FinTech Trends 2016: Half Year Review
In 2015 FinTech was - and continues to be - booming as advances in digital technology for the financial services improve customer experiences with a quicker, more convenient and efficient service.
Innovations in financial technology such as the Digital Wallet and Digital Currency have had a profound impact on the banking and retail industries, as well as our everyday lives. From managing finances to making daily purchases, our reliance on these technologies is growing evermore rapidly.
Towards the end of last year, techies took to the internet to voice their opinions on the biggest FinTech trends of 2016. We’ve reviewed the top four most hotly tipped trends to determine how those predictions are measuring up so far...
1) Robotic Financial Advisors and AI
If you were in need of financial advice, would you seek counsel from a robot? According to predictions made by www.business.com, 2016 was the year that you were more likely to be discussing your money worries with a Robotic Financial Advisor than a human being. This belief was based on the industry’s growing dependence on cutting out the middleman with FinTech. As a result, this will ensure the delivery of a more “direct self-service access to product and investment recommendations based on artificial intelligence software programs”, but how effective has the introduction of Robotic Financial Advisors and AI actually been?
- Believe it or not, Robotic Financial Advisors are able to offer the same guidance on investment issues given by human advisors – and for a fraction of the salary!
- The vast majority of robo-advisers are “registered investment advisers” which means that they “follow the highest standards of customer protection” on every penny they manage. “They are required to act as fiduciaries, the legal term meaning they must put customers ahead of all else” (Tara Siegel Bernard, NY Times).
- Regulators have hinted feelings of doubt surrounding the robo-advisers ability to provide a meticulous and thorough service when collecting an investor’s confidential information. “A robo-adviser does not ask about money held outside of its service, for example, which can provide a distorted picture of customer’s financial standing” (Tara Siegel Bernard, NY Times).
- It has been suggested that robo-advisers are limited as they cannot provide full-scale financial planning.
While the banks see robo-advisers as a cost effective method of providing a more effective customer service, the quality of advice is yet to prove popular with customers. Massachusetts Secretary of Commonwealth, William F. Galvin, likened the service to driverless cars stating, “You need a human responding to them”. Professor Arthur Laby (Rutgers Law School), backed Galvin’s statement saying, ““They are not able to provide the kind of personalised advice that a customer can get from a human on the phone or sitting across the desk.” For the time being it seems that we - the human race - are winning in the battle between humans vs. robots. However, as further developments in AI continue the robots are sure to come fighting back in the near future.
Back in 2015, banks started to investigate the possibilities of using biometrics in financial mobile customer services for example, Touch ID, Facial and Voice Recognition. Although biometrics has been at the centre of hype in authentication, numerous factors that have repressed it remain.
Despite this, the American multinational banking and financial services company, Wells Fargo “is testing voice recognition and eye scanning, joining an increasing number of banks and other financial services companies using biometrics technology to authenticate customers using their mobile applications” (Rachael King and Clint Boulton, The Wall Street Journal). By the end of 2016, around one-third of major US banks “plan to make biometrics available to mobile banking customers by the end of this year”, but how much do we really know about the pros and cons...?
- “Widespread biometric authentication can not only streamline the customer journey but can also make a big impact on the fraud rates across financial services. Fingerprints, voice analysis, iris patterns, vein matching, gait analysis, and so on are near-unique, individual traits – and generally – incredibly difficult to fake. While current systems in place are increasingly effective against modern fraud, biometric security can make scamming even more difficult for fraudsters”, Tom Blacksell, Experian.
- Easy identification, finger print scanners and voice and facial recognition can be used quickly and easily.
- It’s an invaluable resource. “A database that is being built up with the use of biometric devices allows for an invaluable database,” Crystal Lombardo, NLCATP. Anti crime and terror organisations can benefit from databases built through the use of biometrics.
- According to research documented by bankingtech.com, 81% of people have felt frustrated when taking a financial provider’s “digital journey”. In addition, 29% would refrain from using that provider again if these frustrations continued to try consumers’ limits of patience.
- Usually, costly supplementary equipment is required, and procedures that need authentication by a back office function can perform slower.
It appears that the pros outweigh the cons when it comes to Biotmetric being used to fight crime. We feel more safe and can combat crime.
3) Use of API in the Banking Sector
What is API? API (Application Program Interface) is a set of routines, protocols and tools for building software apps, and the trend is playing an integral part in “driving disruption, fuelling FinTech start-ups and opening banking data initiatives worldwide”, Bill Doerrfeld, Nordic APIS.
Banks must impose APIs that will grant access to “payment account information to third parties” like rival banks, “following the customer’s explicit consent.”
With the creation of the digital wallet, consumers are able to carry out transactions whenever and wherever they are through a variety of digital devices. Therefore, it’s essential that banks engage with its customers across digital media in order to offer a more personalized product and drive instantaneous conversions. “With the advent of APIs, banks can easily expose their product catalogues, payment wallets, and other services to digital customers”, hcltech.com.
So, what are the benefits of using APIs in the Banking sector?
- Allows customers to have a “quicker onboarding experience.”
- Allows banks to attain partners that “specialize in niche FinTech services with optimized front-end user interfaces.”
- Allows seamless integration with “crowdfunding platforms, payment splitting apps, and more — ideal for start-ups with innovative financial-oriented products that may lack the budget and legal counsel to hold funds or establish their own bank”, Bill Doerrfeld, Nordic APIS.
- Concerns have been raised regarding the reliability of the service.
- It's not the service's responsibility to keep your app operational. A service can shut down or limit how you use its API at any time causing service outages.
Despite occasional technical glitches, APIs play a crucial part in the digital architecture and banks are investing in building modern applications that can service their customer on a platform of their choice at any point in time. 2016 will go on to see further investment on building APIs and assisting banks improving their service to digital customers.
4) Virtual Currency: Bitcoin
Bitcoin is a type of digital currency produced electronically that is not controlled by any persons or organisation. Bitcoin uses “encryption techniques to regulate the generation of units of currency and verify the transfer of funds, operating independently of a central bank”.
Who is using Bitcoin? Online and e-commerce sites such as Microsoft, Dell and AirBaltic have introduced Bitcoin payments as a means for purchasing a variety of digital content, consumer goods and services. However, with safe transactions being made daily via major banks is there really a need for digital currencies? How would buying into Bitcoin benefit the online consumer?
- Bitcoin allows you send and receive money anywhere any time without worrying about limitations that may delay the process of transferring money e.g. bank holidays
- Users are protected against identity theft by ensuring that all personal information is hidden
- Bitcoin is cryptographically secure which means that the protocol can be manipulated by any person, organization, or government
- No hidden fees are incurred within Bitcoin payments
- Many people are still unaware of digital currencies and how it can be used everyday
- Only a small number of businesses are accepting Bitcoins in comparison to physical currencies.
- “Bitcoin is a virtual currency with no regulating agency or bank. Blockchain is the technology enabler to support bitcoin transactions. Fintech companies are seeing the value of the technology but not the concept of an unregulated currency”, Pete Rizzo, Coin Desk.
- “Many sceptics also think it is too early to gamble on blockchain technology transforming the financial system, since there are still worries tied to the volatility of bitcoin and everything connected to it”, Roy Urrico, Recdit Union Times.
The pros and cons seem fairly balanced, and there’s a good chance that Bitcoins will continue to benefit the banking industry and consumers. However, investing in Bitcoins is an extremely risky decision. There is a strong possibility that you could lose most (if not all) of your money. Due to issues of this nature, we may be waiting a while for Bitcoins to properly filter into mainstream online consumer market and online banking.