What is Fintech Automation? Guide to Financial Technology Automation

The modern phase in the evolution of the Finance Industry can be divided into 2 periods: Before FinTech and after FinTech. The adoption of FinTech has been a game-changer for many financial institutes across the globe.

Your Guide to Fintech Automation

The main aim of FinTech is to make financial services more accessible for consumers and businesses. A Global FinTech Adoption Index 2021 study by Ernst and Young reveals that China and India top the list of companies adopting FinTech. The FinTech industry is rapidly moving towards FinTech automation as a source of efficiency.

Finance Trends to Watch Out for in 2024

COVID-19 has changed the way every industry operates; the Financial Industry is no exception. With teams no longer able to work together in office spaces, the need for adopting technology in the Finance industry has never been so pressing. Businesses and Financial Institutions have adopted emerging technologies to cope with the uncertainties that 2022 presented to them. Newer technologies have helped them respond well to changing work environments and bring agility and flexibility into business planning. The year 2024 will continue to see a rise in the adoption of technologies for building sustainable finance operations.

Finance trends to Watch Out For in 2024 are listed below:

• The rapid acceleration of eCommerce, digital, and cloud industries. Walmart has reported a 79% increase in eCommerce sales during the COVID -19 pandemic. More and more financial institutes will adopt digital technologies to improve their customer experience. Industries looking to maintain efficiency in business will create exciting opportunities for payments and FinTech providers.
• Key fintech players like firms and banks will make significant investments to modernize their payment processes. Following manual processes that entail error-prone paperwork is disappearing rapidly.
• Automation will become an extremely important part of finance strategy. Automating financial operations will become more of a priority as accounting teams look for optimized solutions suited for remote work environments.
• Financial accounting teams automate back-end operations. Accounting teams look at automating paper-based operations like invoice collection and processing, cheque writing, and payment processing in order to improve process efficiencies.
• Digital governance is the need of the hour. Remote working environments increase the need for digital governance and controls and remote audit capabilities.
• Automation will be an operational necessity. Automating key financial processes brings flexibility and agility into business planning and operations.

The need to sustain business operations despite the challenges thrown by the pandemic is primal for businesses. Automation in FinTech holds the key to business productivity in the long term. Finance firms also need to adopt solutions that help navigate dynamic markets.

Introduction to FinTech

What is FinTech? The term Financial Technology (FinTech) is used to describe new technology that is adopted by financial institutes to improve the delivery and use of financial services. Companies and business owners use FinTech to manage their financial operations and processes efficiently. FinTech is made up of customized algorithms and software used on computers or smart devices.

When FinTech first emerged during the 21st Century, it represented technology used to run back-end systems of financial institutions. Over the years as business operations become more consumer-oriented, FinTech has come to represent finance technology that aids diverse industries and sectors like retail banking, education, fundraising, and non-profit organizations. Modern FinTech systems also include the development and use of bitcoins and digital payment gateways.

Evolution of FinTech

The finance and technology linkage may seem like a recent development, but it has actually evolved over distinct eras. Technology has made significant contributions to the finance sector. As per a research paper on The Evolution of Fintech,

FinTech’s evolution can be divided into 4 time periods.

FinTech 1.0 – 1886 to 1967
The first time period in FinTech was all about building tech infrastructure. This era initiated financial globalization with technologies such as railroads and steamships that facilitated the rapid transmission of financial information across borders. The main events that occurred during this period were Fedwire in the USA, transatlantic cable, and the first electronic wire transfer system. Credit cards were introduced in the 1950s.

FinTech 2.0 (1967 – 2008)
The shift from analog to digital in traditional financial institutions happened during this period. The first handheld calculator and the first ATM installed by Barclays bank happened during this time period. Other finance trends that happened during this time were the launch of the digital stock exchange NASDAQ, the establishment Society for Worldwide Interbank Financial Telecommunications (SWIFT), and the rise of bank mainframe computers. Online banking and e-commerce business models were also introduced during this phase. The Global Financial Crisis in 2008 ended this era.

FinTech 3.0 (2008 – current)
The Global Financial Crisis resulted in the general public losing trust in the traditional banking system. The loss of trust coupled with financial professionals losing their jobs led to a radical change in mindset. The emergence of new players (banks). The release of Bitcoin v0.1 in 2009 followed by a boom of different cryptocurrencies had a major impact on the finance world. Mass-market penetration of smart devices that enabled internet access to millions across the world. Google Wallet and Apple pay were also introduced during this era. Robotic process automation in FinTech is another trend that started during this phase.

