Do you want to learn about financial software development? This article will teach you all you need to know about it.
What do financial technology companies do? They transform the financial field through financial software development. For example, many fintech firms digitalize banking. Now, financial technology is available from any location. In other situations, they transform our approach to currencies. We have myriads of cryptocurrency companies on the market these days that showcase the true impact of fintech. The key goal of this article is to review what fintech is and the key trends in this field.
II. Key Components of Fintech
Modern fintech has several major components. We need to review them all in-depth to understand the essence of this concept. The definition of fintech can only remotely describe this technology.
A. Financial Services
Above all, we must understand the core aspects modern financial services industry affects. Here are the central elements we must consider:
The core service for many fintech organizations is undoubtedly banking. Today, we see the rise of the so-called neobanks. Neobank is a bank that uses modern technologies to deliver high-quality service to customers. What are some core characteristics of those banks? Let’s take a look at them:
- Mobile apps are a priority for these businesses. Fintech banks promote the framework of bank-in-a-pocket. In many cases, services available via personal computers are highly limited. There’s a strong tendency towards mobile-only banking. A strong example of such a model is Revolut. This neobank allows users to take out loans or save funds without going to any physical locations.
- Physical locations aren’t obligatory. Some neobanks have physical locations. However, the majority of them save their funds on them. How do they do this? Certain organizations use their unique banking infrastructure. Others cooperate with bigger traditional banks and use their platforms. For example, the Ukrainian Monobank uses this framework. Ultimately, this strategy is rational for the users. Why? It decreases the amount of funds going into the physical service workforce. As a result, the users can pay less for credit card maintenance and other bank services.
- International banking. Another important characteristic of neobanks is that they aren’t tied to one country. Revolut, for instance, is present in more than 35 countries. Why is this so vital? This approach to banking covers the rising needs of the younger generations. Various young people are willing to travel as much as possible globally. Finances are one of the core obstacles they meet. CNBC notes that Gen Z travelers usually don’t have much money. Banks like Revolut help them. In this regard, they enable access to high-quality loans and save money on exchange rates by allowing to store funds in multiple currencies.
Another vital fintech aspect is payment apps. In this respect, we’re especially interested in financial firms that offer cross-border payments. Our world is becoming increasingly international. Consequently, the need for a cross-border financial product is rising en masse.
Problems with past services
What’s the problem with traditional transaction-oriented fintech products? They’re expensive or inconvenient. A common standard is to withhold 1 to 1.5% per sum in transaction fees. If you’re sending 10000 dollars, a transaction will cost 100 dollars in the best case. If such transactions are irregular, this cost may be acceptable. However, many people on the market have to perform regular cross-border transactions. In such conditions, payments become too prohibitive for most users. In many cases, they also involve a conversion to local currency, which may create additional costs.
Various old-generation services that work with international payments are cash-oriented. Potent examples of such services are MoneyGram and Western Union. Only the latter service has an accessible option of sending money between cards. In reality, both MoneyGram and Western Union primarily target cash payments. These are great for remittances. However, they’re suboptimal for businesses. Both services have significant fees for cross-border payments because they target cash. Yes, these services tend to be faster and cheaper than banks, but they’re still limited.
Solution to past problems
Obviously, all these factors call for the rise of a new solution for the finance industry. This new solution comes in the form of fintech startups created via web development services. What do they provide? These services leverage new technologies like blockchain to enable international transactions without fees. In this regard, a strong example is Wise. Why is this service so notable? Wise offers its users an opportunity to minimize fees. This service specifically targets businesses. How does Wise achieve this? The international nature of the business allows it to support many currency-specific accounts. For instance, a person can open a euro account and receive a transaction for it without fees. In the future, we’ll likely see even bolder implementations of this approach. For example, it’s reasonable to expect that cryptocurrencies like USD Tether will play a major role in international transactions.
The final sector that modern fintech businesses affect includes insurance.
Conservatism of insurance
In our opinion, insurance is a conservative field. As a result, its users encounter many problems that befall traditional banks. Firstly, traditional insurance companies tend to focus on physical locations. Various businesses experiment with smaller insurance online, but bigger policies involve real locations. Insurance may be unavailable even to those who have money. Why? They may lack offices in their location. Secondly, a major issue with existing insurance is its focus on a limited number of clients. Many insurance firms can profit only if they minimize risk. Consequently, they choose the “better safe than sorry” framework. These companies limit access even for safe but unconventional groups.
