make carefully weighed financial decisions. Considering that fintech apps provide instant, 24/7 access to one’s financial data and allow performing transactions without the need to visit the physical bank, it comes as no surprise that more and more users shift to digital when it comes to asset management.
Improved credit scoring
For a long time, the credit scoring process was based on a limited amount of information, which was not enough to make an accurate picture of a borrower. So in order to make lending more accessible and to reduce the number of underbanked, credit scoring now utilizes AI and big data analytics. In this way, lending companies use alternative data sources (social media, cash flow data) to obtain data from and thus receive more accurate portraits of lenders. This, in turn, reduces financial risks for lending companies and significantly expands the number of potential trustworthy borrowers.
Growth of DeFi
While the cryptocurrency hype has cooled down a bit, decentralized finances (DeFi) are gaining traction and there are several reasons for that. First, let’s look at the DeFi definition. The term DeFi describes financial services and apps that operate on the blockchain. By definition, blockchain is managed and controlled by all its users, unlike traditional banking systems. This explains the “decentralized” part in the DeFi.
Now, why is DeFi becoming so popular? The main reasons are:
- Transparency: all blockchain transactions are recorded and can be viewed by anyone, thus making DeFi services incredibly transparent and trustworthy.
- Lower costs: due to the lack of intermediaries, the cost of DeFi services and the terms of service are more favorable and affordable than the ones offered by traditional financial bodies.
- Accessibility: to use DeFi services, you don’t have to provide your credit history or any sensitive information. This makes DeFi highly attractive and accessible for a wide pool of users.
In the future, we can expect more people and even businesses to use DeFi so it’s definitely an exciting trend to observe.
Generative AI
Generative AI refers to the artificial intelligence technology that can generate various content formats, such as images or text. One more use case of generative AI that many users tend to overlook is data analytics. Generative AI is widely used in this domain for such functions as data exploration and visualization, predictive analytics, and data augmentation.
In fintech, generative AI helps with credit scoring through more accurate data analysis and with fraud prevention, again through analyzing massive data sets and detecting abnormal behaviors and patterns.
Advanced identity verification
Another big thing in the list of fintech trends is advanced identity verification, the main goal of which is to battle evolving security threats. With the alarming growth of deepfakes and other cyber threats, it is vital for financial institutions to protect their clients and their assets. Hence, we will definitely see more advanced and AI-powered identity verification that will provide an additional level of protection for fintech customers.
In conclusion
As you can see from the fintech trends described above, the industry places utter attention on the security of its data, assets and processes as well as on increased efficiency. One more important aspect is personalization. Several years ago, the financial sector was still using legacy tools and offering limited personalization to its customers. Now, with the help of technology, fintech companies make their services more accessible and attractive, thus increasing revenue sources and gaining trust from the customers. That being said, it is recommended that fintech organizations start their digital transformation journey to remain competitive and to keep up with the evolving market demands.
