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15 min read

How are emerging technologies disrupting the Fintech industry?

How do we define FinTech. FinTech is still largely undefined and the very general definition is that companies and start-ups that are combining financial services with innovative modern tech are generally grouped under the category of FinTech. We know that the techs have been dramatically disrupting the financial institutions, the banks, but that said not every FinTech is achieving the unicorn status and there are many that are struggling today to scale their products and they’ve reached certain plateaus in terms of user growth and revenue growth, so we’ll explore some of the reasons behind why that’s happening as well.

The FinTech Landscape

Looking at the landscape, the entire FinTech ecosystem is really highly segmented. There are lots of segments related to financing and lending, asset management and payments which is a huge ecosystem in itself. This ecosystem is continuing to grow and become more complex as there are other segments as well, large segments like InsureTech and FoodTech, AgriTech, the list goes on and on; and within these segments there are subsegments, so it continues to get ever more complex, ever more challenging to figure out what is the value proposition of the companies that are in these segments and which of these companies have the true potential for growth. By one estimate there there’ve been over nine thousand FinTechs just in the last ten years that’ve actually raised over 100 billion dollars in venture capital funding across the globe. Furthermore, another recent study has shown that over five hundred FinTechs have started just in the last twelve months, and they’ve raised about a 100 million dollars in seed investment. We’ve heard a lot about platform-as-a-service, infrastructure-as-a-service, software-as-a-service. Add one to that lingo, bank-as-a-service.

What’s driving these FinTech transformations?

Well, the first one is that cash is no longer king. One survey has said that 58% of small businesses have already gone cashless, and there are continuing to be many non-cash options, that is a big, major, here-to-stay trend that’s spreading across the globe. In the US on average, a US consumer holds about three and a half credit cards, and as you move towards Europe and Asia Pacific it’s all about digital wallets, QR code, biometric based cards, the list goes on. The second big catalyst- consumers are demanding more digital products, that’s you and me. Consumers are saying “Hey bank, be there, be useful, be quick, at the point of intent and at the point of sale”. So, here you have two generic examples. Example one talks about going to restaurants with my bill, with my friend. and then I want to send that money right away, instantly, from my mobile phone. The second example is a little bit more sophisticated. It’s part of a product category called personal financial management, and this is when you’re looking at a solution, where it aggregates all of the account data, it tells me about my cash flow so that I can plan for really how much money I have in my account to be able to pay for the bills that are due next week. Interestingly it can also do recommendation, where it looks at my transaction and then says “Here’s an interesting offer to upgrade your car to a better car, because I just noticed that you went to the mechanic shop last week and spent twelve-hundred dollars”. That’s a great way to engage the customer and to prompt them to take the next best action. Last but not least, companies are investing a lot of money, but the banks and financial institutions are investing even more to work with FinTechs that are investing in artificiaI intelligence (AI), machine learning (ML), blockchain and quantum computing .

In FinTech at least, there’s a lot of investment that’s going on in terms of the payment domain, blockchain, artificial intelligence, cross border remittances, and real time payments. Along with that, talking about a few use cases on payments as peer-to peer payments. So, the banks are physical these days but there’s a fear that eventually the banks are going to just become invisible, because most of them are on the mobile phone and you can use all the bank features over there. Banks have started adopting cloud-based solutions, which never used to happen but now they have confidence in these solutions, and so they’re transforming into cloud based service providers.

There are some other mega trends that we have to pay attention to. One Is the evolving dynamics between banks and FinTechs, there is so much information but the signal to noise ratio is also pretty high. How do you pick up the right information when in most cases the right information is hidden? So, this mega trend of looking at these FinTechs from the standpoint of, “Hey, who are the people that are on the advisory board of these FinTechs?”. That can give you some interesting signals about what might really happen with that FinTech working with banks. You can also be looking at it from the standpoint of which of these FinTechs seems to have a better relationship with the local regulators? That’s going to give you a better insight as to whether they are a high quality or a low quality FinTech start-up.

The third piece is, which of these other FinTechs that seem to have the right kind of backdoor access to the financial institutions and banks? That’s also going to help you determine that the hidden information that you’re looking for is going to help you get more signal and less of the noise.

The second major trend you’re going to be looking for is, there’s obviously partnerships now happening in a big way between banks and FinTechs and this is only going to exponentially grow. Furthermore, in places like Europe with the open banking initiative, banks are being pushed to open up their core banking services, so that they’re being asked to work with payment service providers. This action that is actually happening is something important to keep an eye on. Last but not least, if you think about it, there are many leaders in the space. What are they doing? These FinTech start-ups that have become leaders, from day one have architecture and framework that’s enterprise ready. They don’t just say “I’m gonna do a POC, and then as I try to industrialize this, everything falls apart”. Well that’s not gonna work, you won’t be a leader. Beyond that, it’s also about trusted data. You’re dealing with financial services; you’re dealing with payments. If I were to tell you “Hey today you have seven dollars in your bank account and tomorrow it’s gonna be six dollars fifty cents and I can’t explain this to you, and it’s going to continue going down to zero”, well that’s a real problem. So, trust in data, privacy and a variety of other things is extremely important. Most importantly, I think you will start to see more about companies focusing on experiences. This is where the mobile first, API first, cloud ready, and hybrid integration, where banks are very particular about PCI compliance and to achieve PCI compliance in the cloud is quite challenging.

Accion FinTec Capabilities

It’s been interesting on the applications that Accion have developed so far, and truly there’s no one size that cuts off. We can see that this is a lot about the technology, Accion labs is all about technology and some examples of our work delivered in the FinTech space. There are various sectors which we initially did not know about but later when we started mapping, we thought ‘okay fine so we have covered an application in lending, we have an application in blockchain, RegTech, personal finance, payments, insurance, capital markets, wealth management, money transfer, remittances, mortgages and real estate’. These are not the entire application that we have developed but these are a subset of the most recent applications that we have developed. This is an application which was built using a frontend technology stack and mainly catering towards peer-to-peer payments, which is picking up in the market these days. The second application is catering towards the need of an insurance domain, mainly to provide a platform both in web and mobile to kind of ease their process. The third application is an advisory tool and therefore needs to be really graphical and it needs to have the data for it to represent what it needs, and we were able to provide that for trading platform. Then we have a SaaS platform that we developed and delivered for a small lending platform which has both brokers, lenders and even the customers to kind of engage. It was really critical because it had lots of integration, so we integrated Expedia and we integrated with the sales force and Digisign for it to be compatible. The other application that you see over here is mainly a personal financing application, it helps the millennials these days to share between each other on what is the expenses that they incur on a daily basis. It helps in making payments and it has alerts for you to do the payments right on time.

Breeze for FinTech

As to how we’re going to move into adopting the FinTechs as a centre of excellence, is that we’re going to really accelerate Breeze. We know the capabilities that breeze is providing and what we’re going to be working towards is to have another component of FinTech work along with Breeze with all these modules which we would want to concentrate on, such as the security module, the report engine, notification, yes Breeze has a notification engine but more towards what FinTech would want to cater to, document management internationalization, CMS, charting tool, payment integrations, because payments these days are both API based and even wallet, so we want to get that integrated. Then an administration console for administration purposes and then scheduling, auditing and configuration modules. So, this is the plan off Accion and maybe I would like to hear from you on what the other global trends are and what the other companies like Accion are trying to do.

A dedicated team at Accion has been in building a FinTech centre of excellence. Ashok Venkatraman is with New Start Advisors and he is an official advisor to our Accion and an industry lead. He brings together experience as vice president of global CRM and contact centre platforms, he’s also launched seven contact centres around the globe that handle over six million calls a year. He’s been a part of some very innovative new banking solutions and has also covered North America, Latin America and Asia Pacific for them. Later he served as COO with MasterCard worldwide and is presently president of New Start Advisors, helping start-up founders scale new heights and develop product strategies and market development.