Fintech-centric insurance solves all presented problems. How does it achieve this? In our opinion, it does two things correctly. Above all, fintech-centric insurance is location-agnostic. Certain companies, just like neobanks, strive to work without any locations. In this way, they save funds on a support workforce and make the key services available everywhere. Another important aspect here is that those fintech organizations use more complex algorithms and insurance models.
In this respect, two core technologies are essential. Some firms have become adept at using AI en masse. Other companies focus on becoming more advanced in terms of the models they use. For instance, a common framework is peer-based insurance. How does it work? In this case, multiple individuals with similar interests get together. Then, they pool money and award compensation based on requests. Modern fintech insurance organizations allow automating risk analysis and claim processing for them. If you’re interested in this sector and regulation affecting it, we have an entire article dedicated to it.
B. Technology Integration
Fintech is also notable for the technology that it uses. Every time you use a modern transaction technology, these innovations are at play:
The blockchain is likely the key framework behind the rise of fintech. Why is this technology so important? In our opinion, its popularity concerns the nature of blockchain. Blockchain has the following core characteristics:
- Decentralization: Distributed network without a central authority.
- Immutability: Once data is added, it can’t be altered or deleted.
- Transparency: All participants have access to the same information.
- Security: Cryptographic techniques protect data integrity.
- Consensus Mechanism: Agreement method for validating transactions.
- Smart Contracts: Self-executing contracts with predefined rules.
- Cryptographic Hash Functions: Securely link blocks and ensure data integrity.
- Distributed Ledger: Database spread across multiple nodes for redundancy.
As you can see, these frameworks offer several core benefits to users. They solve the most common challenges that banks generate. Above all, blockchain enables international transactions without fees. Many modern online platforms like Wise do this without blockchain. What’s their issue? They’re still limited to particular locations and currencies. Blockchain doesn’t face this limit at all. You can send money from Europe to South America instantaneously and without barriers.
More importantly, those frameworks are much more secure than other Internet solutions. They’re transparent and have strong encryption. As a result, the likelihood of money being stolen due to bugs in the relevant systems is low. After all, there’s no central location in those systems. In this light, potential security gaps can only lead to limited losses. Besides, they’re much more resilient than any other product on the market. Blockchain uses many servers instead of a few centralized locations.
2. Artificial Intelligence
Most people around the globe have already seen how powerful artificial intelligence is. The rise of ChatGPT became one of the brightest events in 2023. Many experts expect that this technology will become dominant in the upcoming years. Bill Gates claims it’ll reduce our workweek to 3 days.
Financial machine algorithms
Obviously, large language models aren’t the only AI approach on the market. We see many other self-learning models. Their key characteristic is the ability to process tremendous amounts of information. Models like ChatGPT learn on terabytes upon terabytes of data. Consequently, they can be strong in many tasks. They don’t only include text-based activities. For example, teaching an AI model to track irregularities in your security is possible. In this way, you’ll have a strong detector for potential problems. Another important application is the use of AI for calculating credit or insurance risk. A self-learning model can become more liberal at approving requests than other frameworks. As a result, we’ll be able to make our banking system more open to non-conventional customers.
Customer service innovations
A vital benefit of this innovation is its ability to transform customer services. Today, banks have to hire extensive customer service workforces. Myriads of employees work on processing user requests every day. What’s the concern here? In many cases, these individuals process low-priority issues for the customers.
Consequently, banks and insurance organizations have a hard time processing more complex claims. AI frameworks can help automate various tedious customer support processes. What’s their core capability? Large Language Models offer realistic answers to user requests. Yes, they don’t understand human language like humans do.
Nonetheless, they process many requests since they’re simple enough. If they have a detailed database of common user questions and solutions, it’s possible to automate the most widespread user requests. Does this mean the customer support profession will die out? In our opinion, no. However, this means that many people who work in this profession will spend their time more rationally.
3. Data Analytics
Many old banks and insurance organizations had significant reasons to be careful with their investments. Why? In our opinion, the answer here is simple. Those organizations often had to face the market they didn’t fully understand. For most of its history, the market was more complex than people used to expect. As a result, even the most reliable companies used to fail at some point. The 2008 crisis is a perfect example of miscalculations leading to the destruction of large banks. Why is this so vital? Today, we finally have tools that can greatly increase the accuracy of our predictions.
