For all the talk of a fintech revolution, it is only just beginning

Periods of dramatic change and upheaval invariably deepen divisions between strong and weak businesses. The pandemic is already serving as an example of this.

Such a commercial perspective in the middle of a grave health crisis may seem insensitive, but businesses must – if they are not already – be alert to the fact that Covid-19 will result in a significant restructuring of their industry. Their futures depend on it.

This is undoubtedly true in the financial services sector, with the pandemic placing financial technology under the microscope; during this period of social distancing, consumers and businesses are forced to manage their finances remotely via online and mobile platforms.

The talk of there being ‘a fintech revolution’ over the past decade has suddenly been brought into perspective. Only now is the much-lauded transition from a physical world to a digital one truly going to take shape.

It is no surprise, therefore, to see high levels of interest in fintech among investors. An example, of this is the $4 billion that VCs invested into London’s tech businesses in the first five months of 2020. Thirty nine per cent went to fintech firms, according to a report from Tech Nation and Dealroom for the Digital Economy Council.

The pertinent question is whether or not financial services firms are ready for the revolution. And, for those who are not, what can they do to catch up?

Many financial services firms left in the dark

Since the turn of the century, the rise of fintech has been a prevalent subject in both a consumer and business context. The so-called fintech revolution promised open access to data, hassle-free banking experiences and fairer deals for customers.

Yet only relatively small steps have been taken towards this vision. Until now, we have only really witnessed a cautious adoption of technology as consumers, regulators and established banks became familiar with what it can enable – and this has still come at considerable investment.

The pandemic will likely be the event that effectively kick-starts the revolution. As stated above, people are now highly reliant on fintech, and for more than being able to simply access one’s accounts and transfer money; amidst this period of economic uncertainty, there is a pressing need for access to financial advice, tools, products and credit.

All of this must be delivered at a time when financial services teams are not working in the same place, be it office or branch. This poses significant challenges for companies that have not yet properly embraced fintech – indeed, many firms still have data, systems and processes that are completely reliant on legacy technologies and on-premise servers.

Such businesses will have found delivering new products or enhanced services to their customers to have been far more difficult during the lockdown.

Embracing cloud-based fintech

Financial services companies will need to move to take advantage of cloud native technologies, if they have not already done so, if they are to overcome this crisis and adapt to the “new normal” it will give rise to.

Moving to cloud technologies will allow for manual steps to be removed from the complex applications, onboarding and completion processes that almost everyone has experienced when opening a bank account, taking out a credit card or getting a loan of some description.

That is, of course, an over-simplified version of how fintech can help. The much more complicated issue is to bring together multiple technologies – or technology providers – to deliver the best possible service to customers.

After all, many fintechs are focused on solving very specific problems. For example, identity verification, alternative credit scoring, AI assisted chatbots and recommendation algorithms, next generation core banking, transaction classification, and simplification of mortgage chains – these are challenges that need solutions, and together these solutions form part of the much broader financial services landscape. That is to say, the end customer will encounter several of these obstacles on their way to checking their accounts or taking out a new financial product.

Companies that focus on utilising best in class providers in their value chain in order to build a truly exceptional service offering have a better chance of succeeding. There are, for example, some credit marketplaces in the UK which already offer pre-approved loans that can be opened in just a few minutes with minimal clicks; this is all thanks to progressive technology choices from the lenders.

Interoperability is key

The coronavirus pandemic has made it patently clear that the most successful finance companies are those that have formed partnerships to create technology that can be used seamlessly between separate banking products and accounts.

Interoperability is essential for financial technology to work seamlessly. Again, this is where the value of cloud-based platforms becomes apparent – it allows financial services companies to host multiple technologies (whoever may have developed them) in a single location that can be accessed from anywhere, whether that is by employees or customers.

As the physical world remains largely closed off from us, the quality and functionality of digital solutions has become of utmost importance. For fintech, the steady evolution we have seen over the past ten years is going to be greatly accelerated as both providers and users adapt to the new reality brought about by the pandemic.

It would be wrong to say that there has been a fintech revolution – this transition is only just starting to take shape. The success of businesses in the months ahead will, in no small part, be determined by their ability to keep pace with the technological change that is taking place.

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