The financial industry has been undergoing innovative transformations over the years. Cashless payments, mobile banking, and other technology-powered solutions are reshaping how customers, financial companies and banks manage their finances. However, with plenty of opportunities come new challenges financial institutions must tackle.
What is fintech?
Financial technologies, or fintech, encompasses advanced technologies that are used to improve or digitise traditional activities in finance. Blockchain, cloud computing, artificial intelligence, advanced analytics and other financial software solutions help to modernise, automate and boost financial services.
Fintech platforms can perform such tasks as transferring money from one account to another, paying bills, and many more. According to Statista, the value of transactions in digital payments has increased from $4.1 trillion in 2019 to $5.2 trillion in 2020.
Fintech can also be applied across almost every industry, geographical market and business model. For example, banks can leverage fintech to monitor account activity or implement customer-facing solutions, like chatbots or mobile apps. And retailers, for instance, can use innovative technologies to calculate taxes or simplify payment methods, even cross borders.
Key challenges that the fintech industry faces
As in any other industry, fintech has its challenges, and fintech companies encounter some obstacles. From user retention and overshooting targets to data security issues, there are some crucial areas enterprises need to focus on to ensure lasting success.
Let’s go through the top three challenges companies face with their fintech transformation and how to tackle them.
Challenge 1: data security and privacy concerns
In today’s business environment, cybersecurity is more important than ever. According to IBM, the average cost of a data breach in the financial industry equals $5.85 million. An increasingly digital environment in the financial sector, including mobile banking and payment apps, is one of the cybercriminals’ top targets.
Cybersecurity vulnerabilities can impact customers’ money as well as personal data. So that even large reputable companies have to take care of the valuable information and make sure their virtual security is on point.
Advice: Use data encryption algorithms to encode data, such as Advanced Encryption standard (AES), Rivest-Shamir-Adleman (RSA), Triple Data Encryption standard (TripleDES), Twofish and others. With data encryption, only people with special keys can access the information.
Ensure secure authentication methods in your fintech solution. For example, make sure the users of your software are regularly changing passwords. You can add the layer to your security by introducing biometric authentication; biometric cybersecurity is based on a person’s features (fingerprint, voice, iris pattern, etc.) that minimises the chances of a breach. Implement role-based access control so that only authorised users can access certain information, keep track of failed sign-ins and monitor suspicious activity.
Challenge 2: compliance with regulations
The financial sector is one of the most regulated. Since innovative technologies are increasingly integrated into financial operations and services, regulatory obligations for such processes also arise. Different legislative guidelines are set out to protect financial institutions from frauds and malicious actors, safeguard customers’ investments and sensitive information.
Moreover, fintech applications are broad and intersect various business sectors. It only complicates companies’ process of formulating compliance strategies and figuring out regulatory demands.
Advice: Start with checking legal compliance before developing an application or using software — partner with an experienced legal consultant to guide you through all the details and policies, if needed. You can turn to regulatory technologies to automate the process of monitoring the introduction of new regulations or any updates.
Though there is no all-size-fits-all approach, fintech companies can create their solutions keeping in mind some of the top fintech compliance practices, including knowing your customer (KYC), anti-money laundering (AML), and others.
Challenge 3: lack of tech expertise
Financial companies with obsolete business applications and systems will not be able to meet the rising demands of the digitalised world. Modern customers want a seamless a convenient way to access financial services. According to Business Insider, around 169.3 million mobile banking users, 80% of whom prefer mobile banking to access their accounts.
Legacy systems and lack of tech experts lead to services that are not user-friendly and bring no value. A mobile application developed by a specialist without proper expertise can deprive a company of multiple benefits, for example, NFC chips that streamline payment methods, fingerprint unlocking that enhances applications’ security, and other features.
Building a top-notch financial solution is not easy; it requires hands-on experience. Many companies fail to form strong in-house teams; moreover, the hiring process may be pretty time-consuming.
Advice: Look for a reliable technology partner to outsource the fintech development process. Outsourcing allows you to hire experienced specialists that can start creating your solution immediately. An external team of experts will also help you reduce expenses on recruitment and training of new employees.
Financial technologies are going to increase their market share in the future. But creating an effective and secure fintech solution requires a lot of effort and a skilled team. To create a functioning financial system and outwit the competition, team up with qualified experts.