These tools involve data analytics. Our civilization is entering a new era. We live in the world of so-called Big Data. This means we collect so much information that it’s possible to create new findings by combining it. More importantly, we have enough processing capabilities for it. As some experts note, we produce more information every two days than humanity produced over all its history before 2003.
Moreover, our society is bound to get even more complex. Big Data opens the path to some genuinely large-scale predictions. We finally have enough information to create realistic models of human behavior.
What does this mean in practice for us? In our opinion, data analytics will soon transform banks. They’ll be able to better adapt to customer demands. Moreover, it’ll be easier to predict major negative trends. In this light, the longevity of businesses will likely become even greater in response to this technology.
4. Mobile Technology
Lastly, a major factor behind fintech is mobile technology. This technology is influential for two reasons:
1) Mobile tech tends to be extremely cheap. Today, it’s possible to find a powerful smartphone for approximately 100 dollars. For example, Blackview has recently released the Oscal Tiger 12 smartphone. It costs 105 dollars and offers up to 8 gigabytes of RAM. A mere ten years ago, many desktop computers didn’t have this RAM volume. In fact, Apple sells its MacBook Pro models with the same RAM amount. What does this mean in practice? Users can get a computing device at minimum prices. The used smartphone market makes this platform available to many people even in the poorest countries. In this light, mobile banking and fintech get a potent platform for themselves through smartphones. Most people have access to them and the Internet. As a result, the coverage of those services is all-pervasive.
2) Mobile tech is portable. Another reason why mobile tech enables fintech is its portability. Carrying a laptop with yourself is difficult. It requires special containers for storage. More importantly, even the smallest laptops typically take a lot of place. In this situation, it’s not comfortable to use banks via them. Few people are willing to carry their laptops abroad all the time. This situation is different with mobile tech. It’s light and easy to carry. Consequently, this technology makes fintech simple to use in any location. One can manage their transactions whenever and however they want.
III. Fintech Applications
Now that we understand what fintech is, it’s time to look at the most common types of fintech apps. In our opinion, these are the sectors that fintech managed to spawn:
A. Digital Wallets
Current problems of the clients
Modern users are facing an increasing number of payment options. It’s not uncommon for people to have 3 or more credit cards. This situation leads to confusion in many cases. People tend to forget their PIN codes and secret answers. Even when people don’t forget about them, discomfort is inevitable. You have to enter different credit card numbers for different sites all the time. In this light, digital wallets deliver a solution to this confusion. What do they do in this regard? Digital wallets help store all payment information in one place.
Digital wallet solutions
Multiple digital wallet solutions have arisen on the market. Some of them are free and offer minimum functions. Google Pay and Apple Pay are examples of this technology. Other frameworks are more powerful. For example, PayPal delivers money transfers and has its own system for storing funds. What unites them all is the ability to connect personal credit cards. Ultimately, when you need to pay for some service, all that’s necessary is to select the card you want. This technology is incredibly useful. In fact, it’s one of the first fintech frameworks that became genuinely popular across the globe. Many fintech organizations started to build their customer bases from digital wallets. Current research highlights that more than half of the global population (4.4 billion people) will be using digital wallet technology by 2025.
B. Peer-to-Peer Lending
Another major trend that fintech made possible is peer-to-peer lending. What does it entail?
Traditional challenges of lending
In the past, all lending used to occur through two major channels. One could either go to a bank or private individuals for help. Banks used to provide lower interest but had strict eligibility requirements. In turn, private individuals tended to be less selective. However, they often offered exorbitant rates. More importantly, a common situation was that private individuals were operating as a part of illegal organizations. The concept of loan sharks arose out of this phenomenon. Some individuals went as far as to use threats of violence to enable repayment.
Two major solutions to the above problems have appeared in the modern world. On the one hand, we have microfinance organizations. They also provide exorbitant interest rates but act in a more legal manner. On the other hand, peer-to-peer lending is now a major trend, too. What’s the idea behind it? Peer-to-peer lending combines two elements.
