If there’s an industry that goes out of its way to improve its services every year, it’s FinTech. Indeed, a study presented on Business Insider found that the global FinTech market is expected to reach $305 billion by 2025, growing at a year-over-year rate of 20%. Much of these numbers are because of increasing investments in FinTech startups, a rising number of internet users, and an increasing average income. It certainly helped how the pandemic encouraged consumers and businesses to rely on FinTech often, giving the industry more resources to continue evolving.
Here’s what’s happening in FinTech this year
Blockchain adoption
The blockchain functions on a decentralized ledger or a database that’s synchronized across multiple organizations. Every transaction on it is cross-checked by computers around the world to ensure that nobody tampers with the data. The blockchain is heavily encrypted too. This attention to safety has proven to be very useful in finance.
For example, one common FinTech use for the blockchain is cryptocurrency. Cryptos are able to regulate themselves via the checking process we just mentioned, ensuring the safety of every transaction. Plus, as a decentralized ledger, nobody owns the blockchain. Therefore, crypto exchange fees tend to be lower, which is why banks like Goldman Sachs tend to use crypto for investment trading.
The blockchain can also be used to build software. Etherisc has developed blockchain apps for different sectors of the insurance industry, which will continue to be rolled out this year. One of them is an app that provides coverage for farmers. Similarly, Singaporean startup FidentiaX is a platform that lets people sell their insurance policies on the blockchain. Since everything on the blockchain is instantaneous, any claims made on its platforms are checked and processed in seconds.
Biometric authentication
Security will always be an issue in the financial sector, which is why the industry is always looking for new technology to mitigate the risks. And aside from blockchain, another increasingly popular tech in the field this year is biometrics. Instead of using PIN codes, a lot of financial firms and banks are now turning to iris or facial recognition technology to verify their customers’ identities. PINs can be hacked or copied, but every person has a different face and a unique fingerprint. This year personal finance software provider Stash incorporated this technology into their app.
Digital credit scoring
Credit scores determine a person’s finance rating. The higher it is, the more trustworthy they are, which leads to better benefits. For example, you can get bigger loans. Traditionally, customers needed to be assessed for credit scores every time they would apply for a higher credit limit or apply for a big loan. Not only does this take time, but it’s difficult to gauge whether your credit score is high enough for the transaction you need.
Fortunately, digital credit scoring has made things more convenient these past few months. International SaaS company Lenddo is providing custom scorecards that will allow online lenders to create unique rubrics for customers that want more perks. Meanwhile, New York-based FinTech company Petal Card has an app with a new feature called “Leap,” which encourages users to improve their scores by incentivizing good credit behavior. For example, if users manage to keep their VantageScore — a type of consumer credit rating — high, they can get perks like an increased credit limit and cash backs. These scores are honored in banks as well, further enhancing the customers’ overall finance experience.
Digital-only banks
The concept of digital banking was created as a result of the demand for more efficient ways to complete financial transactions remotely. And thanks to last year’s pandemic, this demand has only risen. This is why on top of traditional banks offering digital banking services, there emerged a new category of digital-only banks. Digital-only banks like Ally Bank and Synchrony Bank have two main advantages: their low fees and higher interest rates. After all, the lack of physical branches means that they have little to no overhead costs. The result is saving accounts with yearly interest rates of up to 0.7% — a big leap from the Bank of America’s 0.01%.
Embedded finance
Embedded finance is the process of integrating financial services in non-FinTech software, like online stores. In our post entitled Technology Trends that Will Control Financial and Banking Applications, we even highlighted how it was one of the fastest-growing trends this past few years, as it’s beneficial for both businesses and end-users. However, people’s sudden reliance on online money services during the pandemic has only accelerated embedded finance’s adoption.
The best example of this is Amazon’s “Buy Now, Pay Later” — a FinTech service that lets users loan directly from the store. Renowned carmakers like Tesla, General Motors, and Ford have already integrated embedded finance into their services by allowing their customers to directly purchase the coverage they need on their platform. Tesla even incentivizes people to use their service by offering policies that are cheaper than traditional insurance providers.
Embedded finance services can also come in the form of banking, like a saving account on the platform. Shopify provides such a service to encourage entrepreneurs to open a separate bank account for their businesses.
FinTech produces new technologies every year, whether that’s to improve security, add convenience, or address any other challenges faced by the finance industry. Since the year is far from over, we’ll very likely see new FinTech innovations emerge in the coming months as well.