Finance describes the business of money, and that’s how most people regard the industry; it’s so much sexier put in those terms. But strip it to its basic elements and finance is much more of technology business than anything else.
And it has always been that way.
However many large and mid-size financial institutions are entrenched in antiquated tech infrastructures that have left the industry vulnerable to disruption. And there are plenty of young financial tech (FinTech) companies willing seize that opportunity.
According to a joint report from CBInsights and KPMG, “Banks once viewed FinTechs as too small to be credible, but are now increasingly threatened by FinTech’s advancing disintermediation.” From 2014 to 2015, FinTech startups were able to increase the amount of money they were able to raise by 75 percent to over $22.3 billion.
Still, in many cases FinTechs remain reliant on the traditional infrastructures of banking institutions. One of the key dynamics we expect to see in 2017 is the emergence of a stronger FinTech ecosystem comprising of both new upstarts as well as traditional financial institutions. Three key areas where we expect to see this emerge rapidly are:
More Efficient Payment Options
One of the predominant trends in FinTech right now is the push to improve payment efficiencies, which blends automation and the ability to customize. Two companies leading the charge in those regards are Currencycloud and Autobooks – both named FinTech companies to watch in 2017 by American Banker.
The former is a platform built to improve international transactions, which have become a significant share of the market due to economic globalization. It relies on APIs that users can tailor to their specific payment preferences, including grouped and organized advance payments.
Autobooks is a program specifically designed to improve a bank’s interactions with their small business clients while simultaneously collecting data that could later be leveraged to identify possible lending opportunities.
These tools and others are so important, because if banks aren’t early adopters, they may unintentional forfeit their own business to other institutions that are. According to a survey from Aite Group, more than one-third of small businesses would leave one bank for another if it meant having a more complete suite of financial management tools.
The Replacement Advisor
To complete the efficiency overhaul, 2017 will most likely see a spike in automation technologies. And by 2025, expect the technology to play an integral role in the financial industry, a recent study by Citigroup claimed.
Already there are companies leveraging artificial intelligence platforms to streamline jobs once thought to be uniquely human. I’m speaking specifically to the FinTech company Kasisto, an AI platform that works through mobile and messaging applications to provide investors with industry-specific advisement.
Kasisto is not the only company using sophisticated programming to emulate financial advisors, but it is among the most visible. However, this may soon change. The technology improves processes and lowers costs too drastically to not catch the attention of more institutions.
The growing prevalence of Bitcoin over the last several years has been the inspiration for a rash of spirited speculation over what the digital currency would ultimately mean for the country’s financial market. However, until recently, the reality of it making a huge impact seemed far off because of how difficult it was to regulate. Blockchain is changing that.
It’s essentially a public ledger for Bitcoin transactions, which creates the transparency and, in turn, legitimacy the currency has been needing. It also reduces individual transaction costs to about zero and promises to disintermediate several financial processes. Companies like Digibyte and BanQu are hoping to leverage blockchain to effectively transform banking.