Firstly, we have organizations that offer loans at high but not overwhelming rates. They’re a strong alternative to microfinance and loan sharks. Secondly, they get money for loans through individual investments. Any person can give their funds to such an organization and receive interest from loans. As a result, borrowers take funds not from any bank but from other people. On many platforms, it’s even possible to select the person you want to lend your funds to. Ultimately, this approach is vital because it benefits everyone. Loan consumers get lower interest rates. Peer-to-peer companies earn money on service fees. Lastly, investors enjoy high returns of up to 12%. For instance, Esketit offers such returns to its investors.
The rise of AI enables the creation of robo-advisors. What’s the essence of this technology? You can use machine algorithms and even AI to give investment advice to people. Many approaches to applying this model exist. Here are some of them:
1) Automatic portfolio creation. Apps like Wealthfront automate investments. They choose the safest stocks and then manage your money without your participation. Obviously, you can turn on or switch off this function. The more advanced AI will become, the safer it will get.
2) Investment recommendations. The aforementioned Wealthfront also provides its clients with insights on the most promising investments. For example, it showcases which firms bring the greatest yields. It also gives recommendations on portfolio diversification. The app can allow you to invest in tech or even manufacturing. All these recommendations are updated daily. An algorithm looks at particular stocks and makes its decisions.
3) Analytical chatbot. Another major app type that is becoming popular on the market includes robo-advisor chatbots. In this respect, those apps will likely combine algorithms with generative AI. What’s the idea here? In many cases, algorithms used by various apps are obscure. People don’t understand why certain recommendations appear. Generative AI can use cues provided by machine learning tools to create high-quality explanations. Some apps even go as far as to analyze the money habits of their users. Cleo robo-advisor, for instance, even has a roast function for its clients. It criticizes the clients for wasteful purchases and praises them for good money habits.
Lastly, a major technology for modern fintech is cryptocurrency. We’ve already outlined its key characteristics above. Cryptocurrencies are transparent and enable international transactions. In many ways, cryptocurrencies are a technology that spawned fintech. They arose in response to the absence of an online presence for major banks. Bitcoin and other currencies were at first created as digital-centric solutions. Their goal wasn’t to be anonymous and decentralized per se. The key idea was to create a solution that would be comfortable to use on the Internet. The rise of this technology inspired many fintech organizations to start transforming the field.
What role do cryptocurrencies play in modern fintech? In our opinion, they have two key roles for the majority of organizations:
1) Investment options. Many fintech organizations present Bitcoin and Ethereum as perfect investment options. Their users can buy them to earn money on the ever-rising exchange rates.
2) Payment method. Many fintech organizations also use cryptocurrencies most directly. They present them as a perfect payment method for online transactions. For example, you can use USD Tether to send money between countries without major transaction costs. Bitcoin also allows saving money on many types of Internet transactions. Revolut has convenient tools for buying crypto on its platform.
IV. Fintech Impact on Traditional Finance
What does fintech mean for traditional finance? Let’s find out!
A. Disruption and Transformation
Above all, we see fintech as an ultimate disrupting technology. Fintech is bound to push the traditional banks out of the financial market. Why does it do this? In our opinion, its transforming power stems from the ability of fintech to make most services more convenient. The clients of fintech businesses no longer need to visit any offices or wait several days for application approval. Everything is automated and fast now.
Obviously, banks using past organizational models can’t compete. Their approach to doing business is simply outdated. In this light, older banks have two options. On the one hand, they can continue with the old practices. In many cases, they’ll lead those banks to customer losses. Only businesses, which tend to be conservative, will remain. On the other hand, some banks can choose to transform their models and become digital. One aspect is obvious: returning to the past is no longer possible. Deutsche Bundesbank reports that smaller banks following traditional business models are losing competition. In this respect, consolidation is one of the key trends in the market. German banks are among the most conservative in the developed countries. As a result, they often suffer negative consequences due to fintech. Consolidation occurs because bigger banks are more adaptable to changes.
B. Challenges and Opportunities for Traditional Financial Institutions
Ultimately, we don’t see the presented trends as a threat that will destroy the banking sector altogether. In many ways, the appearance of fintech is a great opportunity for banks. Yes, it’ll destroy the least adaptable organizations. However, the ones with robust management that are ready for reforms will likely stay in place. Firstly, fintech allows banks to deliver a generally better product. The need to visit banks to manage funds was a major problem for the banking sector in the past. Today, it’s possible to do most banking tasks from home.
