The fintech industry is being shaped by market changes, as more business than ever before focus on shifting their efforts to become technology-driven and stay at the forefront of innovation. Artificial intelligence, blockchain and regtech were among some of the highest ranking buzzwords in 2017. What will 2018 be all about?

The Rise of Artificial Intelligence

From conference hall discussions to executive level meetings, AI made a significant impact in fintech in 2017 – the development of the technology shows no signs of slowing down any time soon.
The World Economic Forum (WEF) predicts that the world of AI is moving so fast that even industry experts can’t keep up. The use of machine learning is so inextricably embedded in our lives that we’re not even fully aware of the impact. AI will continue to be integrated with more vital parts of human life.

Take the increase of digital and voice assistants for example.  Amazon’s Alexa and Google Home have been pushing for voice assistant to become a part of our daily routine, asking for diary updates, setting timers, answering questions. These are second nature abilities to a human, but they are completed even more quickly and simply when processed through an automated machine with learning capabilities. Machine learning is continuously adapting so that the more the technology is used, the better it performs at customized requests.
WEF also predicts that the number of start-ups working to develop AI systems has increased 14 times since 2000. Every week a new AI start-up is created in the UK. Some major banks like JPMorgan are already utilizing this technology for investing.
“Young people clearly think that AI is a key part of their future, as more and more students choose the subject at university,” said a recent article by Formative Content Senior Writer Alex Gray, posted on the official WEF website.
There’s no doubt that our visions of society and technology have been enhanced by automation and artificial intelligence, both of which are becoming a part of everyday life.
“The rise of AI is already impacting our economy, both in terms of individual wealth, creativity, business, and broader financial trends,” continued the article.

Open Banking and APIs

The Payments Services Derivative 2 (PSD2) is a payments legislation that is set to change the way data and information are handled. The legislation came into force on the 13th of January this year and, while no immediate changes are currently visible, PSD2 will start to show it’s effects to consumers in the next few years.
PSD2 aims to create a competitive and level playing field in the financial services industry by opening up data to third party processors. Whether it will create more competition or force traditional banks to update their legacy systems remains to be seen. Industry experts have predicted that no matter where the legislation sends the industry, traditional banking services will be redefined, becoming more personalized and customer-centric.

It’s clear that a shift in the market towards personalisation and greater recommendations is inevitable, following models of the retail and commerce industry that have used this approach for decades. While open banking will facilitate innovation and drive competition, there is still uncertainty. 2018 will be the defining year for the banking industry.
Much of this is centered around the potential to dramatically increase barriers to opportunities for cybercriminals to exploit weaknesses in online payment and banking systems. PSD2 will reset the relationship that will have to be considered in providers’ future strategy – whether to be a good all-rounder or specialised in a particular category.

Partnerships Between Fintechs and Banks

The value of partnerships between fintech startups and financial services is considerable. Technology is constantly evolving and connects millions of people across the world. Banks are working hard to excel in a highly regulated environment, which, in many cases, requires them to undergo a series of updates to their outdated legacy systems. Partnering with fintechs can give banks the competitive edge to work with a nimble and agile organisation rather than take on all the work internally, which can be extremely costly and time consuming.
Take financial inclusion as an example.  According to the World Bank, an estimated 2 billion adults worldwide don’t have access to a basic account.  They’re out of the financial market completely.
“Globally, 59% of adults without an account cite a lack of enough money as a key reason, which implies that financial services aren’t yet affordable or designed to fit low income users,” said the World Bank on its official website.

Thanks to fintechs and the global spread of mobile phones, global access to financial services is expanding and accessing to hard-to-reach populations and small businesses at low cost and risk.

A survey by PwC found that 82% of banks, insurers and asset managers intend to increase the number of partnerships they have with fintech firms over the next three to five years.

“The banks are looking at fintech as a different way to drive change,” said PwC partner and fintech head Steve Davies. This goes to support the famous African proverb: “If you want to go fast, go on your own. If you want to go far, go together.”

