Healthtech, proptech, edtech, insurtech, retailtech. Almost every industry now comes with its ‘tech’ sub-group that is seeking to disrupt, challenge and improve the sector as a whole. And fintech is probably the best known of them all.
Financial technology has become increasingly prevalent over the past decade, with both consumers and businesses today readily using digital solutions in place of more cumbersome offline processes. At the same time, the word fintech has gradually entered our everyday vocabularies.
I would go further: This is a common issue as the field of technology matures; as soon as it is dubbed “the one to watch”, it is at risk of being inundated by jargon. Lines become blurred; startups look to capitalise on the trend as businesses latch on to popular buzzwords to sell products.
We can look to the artificial intelligence (AI) sector as a clear example: according to a 2019 study by London venture capital firm MMC, 40% of European startups that are classified as AI companies do not actually use artificial intelligence in a way that is “material” to their businesses.
Is fintech plateauing?
Triggered by the global financial crisis of 2008, and fuelled by significant levels of investment, commentators have been promising a ‘fintech revolution’ for over a decade.
However, even with fintech becoming a widely used term, this revolution has not yet taken shape. The transition from traditional offline processes to new innovative digital solutions was meant to inspire a new look to the finance industry – one where customers would be empowered by choice, with fairer deals and more hassle free experiences; meanwhile an era of open data would see a more progressive application of data management so it could be better collected, stored, analysed and understood.
However, in truth, this revolution has struggled to make much ground in recent years. Outside of relatively basic online banking software, consumers generally have not experienced much of what financial technology has to offer. An understandable hesitancy surrounding regulation and the migration to new technology has meant that fintech adoption has generally been cautious to date.
That banking staff were on the list of key workers during the recent nationwide lockdown – allowing them to travel to offices and bank branches – demonstrates that the fintech era is not yet upon us.
Theoretically, if financial services businesses had fully adopted technology throughout their operations, then banking staff should have been fully capable of working from home without their customers being adversely affected. What’s more, with the right technology in place, neither staff nor customers would be unnecessarily exposed to the health risks posed by COVID-19.
COVID-19 catalyses the revolution
In exposing these issues, the coronavirus pandemic will aid the advancement of the fintech sector. In fact, it has already played its part in accelerating the use of fintech.
Yobota recently commissioned an independent survey among over 2,000 UK adults. The research found that fintech usage was 50% higher during the lockdown period between March and June 2020 than it was in 2019.
As social distancing measures were imposed, consumers and businesses became far more reliant on digital banking to manage their financial affairs. Added to this, the economic hardship brought about by COVID-19 has meant that more people have required financial advice and credit, both of which banks have been forced to deliver at a time when offices and bank branches were closed.
Over the past six months, financial services firms still reliant on legacy IT and on-premise servers will have been placed at a distinct disadvantage compared to those companies that had already made more progressive tech choices. And their respective customers will have had very different experiences.
The next era of fintech
Now is the time to look beyond financial technology as merely being a way of accessing one’s account or quickly transferring money to someone else. The pandemic has highlighted the need for bigger thinking. More specifically, it has highlighted the need for cloud-based banking platforms and interoperable fintech.
Take the example of someone applying for a credit card; something that is likely to have become increasingly common over recent months. There are various different stages that an applicant will need to pass through – identity verification; credit scoring; advice or product recommendation; application and assessment; and, if successful, creating the account.
At present, credit card providers might use tech for some parts of this process, but still require human intervention for others.
A more progressive approach to fintech – that is to say, the true vision for what fintech can enable – would ensure an individual can receive the credit card through an entirely automated process with as few clicks as possible. On top of that, the customer should be able to check and pay the balance on their new credit card through their existing digital banking platforms, rather than relying on a new app or website for each banking product.
This was the promise of the fintech revolution, and it is only possible through open banking, open data, cloud-based platforms and interoperable systems. So, while people might have become more familiar with the term and simple uses of the tech itself, now is the opportune moment to advance the fintech sector into its next stage of development.
Finance firms cannot be complacent while legacy IT and on-premise servers continue to halt the progress of the digital transformation in the financial services space.