Future of Fintech
Consumer behavior is influenced by the extensive use of mobile devices and how people access information. The table below shows how countries across the globe have taken to FinTech. Financial institutions that want to upgrade their existing operations and offerings should look at Fintech automation as a viable option.

FinTech is here to stay, from simple baking systems to sophisticated payment gateways it has come a long way. Adopting the latest technologies enables businesses to deliver a superior customer experience.

Understanding FinTech

In a broader sense, FinTech may be applied to any innovation pertaining to the way people transact business. From the invention of cryptocurrency to double-entry bookkeeping – any innovation that improves the way financial services are delivered may be classified as FinTech. The Internet Revolution followed by the mobile/smartphone revolution has changed consumer behavior significantly. Today’s consumer is highly informed and makes buying decisions based on extensive web research. From using computer technology for back-office or trading firms to modern-day technological inventions that improve commercial and personal financial services – FinTech has come a long way.

Modern-day FinTech enables digital money transfers, cheque deposits through smartphones, credit applications bypassing banks, and managing investment portfolios without personnel assistance. The FinTech Adoption Index report by EY revealed that 1/3rd of consumers utilized at least 2 or more FinTech services, and for these customers FinTech is an essential part of daily operations.

The main intent of FinTech is to unbundle financial service offerings by creating new markets for them. Traditional financial firms view FinTech startups as a threat to their service offerings. FinTech startups are designed to be a threat, challenge, and eventually usurp conventional financial services by offering more flexible and quicker services for underserved segments. For example, Affirm -founded in 2012 offers immediate, short-term loans to consumers. “Buy now, pay later” is their motto. The firm seeks to cut out credit card companies from the online shopping arena by offering consumers with no credit or poor credit histories to secure loans easily.

Another FinTech startup, Tala, offers micro-loans to consumers by doing a deep data dig on their smartphones to evaluate their transaction history and seemingly irrelevant details like mobile games played by them. Consumers are presented with better options than unregulated lenders, local banks, and other microfinance institutions.

All those financial transactions that are cumbersome and tedious can be simplified and streamlined through FinTech. Traditional financial services that are bundled into a single umbrella are unbundled into single offerings by FinTech. By combining streamlined offerings with technology, FinTech’s able to offer more efficient services at lesser costs for each transaction. Traditional banking and finance institutions need to significantly alter their thinking process, decision-making, process operations, and overall organizational structure to compete with nimble FinTech startups.

FinTech services are among the highly regulated financial transactions. Governments across the globe are concerned about the regulatory challenges w.r.t FinTech companies. Digitization of data and automation of FinTech systems makes them more vulnerable to data theft and regulatory issues. The emerging cryptocurrency trend is also prone to fraud and non-compliance issues.

FinTech Adoption

A Global FinTech Adoption Index survey on 27,000 consumers across 27 markets by Ernst and Young reveals the following on FinTech adoption:

• 60% global adoption of FinTech
• 3 out of 4 global consumers use money transfer and digital payment gateway services
• The top reason for consumers choosing FinTech is attractive rates and fees
• 68% of consumers would consider a non-financial service company for financial services
• 89% of SMEs are willing to share data with FinTech companies
• A mere 4% of global customers are not aware of money transfers and payment of FinTech services

Clearly, FinTech has caught on around the world, entering the mainstream in all markets. India and China take the lead in adoption with 87% followed by Russia and South Africa with 82%. Among developed countries, the Netherlands and the UK lead the adoption rate. The global adoption rate is growing faster than anticipated.

Reasons for Faster FinTech Adoption Rate

The primary reason for the increased adoption of FinTech is that incumbents have entered the fray in a big way. Banks, stockbrokers, insurers, and other incumbent financial institutions are offering FinTech in a big way. FinTech services can be grouped into money transfer and payments, budgeting and financial planning, savings and investment, borrowing, and insurance. The more aware people are of the services, the more they will use them.

