Technological solutions are the Banking & FinTech accelerator in this digital age
Technology has been a game changer in today’s scenario. It is the “Raison d’etre” (a main reason to exist) for many Start-ups. Technology is a major growth driver for many industries. But, in this article we will discuss how the tech-enabled solutions are working as an accelerator to drive the goal of Financial inclusion through FinTechs.
More than 60% of the world’s GDP will be turning to digital technology by 2023 (According to International Data Corporation). This is because each and every Industry strives for innovation and no one wants to be called as the laggards.
The Banking and Financial sector is one of the major industries who will spend a hefty chunk of expenditure in technology solutions after the Retail industry. The Fintech market globally is estimated to attain a value of $324 billion by 2026. Now let us understand the role of technological advancement that is leading to the rise in the Fintech sector:
1. Politics & Compliances: The technology solutions provided to the FinTech sector will help them to bolster security and protect their data against frauds and risk. It is the major area where FinTechs are allocating their IT spending. The investments into technologies like Machine Learning, Artificial Intelligence to detect spoofing, phishing, money laundering activities, theft, fraud detection in order to ensure compliance and security.
2. Saviour in Decision making: It is one of the imperative parts of the organization. In the FinTech industry also tech solutions in the form of Artificial Intelligence and Machine Learning help the top management team like CFO, CRO to take important decisions. For example, in Fraud analytics, ML plays a pivotal role as the machine learns about the Fraud from humans in a form of reinforcement learning as the machine keeps updating algorithms and exploring new cases and scenarios. This learning on a continuous basis helps the decision makers and fraud detectives to tackle the worst case scenarios immediately. ML algorithms for image recognition are also popular as this solution helps in preventing forgery in writing as the algorithms in the image recognition system will identify the descripency in the two different writings and detect the forged case. Even in the loan disbursal process it helps the lender using ML to identify the validity of documents and the credit scoring of the borrowers give insight to the lender whether to sanction the loan or not.
3. Ensuring great customer experience: Customer centricity is the focal point for all the Fintech Start-ups and other established Fintech companies. There are many Fintech start-ups who are harnessing the power of Artificial intelligence and Machine learning. For eg, Fintechs are using machine learning in the Finance area for customization of products. Like Application programming interface and Banking as a service platforms using ML features like chatbots, voice recognition, user behaviour detection. Plethora of activities are performed by implementing machine learning in finance and even other tasks independent of the domain like leveraging the user data in the most logical way as the system will answer the queries in order to have a meaningful analysis and interpretation. Customized financial services are made with the help of predictive technology wherein even the investment management solutions are being simplified due to tech-driven automated financial planning solutions. This gives the users all the liberty to choose the plan which is best suited to achieve his wealth management goals like the tax, cash flows, retirement planning for marriage, travel, future possibilities like factoring inflation and other elements using algorithms, simulations the user will get the customized financial plan for accumulating his corpus fund. In this way AI and ML acts as a problem solver for the customer and also helps in seamless customer experience.
4. Helps in contribution towards digital economy: The use of tech-enabled solutions like Blockchain, Crypto, Cloud, Mobile solutions, AI and ML has been a major contributor toward the digital economy. It helps in reducing operation cost of the banks by approx 50% as well as bringing revenue to the Fintech’s table. Technological solutions have given impetus to rising digitization and the digital economy. Banking and Fintech have evolved dramatically. Lets analyse the global IT spending of Banking and Financial services sector:
In 2019, the worldwide IT spending was growing at 4.9% and then it dipped. However, the Covid-19 headwinds enabled the BFSI sector to reorient their business processes and the number of digital transactions also surged from 17% to 21% this made banks incorporate the technology solutions into their business processes. The CAGR for financial technology will be around 23.41% from 2021-2026. So after getting a dip the growth bounced back and will grow by 6.6% in 2021 as more than 86% of the business will integrate API, Robotic automation, Data analytics, AI, Blockchain and Machine learning in their finance ecosystem. Out of the total IT spending, AI, robotic automation, Machine learning, Blockchain and Cloud computing will be allocated a greater share of the IT budget.
These are the major drivers which are helping the Fintech companies and Start-ups to scale their business. The tech solutions like AI & ML are having great scope because they are continuously evolving. The backend activities like authentication of the customer and usage of algorithms for anomaly detection has gained tremendous attention. Due to this Fintech has gained popularity and will experience a positive growth rate. Alas, the positive dawn of Banking and Fintech accelerated by the tech-enabled solutions in this gargantuan universe is a bright sunlight that will split its rays to make the life of people, processes and businesses easy, shiny and successful and prosperous.