The financial services industry has seen radical technology-led changes over the past few years. It is now difficult for new market entrants – for a long period – to break into the area of disruptive financial technologies.
Fintech, a technology connected to the financial services sector that helps in the smooth working of traditional financial services, was able to emerge in just a small space. The latter encouraged people and users to engage in various back-end technologies covered under Fintech, such as insurance technology, financial data APIs, regulatory technology, banking, and mobile banking.
Today, users are accepting the Fintech innovation or trend and are increasingly using Fintech Applications. For instance, in B2B (Business to Business) activities, businesses can easily get loans, financing, and other financial services through their mobile phones without going to the banks and asking for financing and loans. In B2C (Business to Client) operations, Fintech facilitated the whole transaction process, allowing clients to transfer money efficiently and accurately via mobile apps, including PayPal, Apple pay, google pay, etc.
As technology emerges, AI, data handling, and analytics practices, in addition to Open banking and Blockchain projects, will also have the potential to develop further. This represents a huge opportunity to automate manual processes and gain better customer behavior insights than ever before while working on reduced IT expenditures.
Although the technologies mentioned above offer traditional businesses a chance to innovate and adapt at pace, they face a lot of challenges in this modern era as follow:
- Cybercrime in Finance
The financial services sector has always been a target for cybercrime: Attacks on the financial sector are not just about direct access to money. They form the perfect package for Hackers because banks and other financial institutions hold valuable information that forms everything a cybercriminal wants all wrapped up in one place, from financial details and bank accounts to identity data.
To ensure security in the financial services sector, Fintech industries must engage in programs that set frameworks for communicating security information across the supply chain and other solutions such as the DLT (Distributed ledger technology, also known as Blockchains).
- Big Data Usage in Finance
The Big Database offers both opportunities and complications for Fintech technology providers. It offers financial institutions the ability to serve their customers better. It determines the individual’s decision-making mindset through records it gathers on social media, emails, and news feeds. However, despite its ability to gather big data, the financial services industry faces significant challenges in this field, notably regarding privacy and data analysis (the volume of data requires great statistical techniques to obtain accurate results).
- The Blockchain Integration in Finance
Besides its ability to battle against the cybercrime, blockchain “is a distributed ledger technology (DLT), that has the potential to transform well-established financial institutions and bring lower costs, faster execution of transactions, improved transparency, auditability of operations, and other benefits” (Warthon University of Pennsylvania, 2018).
However, although it ensures value in investment applications and safer payment transactions, the industry-wide adoption of the Blockchain is still quite difficult.
- The Customer Experience in the Financial Service
Financial service providers experienced a significant transition. The customer’s experience in its self has increasingly transitioned online, with a complex range of functions being presented on a self-service basis.
This significantly regulated industry has always been a face-to-face customer-serving industry. Bringing changes to the old-age traditions will be very challenging and will take time and money.
- Regulatory Compliance In Finance
Achieving regulatory compliance is crucial for financial institutions of all sizes. Although meeting these standards is no small task, there is no other option because the cost of non-compliance higher.
However, because the regulatory environment is ever-changing, financial institutions need to understand the financial sector’s biggest regulatory challenges and take steps to adapt to them. Thus, it is essential to bridge the gap between the financial service industry and its regulations through streamlining and automated reporting and audits.
- Customer and Employee Retention In Financial Services
Customer retention is crucial. Understanding your customers and their concerns to become a potential financial service client is, nonetheless, challenging. Hence, to win this battle and capture a more significant share in the market, Fintech should rely on personalization, better-automated services, and easier access.
Furthermore, in the IT world, the good qualification and talent is a great combination, but finding the right employee is as difficult as attracting the customers in the financial service industry.
- AI Use in Finance
Artificial Intelligence (AI) is a powerful tool that is already widely implemented in financial services. If deployed with enough diligence, prudence, and care, it can transform almost every aspect of the financial services industry through automated wealth management, open banking, and customer verification opportunities.
However, the limited availability of the right quality and quantity of data, insufficient understanding of AI potential risks, and strict regulations are all perceived as barriers to AI in financial services firms.
To overcome the significant challenges faced by Fintech, we should exploit its benefits. Identifying the market opportunities, developing distinguished business models, and working smartly can thus stimulate new digital banking technologies and give birth to a whole new Digital World.