Fintech: Driving digital transformation in financial services

(last of three parts)

AAnyone who has ever transferred money to someone else’s account without having to deal with a bank teller — via email, text message, phone call, or visiting a bank branch — is no stranger to financial technology. But keeping up with developments in the market can be staggering as fintech has recently grown exponentially, helped in part by the global health crisis which has prompted rethinking processes and putting the customer at the heart of solutions.

Fintech trends have been disruptive and will continue to be, especially now that mobility restrictions since 2020 have forced financial institutions to take a close look at what a digital economy will look like. Looking at banks’ practical responses to remain agile during the pandemic by examining processes that can be automated and made more customer-centric, we see that financial institutions have already kick-started what could be the beginnings of digital transformation.

In some countries, financial firms are taking proactive steps to understand how their organizations can benefit from the wide array of available and emerging technologies. The experiences of the last two years point to an acceleration of technological innovation in the coming years. Making sense of all the buzzwords can be a task for the uninitiated in the fintech world. It would be wise to identify which technology trends to focus on in terms of how they may impact the industry and various organizations.

In the first part of this three-part series, we discussed the key themes expected in the fintech market in Asia over the next two years. In the second, we dealt with tax considerations in the Philippines. In this final part of the series, we take a look at some of the technology trends worth keeping an eye on as the industry continues to experience dramatic changes.

White labeling allows companies to sell products without incurring significant development costs, time, or regulatory compliance. Also known as “banking as a service”, it is a permission to label and sell products or services developed by another company. This enables fintech companies to create a branded front-end supply layer via white-labeled application programming interfaces or API-enabled platforms.

This solution leverages the innovation ecosystem without having to reinvent, reinvest, and traverse the entire technology development lifecycle. It significantly reduces go-to-market offerings for customers and seamlessly integrates technological innovation, creative product offerings, and compliance requirements in a highly regulated industry to better serve customers.

White labeling is a great and attractive option for companies to enter the modern digital world. It’s a strategy for emerging companies to reduce risk and free up resources so they can focus on what they’re good at – building products, building brands, and expanding their customer base. White-label solutions enable fintech startups to meet customers’ needs minus the learning curve. However, companies using these solutions have limited control over product development, and the downsides can range from bugs and security vulnerabilities to non-compliance with the law.

A client’s financial footprint is spread across different institutions, instruments and platforms, making it difficult to get a complete view of their transaction history. Data aggregators collect customers’ bank accounts, mortgages, brokerage accounts, credit card details, among other things, so they can provide a unified financial view of customers regardless of the channel and companies they do business with. They achieve this through APIs used by fintech companies that customers use to log into their platforms.

This aggregation of data at scale is also the backbone of open banking and a free-flowing financial ecosystem. Data aggregation powers a wide range of fintech applications to provide on-demand financial services such as consulting, lending, faster money transfers, etc. The portability enabled by data aggregators reduces paperwork and allows customers to improve eligibility and access to better products/services. With a free flow of data in the financial ecosystem, companies have a better overview to offer personalized products in real time.

However, the connection of data aggregators to many institutions can equate to several points for possible breaches and leaks. Security risks can also arise from web data scraping, a process whereby a computer program logs into a bank’s website using a customer’s credentials and reads code to extract financial data. However, the industry continues to seek superior ways to aggregate data without compromising customer privacy. However, this brings to the fore the issue of broader regulations that set policies for secure access and storage of financial data.

The customer experience drives loyalty to brands. Financial institutions, in turn, increase revenue and margins based on customer loyalty. As a result, companies are increasingly automating core operations to focus on improving customer experience and retention.

Robotic Process Automation, or RPA, performs mundane and repeatable backend processes better, faster, and more accurately. RPAs are simple, flexible, budget-friendly, and quick to deploy, improving productivity while increasing maintainability and revenue. RPAs ensure fail-safety, compliance, real-time reporting and insights in a highly regulated fintech sector.

Automation is a major increase in operational efficiency. The future popularity of RPA in the fintech world is likely driven by its usefulness for compliance and regulatory needs. With automation, companies can efficiently maintain audit trails for each process, supporting high compliance.

More and more people are getting recommendations, searching for the best deals, and completing tasks with rapidly evolving voice assistants (e.g., Alexa, Siri, Google) powered by sophisticated natural language processing and artificial intelligence. It is estimated that the number of devices equipped with digital voice assistants will double to 8.4 billion by 2024, offering a smarter and more connected ecosystem than ever before.

Many banking services are quickly integrated and accessible via language assistants. With voice encryption, voice biometrics, multi-factor authentication and voice tokenization advancing, a secure voice assistant has the potential to transform how customers pay in the future. The pandemic and millennials familiar with voice-over writing will accelerate adoption. VEP is expected to be used by 31% of the US adult population by 2022.

This technology enables a seamless, end-to-end, integrated, concierge-like experience, enabling customers to better multitask. With digital payments being the largest segment within the global fintech sector, voice integration with digital touchpoints will separate fintech leaders from laggards. To drive new opportunities, growth and leadership, fintech players must continue to rapidly adopt disruptive VEP technology.

As we monitor these and many other technology trends, we will continue to witness evolving consumer behaviors, which in turn will fuel companies’ appetites to embrace and capitalize on this wave of technological innovation. However, there is an element of uncertainty in technologies that, while disruptive, have yet to undergo regulatory scrutiny. Financial firms need to consider how best to jump on the bandwagon, so to speak – to work on their own projects or to invigorate their collaborative spirit and forge alliances with industry peers to bring new technologies to broader adoption.

The potential of these technology trends to make a big difference in the way processes are improved and productivity increased can be astounding. At the end of the day, however, leaders need to focus on what matters most when embracing innovation—enhanced customer experiences, service transformation, and a proven path to winning business models.

This article is provided for general information only and is not a substitute for professional advice when the facts and circumstances warrant it. The views and opinions expressed above are those of the author and do not necessarily represent the views of SGV & Co.

Anurag Mishra is a Technology Consulting Principal of SGV & Co.

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