As advancements in technology are on the rise, it seems inevitable that digitalization and innovation will change the world as we know it. And this is clearly seen in the banking and financial sector where processes that required visiting bank branches for example are now substituted with just a click.
It is reported that during the second quarter of 2020, there was a significant increase in the usage of FinTech apps. Such an increase suggests that the worldwide usage of FinTech apps is expected to further increase. But the question remains, what kind of changes will technological advancements in the financial sector entail? Let us take a look at 7 FinTech trends that we should keep an eye on in 2021:
1. Digital-only banks
While mobile banking apps are not new to the market, there is still room for innovative solutions that can serve customers in a more effective and efficient way. And this is exactly what digital-only banks, also known as Neobanks, offer.
Digital-only banks are banks that offer banking services solely online without having any physical branch or facility. This way customers can access all their information and continue to manage their finances from the comfort of their homes. In a time where most customers have become tech-savvy, it is necessary for banks to work towards adopting innovative and cutting edge technologies to stay ahead in the game. In the UAE for instance, Emirates NBD and Mashreq bank both created their own Neobanks called Liv and Neo, respectively.
2. Open banking
Another revolutionary technology in banking and financial services is open banking. Open banking paves the way for banks and FinTech to work together by allowing data networking and sharing between different institutions. For open banking to become functional, it requires open application program interfaces (APIs). Open APIs will allow secure sharing of data between authorized third parties. In addition, with the financial transparency that comes with open banking, customers will be able create an e-wallet to facilitate all their financial activity through a single interface. With the use of Second Payment Services Directives (PSD2), banks become more secure and able to share their data in a more standardized and easy manner with other businesses digitally. According to Gulf News, the first Open Banking regulatory framework in the Middle East was created in Bahrain. Authorities in Bahrain have been collaborating with FinTech providers to develop a secure, efficient and transparent model of banking. By 2026, open banking is expected to generate around $43.15B.
3. Biometric security systems
With the rapid move towards digitalization and the adoption of open banking, many people might be concerned about the privacy and security of their data. Therefore, it is crucial for FinTech organizations to be able to adopt high measures of security. Biometric authentication can be the way to go for many businesses who wish to give their clients a secure and quick way to access their data. Without the hustle of typing in passwords or the stress of forgetting them, biometric systems can be an appealing alternative that is more user-friendly. The National News in the UAE says that Smart Dubai will soon start authenticating payment transactions through facial biometrics.
A recent survey shows that the main driver to adopting innovation is cutting cost. Therefore, many are turning to technologies like blockchain. Furthermore, the use of blockchain does not only bring with it the promise of a new financial system but also enables monetary transactions in a more decentralized way and thus makes it safer and more reliable. One of the biggest concerns when talking about online transactions is the fear of hackers, however blockchain’s peer-to-peer connection makes tampering with data almost impossible. When talking about blockchain it is important to note its pioneers in the region. UAE, Saudi Arabia and Bahrain are all champions in progress and innovation says Forbes. In 2020, the Saudi Central Bank (SAMA) stated that it began using blockchain technology in the banking sector. Bahrain is also encouraging startups to adopt blockchains through launching a regulatory sandbox, as well as offering digital blockchain diplomas in the University of Bahrain.
5. Artificial Intelligence (AI)
Another powerful trend is the use of AI. The fact that Artificial Intelligence does not only help manage financial fraudulence but also offer efficient customer services at a reduced cost makes it quite appealing to businesses. According to Autonomous Research, AI will help reduce the expenses of banks by 22% by 2030. Banks are already utilizing AI through using chatbots, also known as virtual agents, in their front office.
One of the companies using AI to improve the financial services of banks is Labiba for Artificial Intelligence. Labiba for AI builds virtual agents to give their customers an edge in the market and improve their processes. For instance, Jordan’s first artificially intelligent financial assistant, iCa, was developed for Capital Bank by Labiba for AI. This one of a kind financial assistant does not only help customers manage their finances easily and flexibly, but also helps new customers open accounts from the comfort of their homes through digital on-boarding.
“Our work with Capital Bank has allowed us to showcase digital on-boarding on a conversational level, which is the first innovative solution of its kind regionally. As digital transformation continues to shape our world today, offering strategic services on different conversational channels gives us and our partners the edge to offer the best services and stay ahead in the game.” - Malak Abu Rizk, Head of PMO at Labiba for AI
6. Autonomous Finance
Similar to autonomous vehicles, autonomous finance has to do with self-driving funds. The technology first started with robo-advisors to help with mutual fund management and software-based financial planning. It was then developed into automatic-saving applications and credit card debt management solutions. Basically using autonomous finance can help users make smart financial decisions about their money and even make the right decisions for the users sometimes. For instance, the technology can make instant decisions about where to invest the money and take loans at better interest rates.
7. Regulatory Technology (RegTech)
RegTech can revolutionize the regulatory landscape in financial services. By using an advanced and sophisticated software, RegTech allows institutions to comply with regulations in an easier manner. Through automation, RegTech will be able to analyze the big volume of regulation data and thus help institutions go through regulations at a much higher speed. This can help businesses pinpoint problems more efficiently. RegTech will also be able to protect customers and even help in revealing fraud.
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