Why FinTech is a Victim of its Own Success
The merging of technology with industry names has become very common. Today, the ‘tech’ suffix is combined with terms such as healthcare (HealthTech), property (PropTech) and education (EdTech) to form words that are entering into our everyday lexicon.
FinTech – financial technology – is arguably the most prominent of them all. FinTech is now widely used in both a consumer and business context; generally, it is applied to digital banking, be it online or mobile, as people have become more comfortable with using technology to access their accounts and manage their financial affairs.
Yet, the term FinTech is not without problems. In fact, the same could be said for HealtTtech, PropTech, EdTech, InsurTech, RetailTech, GreenTech and every one of these phrases.
The problem is that they are broad, catchall terms. As a consequence, when we talk of FinTech, the conversation has become vague and jargonistic – the word itself only carries a loose meaning.
What’s in a word?
So, why does this matter?
Well, underneath the semantics, there is a pertinent issue: the advancement and adoption of technology is hindered by excessive use of general buzzwords.
We can look to the artificial intelligence (AI) sector as a clear example: according to a 2019 study by London venture capital firm MMC, 40% of European startups that are classified as AI companies do not actually use artificial intelligence in a way that is “material” to their businesses.
Popular technologies have a habit of, therefore, becoming a victim of their success. As soon as it is dubbed “the one to watch”, a field of technology is at risk of being inundated by jargon; lines become blurred; startups jump on the bandwagon; investors rush to back nascent tech that is yet to prove its worth, and businesses latch on to trending terms to sell products.
Is FinTech plateauing?
In contrast to the ever-increasing use of the term FinTech, an argument could be made that financial technology is failing to live up to the hype. Or, that the sector is starting to plateau.
The onset of the global financial crisis in 2008 promised to set in motion a period of significant change within the financial services sector. Over the past decade, commentators have been heralding the coming of the ‘FinTech revolution’.
The transition from traditional, cumbersome, offline processes to new and innovative digital solutions was meant to inspire a new look to the finance industry – one where customers would be empowered by choice, with fairer deals and more hassle-free experiences; meanwhile, an era of open data would see a more progressive application of data management so it could be better collected, stored, analysed and understood.
However, in truth, this revolution has struggled to make much ground in recent years. Outside of relatively basic online banking software, consumers generally have not experienced much of what financial technology has to offer. An understandable hesitancy surrounding regulation and the migration to new technology has meant that FinTech adoption has generally been cautious to date.
The coronavirus pandemic has already played its part in changing this, though. Yobota recently commissioned an independent survey among over 2,000 UK adults – it found that FinTech usage was 50% higher during the lockdown period between March and June 2020 than it was in 2019.
As social distancing measures were imposed, consumers and businesses became far more reliant on digital banking to manage their financial affairs. What’s more, the economic hardship brought about by COVID-19 has also driven more people to seek new forms of credit (namely loans and credit cards), which banks have now had to be able to provide while their teams were working remotely, and their branches were closed.
The need for cloud-based banking platforms, which can be accessed by customers and employees anywhere, has become clear. So too has the need to automate processes and use interoperable technologies – again, in the cloud – to ensure an excellent service can be delivered without financial services businesses needing to have entire teams in a physical location.
The next era of FinTech
The term FinTech is here to stay. However, now is the time to look beyond financial technology as merely being ways of accessing one’s account or quickly transferring money to someone else. We have to think bigger. Much bigger.
The fact that banking staff were on the list of key workers during the recent nationwide lockdown in the UK (allowing them to travel to offices and bank branches) is demonstrative of the fact that the FinTech era is not yet upon us. Many incumbent banks continue to operate on legacy IT systems that prevent them from delivering financial services from outside their workplace.
And yet, true FinTech is a fully digitised service. Theoretically, if financial service providers had fully adopted technology throughout their operations, then banking staff should have been fully capable of working from home without their customers being adversely affected. What’s more, with the right technology in place, neither staff nor customers would be unnecessarily exposed to the health risks posed by COVID-19.
Instead, the pandemic has instead laid bare the practice of using a banking app or website as a front for embracing FinTech, whereas, in reality, the adoption of tech has not advanced too far beyond this point. The next era of financial technology will see us move far beyond this; it will be defined by cloud-based platforms and open banking, by interoperability between different technologies and systems. This will provide the end-user with a joined-up service and a far better experience.
Moving beyond niche solutions for niche problems
Take the example of someone applying for a credit card; something that is likely to have become increasingly common over recent months, as mentioned above. There are various different stages that an applicant will need to pass through – identity verification; credit scoring; advice or product recommendation; application and assessment; and, if successful, creating the account.
Outside of relatively basic online banking software, consumers generally have not experienced much of what financial technology has to offer.
At present, credit card providers might have implemented tech (FinTech) for some parts of that chain. For the rest, human involvement is required. What’s more, the applicant may take on a new credit card with a bank they have not previously held an account with – they now have one more app or online platform they have to use to manage their financial affairs.
A more progressive approach to FinTech – that is to say, the true vision for what FinTech can enable – would ensure an individual can receive the credit card through an entirely automated process with as few clicks as possible. On top of that, they should be able to check and pay the balance on their new credit card through their existing digital banking platforms, rather than relying on several.
This is only possible through open banking, open data, cloud-based platforms and interoperable systems; after all, this was the promise of the FinTech revolution. As such, the industry would advance beyond the niche digital solutions that have been created for niche problems; while FinTech in isolation can deliver value, it is only when a more holistic approach is taken, and technologies are used together, that the financial services sector will truly innovate.
For all the hype and investment, FinTech is still in its infancy. People might be familiar with the term FinTech, but they are only experiencing the early stages of what it can deliver.
Finance firms cannot become complacent while legacy IT and on-premise servers continue to halt the progress of the digital transformation in the financial services space. Now is an opportune moment to bring about the next stage of FinTech’s development and push towards its true potential.
Ammar Akhtar is the Co-founder and CEO of Yobota, a London-based technology company. Founded in 2016, Yobota has built a fast, flexible, cloud-native core banking platform, which allows clients to create and run innovative financial products.