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If you’ve ever found yourself needing a loan for a business or yourself, you’ve already come across the financial sector industry. As in most industries, young and old, technology has made big and important changes. This article will explain what this industry is, why it relies on technology, and how it implements it.
In short, the financial services sector provides financial services to people and corporations. This includes loans, but also investment and innovations in the sector. The term fintech exists and refers to the synergy between finance and technology, which is used to enhance business operations and the delivery of financial services.
Technology in the financial sector can appear in multiple areas, software, services, or even businesses that provide technological ways of making traditional processes faster, more secure, more accessible, more transparent, and so on.
The sector is of major importance and has reached a point of too big to fail, everyone uses credits cards, mobile payments, and keeps their funds in a bank. Technology helps the financial services industry stay up to date by providing clients with easy-to-use tools that make the industry even more indispensable.
The financial services industry is starting to rely more and more on technology for several of its services.
Platforms like Kickstarter, GoFundMe, and Patreon are all the result of developments in fintech. This allows entrepreneurs and early-stage businesses to raise funds from individuals all around the world, this enables them to reach international markets and investors to help fund their projects and for investors to find quality projects.
Mobile payments are one of the most important technologies upon which the financial services industry relies. Some organizations are starting to provide banking activities without visiting a physical bank, Paypal, Venmo, and others are enabling customers to send and receive money through smartphones with minimal transaction fees.
This technology has expanded payments to our phones, and smartwatches, making payments more accessible, easier to do, and most importantly, instantaneous. This innovation particularly concerns people that live abroad or have to send money internationally. This also gives users the ability to easily and securely transfer money to their friends.
This kind of service is designed for investors that don’t want the hassle of creating a portfolio and managing it, these services that are now well developed and used by some top-tier organizations create portfolios that adapt to the risk and return levels of the user. This allows everyone to engage in investment activities at low fees with minimal effort.
This term refers to a central aspect of the financial services sector, the application of technology to the insurance model. This allows companies to provide tailored insurance services and data security. Insuretech helps streamline the insurance process through online claims filing and policy management. A lot of online banks now offer such services and rely heavily on technology to make this a reality.
Regulation technology or Regtech focuses on the automation of compliance processes for the financial institution. This offers fast and cost-effective handling of large amounts of data, including transaction records and compliance documents, such as corporate tax returns and more.
Now that we understand the different aspects of the industry that rely on technology, let’s look at what technology contributes to this space.
These two technologies are some of the most used and powerful technologies in fintech, they offer the potential to play an even bigger role in the finance industry. As development continues, AI and ML promise to optimize existing algorithms, these could be on risk management, or to find the best possible return on investment. Some of the fintech applications for these technologies include wealth management, regulatory compliance, credit scoring, and fraud detection.
Data from customers and markets is of high value for the fintech world. Through large datasets, consumers show what their habits are, what they prefer and what their overall behavior is. Fintech companies can exploit this information to design predictive analytics that determines how a consumer will behave using his past actions. The collected data also helps to formulate marketing strategies and fraud detection algorithms.
RPA or Robotic Process Automation refers to the process of assigning manual, repetitive tasks to robotics instead of humans in order to streamline workflows in fintech. The most common applications of RPA in finance are :
The financial industry is adopting blockchain technology, primarily for its ability to securely store transaction records and other sensitive data. Each transaction is encrypted, and the chances of successful cyber-attacks are relatively low when blockchain technology is employed, at least lower than what they would be in most traditional centralized architectures.
As a whole the financial services industry concerns all of us, we use it daily to pay for food, to pay our rent, and pay for almost everything we do. The space has largely benefited from technology by creating faster, more secure, more accessible processes. This in turn provides customers with investment opportunities that are hassle-free and managed by algorithms. Technology has automated much of the complicated operations of the space and now provides optimal transactions for lower fees.