Innovation in Digital Banking

Mobile and digital platforms continue to push the boundaries when it comes to banking. According to the 2016 U.S. Retail Banking Satisfaction study, there is a significant upsurge in overall satisfaction when customers use mobile banking. As consumers are becoming increasingly reliant on their mobile phones, they expect the full suite of financial services to be available at their fingertips.

A recent survey by PwC states that every bank will be a direct bank; branch banking will be undergoing a significant transformation.

“As technology enables every aspect of banking to go online, and as cash usage falls away, traditional branches are no longer necessary.
“Digital capabilities will improve, so that branch service officers and bank customers use the same platforms, with the same look and feel. The human touch will always be available, just much more through digital channels,” noted the study report.

The survey also states that retailers should look into consumer data to not only develop an understanding of payment preferences, but also to develop a deep one-to-one connection with consumers and understand their spending habits.

According to research findings released by NTT DATA Services, voice-enabled virtual assistants such as Amazon’s Alexa and Apple’s Siri will play a central role in the future interactions consumers will have with their banking providers.

Since incumbents hold a huge volume of data, accurate analysys will be powerful and could unlock the key to finding insights and better customer engagement. Traditional banks have more resources at their disposal than disruptors to act on that data.

Wider Adoption of Blockchain Services

Along with Artificial Intelligence, blockchain and cryptocurrencies were part of the biggest buzz in 2017. Commentators voicing their opinions caused a stir in headlines, with many speculating that cryptocurrencies are a ‘bubble’.

Some believed that ‘bubble’ has already burst at the beginning of 2018 and that the hype has already deflated. The Guardian believes that the downside of the media frenzy around bitcoin is the way it obscures the fact that the technology underpinning it: the blockchain, or the public distributed ledger.

“The blockchain – the database that recording assets across a network, is the technology that large players are looking at closely.” Analysts believe that wider adoption of blockchain services will still be one of the main trending topics in 2018.

Whether this is in association to banks adopting the technology, or start-ups further fuelling the demand remains to be seen – but the way we handle digital currencies and the role they play in payments is primed to transform.

Adopting Fintech Models in InsureTech

Insurance providers are constantly evolving and using technology to innovate in the industry. The challenge to meet evolving customer experience for quick turnarounds and claims processing means the shift to digital is not just advised, but essential.

The insurtech industry is facing competition, along with economic, political, regulatory, and climate uncertainty, all of which add to the pressure to operate efficiently and strategically. Adopting a similar approach in the fintech industry and basing models around the customer and user experience will give the insurance industry a competitive advantage.

The rise of technology and innovation in the fintech industry has spilled over to the insurance sector to take notes. According to PwC’s 2017 Global InsurTech Report, nine out of ten insurers fear they will lose business to fintech due to innovation drivers and greater market insights.

Forty five percent of insurers are currently partnered with InsurTech players, whilst a staggering 94% have aligned their priorities closer to emerging trends and AI-led risk insights and customer engagement.

Audience Remarketing for Baby Boomers

In a fast-paced world it can be difficult to keep up with the big changes that unfold right in front of us. Fintech is constantly evolving – new businesses and entrants to the market target a predominantly young audience to assist with finance and banking.

Perhaps targeting younger consumers is because Baby Boomers are already established in their banking and money management needs and habits – a contrast that many see as a downfall of Millennials and Generation X.

However, The Financial Brand states that whilst fintech may seem targeted at Millennials and generation X, “consumers age 50+ still are the foundation of bank and credit union growth,” according to its co-publisher, Jim Marous.

“With changing needs and expectations, this segment is impacting product development, digital transformation and marketing strategies,” continued Marous.

Mobile banking apps have won over Millenials, and are slowly growing in adoption across different generations. Meanwhile the the Baby Boomers are said to prefer banking at their local branch.

High street banks can rely on a certain amount of customer loyalty, although most studies indicate that Millennials are less loyal customers across the board than previous generations. Where they do have the edge over disruptors is in trust and volume of clients.

Recent statistics show that the buying power of Generation X will reach $200 billion by 2018. This makes them an important target for banks. Remarketing and shifting the focus back to Baby Boomers is strategically smart and can fuel an economically and socially transformative impact as “Baby Boomers are the generation that have helped fuel economic growth for an extended period of time.”