personal finance

Notable Financial Technology Disruptors

Finance Top

The financial services industry has traditionally been a decidedly unsexy one, lacking the trendy trappings of the tech world. Massively hyped concert-like product announcements, hip conferences replete with famous musical headliners, open offices, beer on draft, and so-called unicorn companies have all been the domain of the tech industry.

While some of those things will remain exclusive to that world, there is no doubt that the financial services industry has become flush with a vitality that has accompanied significant technological change. That change has become apparent during the past few years, particularly with the injection of blockchain into the mainstream consciousness.

While Bitcoin and the rest of its cryptocurrency cohorts have dominated the headlines and inspired millions of words in digital and physical ink, there are a host of fintech applications and industry subsections that have remained outside the spotlight. Those applications will see increased adoption over the next few years and solidify the notion that fintech is here to stay.

The breadth of project types has expanded greatly over the past few years, with innovation in multiple fintech subcategories driving adoption in sectors such as insurance and regulation. Insurance technology, a branch of financial tech, has seen machine learning applications automate internal processes and claim processing.

Regulatory Technology

The investment increase will be driven by the increasing amount of regulatory oversight with regards to fintech as well as the increasing number of regtech solutions allowing large financial institutions to implement tech instead of hiring more compliance employees. Regtech solutions address regulatory reporting, compliance checks, risk management, identity management, and transaction monitoring. The breadth and scope of solutions housed under the regtech umbrella provide financial institutions with a wide range of use cases and potential for efficiency improvement.

Regulation is an inhibiting factor for entrance into the financial services market and costs established companies billions every year as they try to stay within regulations. Regtech, which allows financial services companies to ensure regulatory compliance more easily, including contributing to KYC and AML efforts, will become a staple in the financial services industry by 2020. Currently, 15% of financial institution employees work in compliance. That’s a large chunk of the financial industry’s workforce, and the catalyst is the 500% increase in regulatory changes from 2008–2016 in developed markets.

Multiple large financial institutions are utilizing regtech solutions and seeing significant ROI from those solutions, notes CNBC. Rabobank, a large bank headquartered in the Netherlands, had its compliance team implement a risk management solution that reduced 15-minute compliance checks to three minutes. Regtech investment improves operational efficiency in compliance activities, allowing compliance departments to reduce overhead and improve performance. Regtech has proven its value for many financial institutions, and investment in this category of solutions will continue to rise.

Smart Contracts and the Real-Estate Industry

Real estate is an industry riddled with inefficiencies. There are huge swaths of the sector — title companies being an area that jumps immediately to mind — that will be greatly reduced and potentially eliminated by the implementation of blockchain-based smart contracts. Smart contracts remove the need for intermediaries, which clog up the real estate industry and slow down every transaction. While this is not a good thing if you happen to work in one of the areas that will be affected, it is fantastic for consumers and property owners who are able to cut out functionaries and reduce transaction costs.

Immediately upon completion of a desired and agreed upon task, the contract releases the agreed upon amount of money to the party which has completed the task. The contract, being housed on a blockchain, then creates an immutable transaction record, which contributes to anti-money laundering (AML) efforts and ensures the legitimacy of transactions that are listed on the blockchain.

Mobile Payments Grow Globally

The worldwide mobile banking and payments industry is massive, processing over a billion dollars per day in 2017. Latin America and sub-Saharan Africa in particular have seen widespread adoption of mobile payments because of financial exclusion. Financial exclusion refers to situations in which financial services (banking, payments, etc.) are not available. This often occurs in more economically disadvantaged areas, or areas that traditional financial services institutions have deemed not worth the investment.

basic finance

Barriers to entry put up by traditional brick-and-mortar banks have catalyzed the development and widespread use of mobile banking as both a primary and exclusive method of financial management. At they contend that the proof of identification and funds that traditional bank applications require bar some from qualifying for an account, while distance to a brick-and-mortar location (experienced by those in rural areas) is a barrier for others. Mobile payments allow them to gain some degree of financial inclusion without meeting the standards typically set by traditional financial institutions.

Mobile banking can be far more accessible than traditional banks, and smartphone adoption is driving that accessibility. Anyone with a smartphone and internet access can become a part of the financial system without the need to open a traditional bank account.

Mobile banking will continue to grow rapidly, particularly in areas currently reliant on the technology. In addition, blockchain will tie itself into the industry and become an integral part of financial tech within the mobile banking industry. Blockchain technology will provide an immutable record of personal data for individuals looking to use mobile payment solutions, giving the industry an added layer of security. The security inherent in these blockchain solutions will prevent fraud and improve the ability for people to become part of the financial system.

Another development that will support mobile payments adoption is the development and deployment of 5G technology. For mobile banking to become ubiquitous, the development of 5G technology is paramount. 5G tech reduces latency and transaction times, which is key to ensuring the network can handle the amount of transactions at scale.

Artificial Intelligence and Robotic Process Automation

An increase in connected devices and the means to process that data is driving the creation of personalized insurance products based on an individual’s data sets. Regulatory technology has seen know your customer (KYC) and anti-money laundering software infused with artificial intelligence pop up in the past couple of years.

These solutions, along with those dealing with compliance, risk management, transaction monitoring, and regulatory reporting, will continue to develop as more and more is sunk into their creation and adoption. Fintech investment, innovation, and adoption will continue to grow rapidly in the next few years as companies start to see significant return on investment (ROI) from fintech investments.

RPA refers to robotic process automation software programs that automate repetitive human processes by utilizing the exact same application interface a human would, eliminating built-in human inefficiencies. For example, a robot might carry out a data entry task utilizing Microsoft Excel and the company CRM software.

The robot would use the exact same applications to get the task done, but would finish much more quickly, its speed being limited only by the speed of the various applications it would use. The financial services industry in particular contains a large amount of roles built around data entry and repetitive tasks. Robots, provided they are trained properly, can take care of these tasks for any department.

Robots cost around $15K annually per unit, with an initial implementation cost of $40K–$50K per robot. That’s a lot of money in start-up costs, but companies typically see 40–100% ROI within 3–8 months. The annual cost of running a robot to help with automation is nothing compared the cost of paying someone to do the same tasks much less efficiently. Robotic process automation can and will help financial services institutions increase efficiency and eliminate wasted time, particularly when it comes to tedious, easily repeatable tasks.