Secondly, fintech also opens the path for various new services. For instance, fintech innovations are a perfect opportunity to enter the cryptocurrency sector. In this regard, neobanks like Monobank are already offering cryptocurrency exchanges. Traditional banks will likely be able to provide such services, too. In short, we recommend seeing the rise of fintech as an opportunity. If you have tech-minded management, this innovation will bring massive positives for your firm.
V. Regulatory Environment
What does fintech stand for? In our opinion, its key value is comfort for the users. Some organizations may be neglecting safety in pursuit of this comfort. In this light, we need to look at fintech regulations. Modern governments are paying increasing attention to this sector, and rightfully so.
A. Fintech Regulations
Today, we’re seeing more and more regulations for the fintech sector. In our opinion, the core regulations are arising in developing countries. Consequently, our goal is to look at laws that are appearing in those locations:
European Union (EU)
- Payment Services Directive 2 (PSD2). PSD2 is a directive that regulates payment services throughout the European Union. It aims to enhance consumer protection and promote competition. How does this regulation achieve this? It requires all financial organizations to actively consider investments in banking APIs. It’s now crucial that all consumers have access to transaction services online.
- GDPR (General Data Protection Regulation). This regulation is crucial for the security of modern financial services. It promotes strict standards for the handling of user data across the EU. For example, it’s illegal to collect any data without the approval of the clients. GDPR affects most digital companies in the region. Fintech organizations are among them, so the regulation is vital for them, too. Since most banks are getting digital, laws like GDPR will play a major role in all banking soon.
- Bank Secrecy Act (BSA). BSA is a law requiring banks to assist the government in fighting money laundering. Fintech companies, especially those involved in digital currency transactions, may be subject to BSA regulations. In this respect, we’ve already seen multiple scandals. For example, platforms like FTX, which involve crypto trades, became the subject of a government investigation. Top managers of cryptocurrency organizations are facing real prison terms. Why? Because their firms allegedly play a role in money laundering. According to Investopedia, Sam Bankman-Fried created platforms that make it easy to hide the real source of funds. We’re also seeing the rise of cryptocurrency mixers, which anonymize exchanges. Tornado Cash is among the most notable among them. It used to help North Korean hackers to steal money. Consequently, fintech organizations will likely see increased attention from the government.
- Dodd-Frank Wall Street Reform and Consumer Protection Act. Dodd-Frank includes provisions aimed at regulating financial institutions to prevent another financial crisis similar to the 2008 one. It established the Consumer Financial Protection Bureau (CFPB), which oversees various financial businesses. Fintech firms will likely face increased attention from this organization. Why? Many of them create non-conventional practices for finances. For instance, they’re lenient with giving away credit. This practice was one of the key reasons behind the 2008 crisis. Banks like Lehman Brothers were giving away loans to everyone. In this light, modern regulators in the US will fear the repeat of this crisis. Fintech organizations are likely to become the target of major regulations aimed at limiting access to loans. Considering their popularity, they can easily become the source of another banking crisis.
Financial Conduct Authority (FCA) Regulations. The FCA is the regulatory body for financial services firms in the UK. Various regulations and guidelines issued by the FCA impact fintech companies. In this regard, it’s crucial to consider those related to anti-money laundering regulations and electronic money. Britain is a major technological hub. As a result, modern fintech organizations should review all its core regulations.
B. Compliance and Security
All in all, modern fintech businesses will have to comply with all these aspects of regulations. Otherwise, they risk encountering major fines from the government. What are the best ways to maximize compliance? You should consider the best practices for securing data. In our opinion, it’s essential to make a major investment in the following practices:
Utilize robust end-to-end encryption protocols to safeguard sensitive customer data. Even if a leak of data occurs, it’s easy to minimize damage. Encrypted information may be impossible to review without quantum computers.
Multi-Factor Authentication (MFA)
Implement MFA across platforms to add an extra layer of protection. When you require the users to verify their identity through multiple authentication methods, even a PIN code leak won’t be fatal. In our opinion, mobile authentication is no longer sufficient today. You should go beyond two-factor authentication. In the modern world, there’s an increasing number of SIM card swap attacks. Criminals use problems in credit card operator processes to hijack your phone number. What do we recommend in this regard? Try adding fingerprint analysis and even eye scans if possible. Physical devices for multifactor authentication can also be a strong addition. The key idea here is to combine as many methods of authentication as possible.