Consumer awareness of money transfer and payment services is the highest across all categories. In India and Russia, almost 99.5% of consumers are aware of money transfer and payment services. Globally, 89% of customers are aware of in-store mobile payment platforms and 82% are aware of peer-to-peer payment systems. The integration of FinTech payments with on- and offline retail presents consumers with a wide range of options on checkout.

Types of FinTech Users

FinTech users can be divided into 4 major categories: B2B for banks, business clients of banks, B2C for small businesses, and consumers. Dominant trends like mobile banking, data analytics, increase in information, and decentralization of access to financial services will enable more opportunities for these categories to interact more.

Amongst consumers, the younger population is drawn toward the use of FinTech. Consumer-oriented FinTech is targeted towards millennials given their tech-savviness and high-income levels. The elderly population, however, is not comfortable with the use of FinTech and would rather stick to traditional banking and investment methods.

As for businesses, transactions like loan applications and approvals, managing credit card payments, and installing land-line card readers can be quickly and efficiently done with FinTech. Progressive businesses adopt FinTech to improve the efficiency of their financial transactions.

What is FinTech Automation?

FinTech automation may be defined as the adoption of automation tools to streamline end-to-end financial operations. To automate their processes, FinTech companies need an enterprise automation platform that runs and controls their business events and delivers real-time outcomes.

The automation requirements of FinTech companies vary from that of traditional banks and financial institutes. FinTech is known for faster and low-cost service compared to the service offered by traditional financial institutes, and automation can help them deliver just that. The IT requirements for integration and automation are different for FinTechs. The growing tech landscape, automation, and integration together enable FinTech to accelerate and streamline its services.

What should FinTechs expect from automation and integration?

• An agile platform that enables a rapid time-to-deployment
• Real-time event-driven data operations
• Seamless adaption to dynamic environments
• Unified platform for automation and integration
• Cloud-based enterprise automation
• Alignment with business goals and automation strategy
• Orchestrating internal processes across SaaS apps

FinTech companies must choose automation technology that enables them to deliver faster and more seamless services across various digital channels.

Automation Strategies in FinTech

There are a number of automation tools available to choose from. FinTech companies can choose the right strategy based on their unique business requirements. They need a cohesive strategy that covers the automation and integration needs of their company. Here are some popularly used automation tools for FinTech.

Robotic process automation:

RPA in FinTech tops the list of suitable automation strategies. It is a UI-based automation tool that is relevant for some tasks of FinTech companies. Specific tasks like extracting information from a legacy system or a mainframe can be effectively performed by RPA. Business conditions where the UI doesn’t change are an ideal fit for RPA. Cloud-based enterprise automation solutions can be used to connect to RPA’s API in order to be used to automate workflows.

iPaaS:

An iPaaS integration platform is offered to companies on a subscription basis. Most iPaaS solutions need on-prem deployment. The IT department usually used iPaaS solutions.

iSaaS:

Integration software offered on a subscription basis is referred to iSaaS solutions. These solutions do not offer the security features or integration capabilities offered by iPaaS solutions. Individual employees can automate tasks like directing incoming emails to the Slack channel or a spreadsheet.

Bots:

Software that performs automated tasks by running a script is referred to as Bots. They can orchestrate work in messaging platforms like Slack, respond to requests, and facilitate the completion of processes, interactions, or work.

Enterprise automation:

Enterprise application integration, data automation, and workflow automation of SaaS apps can be achieved by cloud-native enterprise automation solutions that use API connections. Enterprise automation solutions combine robust integration capabilities with automation. The IT department can collaborate with non-IT users for designing automation for business functions through enterprise automation. These solutions come with a user-friendly interface that is centrally governed.

Automation was built to support all the core use cases for digital transformation. It also offers robust integration with user-centric automation so that Fintech businesses have a unified solution for all use cases.

Implementing FinTech Automation

Not all automation is the same, the actual application of automation solutions varies with business type and requirements. Choosing the right automation solution for your business is based on a complete understanding of your business requirements and zeroing in on the solution that meets the requirements. In some cases, automation of 1-2 tasks alone may be required, in some cases, end-to-end automation may be required, and for others automation of the business decision-making process may be required.

There are several approaches to automation in FinTech. The traditional approach to FinTech automation involves the complete reconfiguration of all operations. FinTech companies that have unique business requirements should go for customized automation solutions. Future business goals need to be considered while designing the automation solution. