The exponential accelerators of the FinTech industry

Eric Ries, the father of the “Lean Startup Methodology,” defined a startup as that budding technology-based company with a high-growth, scalable model that moves in high-uncertainty environments. If we added the generation of new financial products or services to this definition, we’d have the makings of a financial technology (FinTech) startup.

The FinTech industry includes companies that generate great value for society. They’re a catalyst for entrepreneurship, creating high-quality employment and developing technological innovation in their sector. They are, without a doubt, a driver of job creation. We can’t forget that there’s a directly proportional relationship between innovation and the development in a country. When innovation is able to generate more, the unemployment rate may be lower and the country may be richer.

The activity of FinTech and InsurTech companies is based on the technology to offer innovative and alternative financial and insurance products or services. These companies take advantage of the latest technologies to create new solutions that help innovate and digitally transform the financial sector as a whole. This is why FinTech companies have come to the industry to transform it as never before.

The digital transformation of this sector is marked by the three following accelerometers:

1. Regulation

The solid regulation framework of the FinTech industry would allow being agile and launching new business models. For example, a best practice would be a type of sandbox that would allow an innovative finance activity to be tested with clients during a limited period of time and under special and safe supervision. Using the sandbox will result in improvements in the authorization of these new business models, so regulation will lead to piloting new financial activities.

2. People

The people will be responsible for driving the industry to the 21st century of banking. Due to the need to change the mindset of the people in financial services, those in the FinTech industry must come up with new digital competencies and emphasise the importance of working with the new digital clients.

3. Technology

Don’t forget that the words “FinTech” and “InsurTech” include the word “technology” — without it, these companies wouldn’t be possible. As Gaurav Sharma wrote in “Chatbots Magazine,” technologies such as the IoT, cloud, artificial intelligence (AI) and bots are changing the way data is processed in every part of the world, from creation and collection to interpretation and communication. Technology is the real lever to implement the innovation and will revolutionise the banking industry in the following 4 pillars:

1. Customer experience

Customers today are more demanding than ever and demand a unique user experience. Some examples are the customers’ digital onboarding. Opening an account in a bank branch will be something of the past now that you can do it in just a few minutes from your mobile phone.

2. Cloud computing

Companies in the FinTech industry are using cloud computing to both build and run their companies, giving them a real competitive advantage over the big, traditional financial institutions. Cloud computing service providers remove most of the initial infrastructural barriers, saving a FinTech startup immense cost and time when it’s building its product. And, one of the most disruptive things is that this technology will allow them to get an exponential growth of their business models.

3. IoT

Howard Berg of “Finextra” asserts that the IoT is, without a doubt, one of the biggest technological transformations on the horizon of the digital revolution. Machine-to-machine (M2M) connectivity is going to have an important impact on our society, culture and business, especially in the banking and insurance sectors.

“Insurers, for example, have been quick to learn about and welcome the opportunities to develop new ways of using increasingly widespread sensor data in wearable and smart car technologies to gain much more detailed and valuable risk data on their customers,” Berg said.

All of this data has a direct impact on the final insurance price. M2M connectivity also enables a mass collection of information, allowing banks and FinTech developers to better analyse the wants, demands and behaviours of customers. This way, it becomes possible to lend money in real time when the customer needs it, or offer personalised wealth management advice.

4. AI

AI and bots will become the next wave of wealth management (robo and quant advisers), customer support and automated virtual assistants, doing real-time risk analysis, underwriting loans and insurance, detecting fraud and money laundering and conducting advanced data analytics, all while being focused on maximizing customer satisfaction and optimizing revenues.

According to Sharma, “in financial services, artificial intelligence (AI) is being similarly deployed in the back end to enhance decision-making in lending, trading and advising, and in the front end to power the customer-facing services.” AI bots are being humanized in an effort to become the primary interface between potential or existing customers and financial service firms.

We need an adapted regulation framework wherein people can innovate and create new products that solve customer problems. Today’s current and emerging technology will be the perfect lever to make true the future of the digital financial sector. Keep your eye on the three accelerators: regulation, people and technology.