Regular Security Audits
We also believe you should conduct routine security audits to identify vulnerabilities. Look through your existing security apps. Try to hack into the existing systems using ethical hackers. In short, test your system as much as possible. The key goal here is to address potential risks promptly. You can completely remake your security later using this information.
Compliance with Regulatory Standards
Stay updated and compliant with relevant financial regulations and cybersecurity standards. In many ways, the existing regulations are the best way to learn about the best practices in your field.
Many problems with security appear due to human factors. A single mistake on the part of one employee can lead to devastating security outcomes. In this light, you should provide comprehensive cybersecurity training for employees. What are your core goals here? You must raise awareness about potential threats such as phishing attacks. More importantly, a vital goal is to understand the importance of following security protocols.
Incident Response Plan
Lastly, you should understand that data breaches are sometimes inevitable. In certain situations, breaches occur regardless of the efforts. For example, they can happen because of problems with third-party software. What should you do in those situations? The key factor is not to panic. You must clearly understand your future actions during an incident. Our recommendation is to develop and regularly update a robust incident response plan. This approach helps minimize potential damage and ensure a coordinated recovery process. We know that companies using incident response plans save funds during breaches. Information leaks within them are typically not as acute as one expects.
VI. Future Trends in Fintech
In our opinion, several major trends will affect modern fintech. What is the fintech industry? It’s one of the most promising fields on the market. Here are the core trends that will affect it in the future:
A. Emerging Technologies
Above all, we’re likely to see the emergence of multiple core technologies in the fintech field. Fintech is about the use of technology in finance. Consequently, every company in this sector tries to use all possible technological solutions. Here are some of the core innovations we expect to influence this field:
Artificial Intelligence (AI) and Machine Learning (ML)
AI and ML algorithms enhance data analysis, risk assessment, and fraud detection. They can automate the majority of these processes through their ability to review trends and find irregularities in them. All this will eventually empower fintech companies to make data-driven decisions. After all, it’s no longer necessary to make major investments in large analytics teams. Emerging technologies allow small groups of experts to make large-scale predictions.
Quantum computing offers humankind immense processing power. It has the potential to revolutionize complex financial calculations. The processing power will be a million times greater. Consequently, our data analytics and cryptography tools will become much more advanced. With these tools, we’ll be able to plan much more than in the past. Our fintech banks will become safer and, more importantly, be able to provide transactions faster.
The ultra-fast and low-latency capabilities of 5G networks enable real-time data exchange. For banks, this is vital because this framework will promote seamless mobile banking experiences. Transactions will become faster. Daily interactions with banking apps will be extremely fluid. We’ll also see widespread adoption of the Internet of Things (IoT) in fintech. Many organizations will extend banking to almost every part of our everyday lives.
RegTech (Regulatory Technology)
RegTech leverages technology, including AI and machine learning, to streamline regulatory compliance processes. We’ll likely see more regulations touching upon fintech in the future. RegTech will be essential for managing these rising trends. The more regulations will appear, the more attention most fintech firms will have to pay to this aspect. RegTech will be able to save time for the majority of them.
Fingerprint recognition, facial recognition, and voice authentication will boost security. More importantly, they’ll make the majority of the services more convenient. This will help you make user authentication easy and secure. As a result, the reliance on traditional passwords in fintech applications will decrease.
B. Industry Collaboration and Partnerships
A big aspect of modern fintech will be the rise of industry collaboration. We’ve already mentioned that many banks are consolidating. For now, the fintech services are fragmented. On the one hand, this leads to better competition in the market. On the other hand, fragmentation creates tremendous problems for average users regarding choice. Finding the best conditions in the market is difficult. Modern fintech creates choice paralysis in many cases. Consequently, many organizations will boost their visibility through a combination of efforts. We’ll likely see many collaborations between companies that specialize in particular services. For example, crypto exchanges often are more efficient than neobanks in cryptocurrency. If they unify their efforts, the overall service for the clients will be much better.
