In our increasingly connected world, technology is enjoying an ever closer relationship with financial services.
In this article, Nicholas Harding, CEO of P2P lending platform Lending Works, shares four developments he believes will shape the future of fintech.
Within the past decade, we’ve seen the landscape of fintech move from a few disruptive start-ups to an industry that’s changing the landscape of business altogether. Consumers are becoming more and more accepting of technology as part of their day-to-day finance, a factor that has stretched the services sector and levelled the playing field with traditional institutions.
For instance, there has been a monumental shift in the way that consumers are managing their money. PwC’s Global Fintech Survey 2017 found that 84% of incumbent financial services providers believed their customers were already making payments with fintech companies, 68% thought customers were conducting fund transfers, and 60% said their clients were using fintech for their personal finances.
However, I believe the future of fintech will be much less disruptive, and much more collaborative. I also think that emerging technologies and practices will improve financial services for consumers and businesses alike. Below, I’ve listed four developments that will shape the future of fintech.
More collaboration between traditional financial services and fintech
Once seen as upstarts, fintech companies are now being viewed as potential partners by traditional institutions as they get over their suspicions. Both sides are seeing the value in each other: fintech firms need capital and access to a customer base, while the banks need to embrace new approaches and technology to continue delivering a quality service.
We’re now seeing successful collaborations across the sector. Steve Davies, a partner at PwC, recently told Raconteur that “every bank in Europe” is now fostering fintechs that they hope to benefit from, as well as actively looking for new innovation elsewhere. It’s clear that both sides have things to offer each other, and as credibility continues to grow, I expect to see more collaborations blossoming in the coming years.
Fintech will be perceived as part of financial services
I’ve already mentioned how traditional financial service providers and fintechs are beginning to collaborate, but I think things will go one step further than that. As the divide between the two blurs, we will see fintechs increasingly being viewed by the outside world as just financial services, without the “tech” moniker. The whole financial sector is embracing technology and moving in the same direction, so it’s inevitable that fintech will be perceived less and less as standing apart.
For instance, at Lending Works, we use technology to innovate and wear the fintech label with pride, but the core of our services is still financial, and we don’t share the same attributes as “purely tech” firms, such as being instantly globally scalable. And, in P2P lending, we’ve also seen huge recognition in regulation by the Financial Conduct Authority and the establishing of the Innovative Finance ISA, which is a sign that our sector, which was once a disruptor, is being perceived as an essential financial service.
Data science will drive strong performance
One of the biggest innovations to come from fintech has been the development of more advanced data science, which has the potential to drive strong performance in the financial services sector. With increased capacity to process data in more efficient ways, companies will be able to deliver a higher standard of service to consumers, as well as improving the way they work internally and helping them to make much smarter business decisions.
Machine learning is probably the data science making the biggest waves. With more sophisticated ways to take big data, process it, and draw the right conclusions, huge advances have been made in areas like fraud detection, risk modelling for investments, personalised marketing, and lifetime value predictions. As this fintech improves, the early adopters in the financial services market will have a major advantage over their slower-to-adapt competitors.
Better connectivity will be the key to longevity
The fintech sector is fast moving, and any successful company needs to be incredibly flexible and highly adaptable to survive. However, it’s the firms that are willing to embrace a more connected way of doing business that will stand a much better chance of being around for the next ten years and beyond. Making sure each part of the company is connected, whether it be through data, process, or the people themselves, will allow for better decision-making and the ability to stay nimble in a time when financial laws and regulations can change rapidly.
Traditional businesses often compartmentalise their operations into departments, and in many cases, those departments can fail to communicate, leading to critical oversights. When everything is connected a better flow of information is possible, meaning fintech companies can be much more agile than their competitors. This can really pay off when you’re competing against multi-national financial institutions with more resources.
