A Quick Overview
The fintech market is not at all a buzzing term. In fact, it seems to have experienced lots and lots of massive growth. The money-related services have become better and are shaking up the financial and banking industry in lots of ways. In addition to lots and lots of benefits, these concepts bring a sea of challenges, which the current banking and financial institutions are grappling with every now and then.
At one end, fintech offers smart solutions, but at the other end, several companies are still figuring out how technology can aid or disrupt their daily operations. Overall, several banks across the globe seem to have embraced fintech as a serious solution to meet the ever-evolving demands of the end customers. As the name implies, the following post is mainly about the most significant issues found in the fintech industry- how to find relevant solutions and create more modern opportunities. However, first of all, let us try and understand the basics.
The world is progressing, and industry verticals such as finance and trending towards an intersection where technology and innovation can both lead to a dynamic rise in the term called fintech.
Managing finances has become a lot easier, especially when we managed to bid adieu to all traditional banking models. Now, the end customers aren’t simply offered innovative solutions but also the possibility to reshape the industry and leverage technology to a great extent.
Fintech is Driving Change - Here’s how?
Fintech or financial technology refers to the use of technology to offer quick and absolute financial services. Much like other industry verticals, fintech is also progressing every now and then, You can see the ever-evolving growth of cashless payment system and other technologies such as machine learning, blockchain, automation, bank lending, or consumer lending.
There is no denying the fact that financial technology has brought a humongous difference in the way, especially when it comes to operating financial businesses. No wonder, both traditional banking and technology-led financial services are hellbent on offering exemplary customer experience like never before.
Types of Fintech
Fintech Banks
One of the basic and most common types of fintech companies is the fintech banks, often known as neo banks. Now, there is no denying the fact that banking services have been one of the most central components of any financial system, and with the rise in fintech, things have really been unpredictable. Services such as verifying identification, opening an account, funding, and a severe reduction in fraudulent sign-ups are pretty easy-peasy.
Fintech Payments
Another aspect, other than neobanks, which is on the rise, is fintech payments. Well, you may not know what fintech payments are, but you definitely understand the term of cashless payments, since we all tend to use them in our day-to-day lives.
In fact, after the COVID pandemic, cashless payments have made a huge jump. In fact, the volume of non-cash transactions has increased from $1.4 billion in 2023 to $1.6 billion in 2024, in short, a more than 14% increase, can you imagine? Wondering why? Well, receiving payments via direct bank transfers is less expensive in comparison to using credit cards, as it has more users signed up and authenticated.
Personal financial management (PFM)
Often known as PFM apps, enable users to consolidate financial information from different accounts within a single dashboard. So in simple words, you can stay updated with all the current finances. In fact, there are several apps that assist in developing an accurate picture of financial health as well as the net worth.
Wealth management fintech applications
The next one is wealth management fintech apps, these apps can be considered as your financial advisor where iy incorporates held-away account information to grow assets under management better (AUM) while delivering more holistic financial advice. So you get easy access to investment plans, education, and financial advice products.
Fintech Lenders
Lenders worldwide often tend to struggle to gain a competitive picture of the app since it takes ample of time to collect income information, account balances, and asset history. Not to mention, it usually turns out to be quite a cumbersome procedure to get borrowers to connect to their bank accounts, especially in terms of receiving and paying loans.
Such fintech can assist in streamlining the loan process, especially for borrowers, while offering lenders access to the user-permissioned bank, payroll, and other data-informed lending decisions.
Advantages of Fintech
Conducting finance-related businesses has undergone a huge transformation. However, it doesn’t mean traditional banking systems are no longer in vogue; in fact, the power is in the hands of the customers whether to pick the most tried and tested approach or to take convenience into account. Here, down below, I would like to focus on some of the most obvious yet crucial advantages offered by fintech.
Easy access to financial resources
More and more fintech companies are developing algorithms and ecosystems for different businesses to accept payment for trades and services in the most convenient manner possible. There is no denying the fact that fintech innovations have been one of the best growth drivers for businesses all across the globe.
I mean, who doesn’t want to have instant access to resources, distribution channels, as well as large investment platforms? In fact, electronic payment technology is used for purchasing a product or service on the internet. The crux of the eCommerce process includes an instant payment app, so now you know how a successful transaction is created.
In comparison to traditional banks, the financial sector’s low entry threshold has made the industry worth working for. Not just banking companies, but non-banking companies with the help of open banking APIs can form instant partnerships with vendors as well as launch a working solution like no other.
Enhanced customer retention
One of the most common goals for fintech innovators is to offer a personalised user experience and one of the most absolute crux or logic behind the growth of this financial technology.
The key is to successfully adopt some of the most generic and industry-specific fintech products and nothing can stop you from offering the most impressive purchasing experience.
Customer retention has improved, all thanks to an increase in speed and convenience. And of course, one should ignore the fact that here customers are bound to receive a personalised experience, all thanks to AI and big data.
Secure, Personalised, User-Friendly Services
Since we are talking about money and finances, security must be at the core of e-payment services. Since fintech minimises the risk of loss and physical theft, it doesn’t mean there is no scope for cyber theft. However, the good news is the theft can be reduced to its barest minimum especially after the early adoption of modern cybersecurity intermediaries.
So before conducting the development of a fintech application, one needs to learn all the laws and implement all security measures, such as security service edge, which will surely protect the app from being hacked. What else? Here you get to learn about real-time money tracking, for both domestic and international payments, which dramatically enhances transparency.
Faster Transactions
With the help of fintech, financial transactions have become way faster, better and highly efficient. Earlier, money transfers used to take days to complete, and now it can be accomplished within just a few seconds.
Efficiency
Last but certainly not least comes an increase in productivity and efficiency. These technological advancements, such as fintech definitely assist in adding efficiency to the process. Now, as we know, automation doesn’t involve human intervention and which is why, here you are bound to receive a high level of specialisation.
You see, fintech companies can be rapid and agile at the same time and offer improvement in efficiency and time management.
Top Challenges in Fintech
Identity theft
Cybercriminals often use stolen or hacked login credentials to impersonate users as well as access a large number of accounts on different fintech-based apps. This means they end up stealing a wide range of money and sensitive personal information, which can harm you to a great extent.
API attacks, which generally compromise authentication tokens as well as other verification methods, help keep accounts safer and better.
So, how to protect users? All you need to is implement a strong authorisation and authentication mechanism.
Raising venture capital
Another key element to consider, especially to make a startup grow, is venture capital. Now you must be thinking, how is this possible when the interest in the industry is increasing every now and then, what if I say even today, attracting the right investor is still a challenge?
So, what are the common queries usually asked in the due diligence process?
- What problems can be solved by the product?
- Are there any potential risks involved in the business?
- How big is the market opportunity?
- What makes the founders think the product will be successful?
- How will the investment capital be used to achieve the product’s goals?
With the rising competition, investors have become pretty much attentive to financial benefits; however, one needs a highly detailed financial plan, a long-term strategy, and validation of the idea.
Third-Party Risk Management
Fintech companies usually are found heavily relying on third-party vendors, especially for data, infrastructure, or other services.
Successfully managing these relations as well as successfully ensuring compliance with relevant regulations has been one of the major challenges. So in short, here it is advisable to conduct due deligence, establish clear service level agreements, and monitor third-party performance.
And one of the biggest challenges faced by fintech companies is to stay ahead of the curve and keep up with new as well as ever-evolving requirements, which can be overwhelming at times, especially for small firms which feature a limited amount of resources. You see this is the reason why it is believed that in the fintech world, ensuring ongoing compliance is the most challenging task at hand.
Final Words
Digital transformation is a must, be in any sector or industry vertical. In fact, it has succeeded in leveraging a wide range of initiatives featuring high adoption of digital platforms, ensuring that all the manual procedures are highly automated, implementing highly secure payment systems, and developing an innovative range of financial products and services.
In the end, you are bound to receive benefits such as highly streamlined operations, enhanced customer experiences, and harnessing the power of tech to meet the evolving needs and expectations of customers. Last but the least thing you need to keep in mind, what truly drives the digital transformation in the fintech industry is the changing behaviour of the end customer. Each and every one of you expects personalisation which truly resonates with them, frictionless transactions, real-time access and nothing less.
As mentioned above, no transformation journey is without challenges and fintech is not at exception. Legacy systems, regulatory compliance, cybersecurity, and customer adoption are some of the most common yet crucial hurdles which need to be taken care of for the best possible results.
As a solution, you need to embrace modern technologies and foster a culture of innovation, with strategic planning, collaborating with trusted partners and creating a customer-centric financial ecosystem. No wonder several fintech companies are paving the way for a highly safe, secure, efficient, and customer-centric financial ecosystem.
So that’s all for now, I hope you did find the following post featuring top challenges faced by fintech companies across the globe worth considering. In case you still have any kind of doubts or queries, feel free to mention them in the comment section below. Always remember, the future lies in the hands of those who ensure to successfully embrace the ever-evolving opportunities offered by digital transformation and to be honest, here possibilities are completely endless.
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