C. Global Expansion
Lastly, fintech firms will likely become global. For now, fintech is primarily present in developed countries and some advanced developing ones. In one way or another, the Global North is leading in this regard. We believe that the upcoming years will see a major expansion into the Global South. Many large-scale organizations in the fintech sector are already doing this. For instance, Revolut has recently entered Brazil. It plans to conquer the Latin American market in the future. Many organizations of this type will do the same. Cryptocurrency exchanges and neobanks all seek to expand.
VII. Risks and Concerns
What is fintech? It’s a field that deals with a lot of sensitive user data. Fintech brings about some major risks and concerns regarding it. Let’s discuss all of them in depth.
A. Security and Privacy
Above all, fintech brings about major problems with security and privacy. Here are the top concerns that can befall your company:
Fintech platforms are susceptible to cyberattacks. This can lead to unauthorized access and potential theft of sensitive information. Multiple fintech organizations have already fallen victim to data breaches. In this respect, the biggest data breach of this type has to do with Equifax. In that incident, the criminals have managed to expose the data of 147 million people. What’s the key reason for major data breaches? In some cases, they occur due to misconfigured servers. In other situations, there may be undisclosed bugs in the key development frameworks or even hardware. For instance, a common situation is to see major gaps in processor protection.
The digital nature of fintech services increases the risk of identity theft. Criminals can exploit vulnerabilities to impersonate individuals and gain access to financial accounts. One of the key ways for abusing data theft includes SIM card swaps. In this case, the criminals impersonate the victims and then hijack their phone numbers. Using them, they can access all their accounts and steal funds. There are many reports of people losing millions of dollars because of this issue.
Fintech users may fall victim to phishing scams. What’s the idea behind them? In this case, fraudulent emails or messages trick the users into revealing sensible data. It may include personal information, login credentials, or financial details. The criminals can later use this information to impersonate the victims, for instance. Phishing information is often sufficient to enter user accounts, too. In short, it reveals data that can lead to immediate fund losses. Since fintech is digital, doing this is extremely easy. One password leak may end in long-term damage for the average client.
Mobile Device Vulnerabilities
Fintech transactions often occur through mobile devices. We’ve noted that they’re the core of a fintech revolution. What’s the problem here? Many mobile devices have numerous vulnerabilities. For example, a large number of users utilize outdated platforms for both iPhones and Android devices. Some no longer receive high-quality security updates. As a result, it’s easy to compromise the security of financial transactions.
Fintech firms often collaborate with third-party service providers. It’s possible that some of them make major errors regarding security. Ultimately, this means you risk introducing additional security risks if these partners don’t uphold robust security measures.
Employees within fintech organizations may pose a security risk. Some individuals may intentionally or unintentionally compromise sensitive information or systems. For instance, CNN reports that Citibank has once wired 500 million dollars due to an employee error. The company failed to restore its money. In other cases, some firms accidentally hired hackers from North Korea. They then used their insider knowledge to steal money from corporate accounts and individual customers.
B. Regulatory Compliance
Fintech companies face challenges in adhering to complex and evolving regulatory frameworks. All this potentially exposes them to legal and financial consequences. We’ve already mentioned some of the biggest regulations that can affect a fintech firm. Problems with GDPR can lead to massive fines. Ultimately, the origin field for fintech, cryptocurrency, currently encounters massive government interventions. For example, the creators of multiple cryptocurrency exchange sites are now in prison. This information means that all governments across the globe are paying increasing attention to fintech. Further interventions in this field are, more or less, inevitable.
C. Ethical Considerations
There are multiple ways in which fintech companies promote unethical results. Firstly, their ability to collect a lot of data can lead to an unethical use of data. For instance, it’s possible to advertise some products with significant success if you know the key interests of the customers. Secondly, fintech algorithms may inadvertently perpetuate bias. All this can result in discriminatory outcomes. For instance, fintech firms can start treating certain demographics unfairly in financial decisions. All this data showcases that the fintech field is open to significant ethical issues. How to solve them? Refuse to sell data to advertisers. More importantly, focus on anonymizing user information. In this way, no algorithm will be able to pathologize the behaviors of certain groups.
To summarize, fintech is a field that is showing great promise. In many ways, it’ll transform the future of finance. Modern fintech projects solve the majority of the problems banks face. What’s the future of this field? In our opinion, it’ll primarily expand further through the rise of AI. Artificial intelligence algorithms will help automate many tasks in fintech. Consequently, firm owners will have to spend less on the workforce.