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Advocate, Managing Partner, Juscutum Law Firm
Artem Afian is a co-founder of Juscutum Law Firm, which he has chaired as managing partner for over ten years. One of the leaders who supports innovation and actively develops the legal practice of the new generation. Artem Afian supports innovation at state level. He’s a member of the working group on protection of the rights of actors of Internet relations under the Ministry of Internal Affairs of Ukraine. Artem Afian is Assistant to the Chairman of Verkhovna Rada Committee on Science and Education. Co-author of the Draft Law on Prohibition of Removal of Servers by Law-Enforcement Bodies. Artem advocates legalization of cryptocurrencies in Ukraine. Juscutum’s services can be paid for using Bitcoin since July 2013. Artem Afian is engaged in introducing innovations in the field of legal services and asserts freedom of information dissemination on the Internet.
Entering the New Decade: What Trends should be Expected in FinTech in the Near Future
With the growing popularity of mobile devices and a gradual stabbing of technology into all spheres of our lives, the financial sector is also reliant on it. We hear the word “fintech” more and more, which is positioned as a consolidation of technology and financial services. The word “fintech” (short for “financial technology”) is used to describe technologies aimed at developing and automating the delivery and use of financial services. At its core, fintech is a tool that helps companies, business owners, and consumers better control their financial transactions, processes, and lives using specialized software and algorithms that are installed on computers, though lately more and more often on smartphones.
USD 50 billion is invested in this industry on an annual basis and more than 550 companies appear inside this sphere. Quite often these companies do not require licensing of their activities by the state and due to the rapid implementation of the latest solutions, provide significant competition to classic large banks, especially on the retail financial services markets. And although Ukraine also takes a significant part in the development of this area and shows quite good results, there are many trends that our country and the whole world have yet to see and accept. Fintech began to evolve with the Internet in the late 1990s. The iconic companies of this era like PayPal and Ant Financial are now the world’s largest fintech corporations.
According to the Bank of England, by 2023 the development of fintech could reduce the total revenue of British banks by 1.1 billion pounds. Given this trend, world-famous banks like Goldman Sachs, JP Morgan, Barclays and BNP Paribas have begun to actively invest in fintech start-ups. This could help banks to reduce costs and provide customers with new services. In this brief overview you can discover what other changes will come to our lives via the rapid development of this area and, most importantly, what trends are dictated to the world fintech today. All these trends are no longer completely new and unknown today, and some of them are already quite actively associated with our daily lives. Here are some predictions for the future of the fintech industry:
- Mobile Payments
Online transactions have definitely captured the world! According to research by consulting companies Deloitte, McKinsey, BCG, two thirds of all financial transactions are now conducted online. There are several reasons for this, the main ones being that it’s fast, convenient and safe. Well-known banks, recognizing the challenges of the times, are also creating multifunctional digital systems that enable them to conduct transactions that could only be performed in their branches yesterday. In 2020 more than 1 billion people around the globe will use a mobile payment app to pay in-store at least every six months. HSBC in the United States claims that the average person visits a bank branch about 10 times a year, while a mobile application is opened 300 times a year. According to the 2019 Mobile Payments Market — Growth, Trends, and Forecast, which were made for 2020-2025 reported by Mordor Intelligence, the use of mobile payments is set to continue its inexorable rise with a compound annual growth rate of 26.93% between 2020 —
2025 as mobile payment applications like PayPal, Samsung Pay, Apple Pay, AliPay, WeChat Pay are used to accept payments.
Mobile payments have come out as a discretion to cash and cards in many countries. That’s why governments, banks, payment service providers and e-commerce distributors are working together to expand mobile-based payments. The introduction of mobile POS terminals and QR-based payment acceptance has further accentuated this shift. In industrial countries, the existing infrastructure sedates acceptance. Cards are ‘gummed’ and this results in mobile payments in the West finding the greatest success with younger consumers. The gradual generational shift will, therefore, be a major force in the adoption of mobile payments in the West in next 2-3 years.
- Expanding the Range of Services and the Appearance of Hybrids
Fintech projects, which were born as single products, are fighting for the main role in the entire financial market, which is available to the user. To make this possible, such projects create multi-solutions. So, the American MoneyLion, which has 5.7 million users, plans to add brokerage services, high-yield savings accounts and its own credit cards to its already existing products. For the user, the value of hybrid products is that such solutions help to take the first step towards savings. In particular, hybrid solutions help to use a current account more competently and, at the same time, not to save too much. For this, different mechanics are used: rounding purchases and transferring “change” to a digital account, robotic investment, etc. We can say that in coming years innovative banks will expand the digital product line, become more universal and offer such hybrid products as investment cards and smart deposits like Acorns or Robinhood.
- Internet of Things and Voice Control
Our smart gadgets can become a fully-fledged link in financial services. The above-mentioned consulting companies claim that more than 20 billion such things are potential “clients” of banking services. PwC believes that in the next few years, more than 50 billion smart devices will be connected to the network, and the Internet of Things revenue will reach USD 3 trillion. By offering financial solutions related to the Internet of Things, banks and other financial companies can increase the number of transactions through user convenience and secure customer personal data. Voice assistants, who have already become part of the ecosystem, also join the Internet of Things. For those who use Siri, Google Assistant and Alexa, there is reason to be delighted. After household appliances and car infotainment systems, voice technologies with elements of artificial intelligence also enter the financial market. Banks have already begun and will continue to implement such technologies to improve the work of call centers and conduct secure transactions. Already this year (and most likely in the next 2 years those who haven’t done this will “catch up”), voice recognition will become a reliable authorization method for managing personal accounts. We will be able to pay a loan, make transfers and find out the cash balance and all this in a voice.
- Cybersecurity and User Authentication
According to the statements of experts, by 2021, cybercriminals will cause global economic losses in the amount of USD 6 trillion. Moreover, if large banks can establish their own cyber defense infrastructure, it is not always available to smaller organizations to the same extent. Therefore, the market for information security technologies and ready-made solutions that can be built into your own infrastructure is actively developing. Predictive analytics, Big Data, and machine learning technologies are being introduced. An ordinary expert in information security is not able to analyze all the transactions of his organization, but the machine — can do this. Identification systems can protect clients of financial, insurance and other organizations. And this market is also actively developing. Its volume could well exceed USD 50 billion by 2024. The Chinese company SenseTime Group alone attracted over USD 3 billion worth of investment. And it seems to me that this is not the extreme point of increasing the need for customer safety.
- Digital Banks
Over the past few years, a whole group of new generation banks has appeared in the world; fully digital structures that rely only on remote interaction with customers. Banks of this new type usually offer higher interest rates, lower fees, and a higher class of service and support. Among them, one of the most famous is the Ukrainian digital bank Monobank, whose service is provided through mobile apps. To use the service, you only need to download the app from Google Play or App Store, take a picture of your internal ID and personal tax reference number and pick up your card at special bank points around the city or have it delivered. Monobank resulted from collaboration between Universal Bank JSC with Fintech Band, an IT consulting firm providing consultancy and web-development services to retail banks, There are now many examples of this type of bank around the world, and I am sure that their number will grow. Such digital banks allow you to manage finances using chatbots in Telegram, Viber, WhatsApp, Line and Messenger from Facebook. You can use one of the messengers or switch between them whenever you want. Need to bill? Just give the command to the assistant directly in the chat. This can be done both in voice and written communication, in free form. You give a command, your digital bank instantly creates an account, immediately sends it to your customer, monitors the status of the account and informs you about the receipt of funds.
At the beginning, traditional financial market players reacted to digital banks with obvious skepticism. Only a few took them seriously. However, the digital-only format almost immediately became profitable and is growing rapidly, continuing its expansion into all segments of the financial market.
As I said before, the huge interest in it is confirmed by studies, which showed that most young people in the United States (approximately 92%) do not trust the traditional banking system and are increasingly attached to new fintech services. About 68% of respondents believe that banks do not sufficiently understand their needs, and the modern financial system is inefficient and does not correspond to new realities. Some 45% are ready to switch from the traditional banking system to alternative fintech solutions. Speaking about future development of digital banks, it is worth noting that while fintech projects cannot independently obtain a banking license, the situation will not seriously change. In the short term, the scenario will look like collaboration between start-ups and banks. Projects will provide banks with various innovative solutions, and banks will provide access to their client base. Customers of fintech start-ups launched on the basis of licenses of existing banks formally remain the customers of these banks.
In view of all of the above, a new and quite interesting era is now starting in fintech. The digitalization phase of the classic bank is over and traditional business models have simply adapted to the existence of digital channels. And now we see digital scenarios that are born in a world where a person lives his own digital experience, and businesses are built among platforms and ecosystems.
In this new world, companies got the opportunity to influence user behavior in a quicker and more effective way, and in the coming years it will be very interesting to observe how fintech projects use their own potential, which the new decade gave them.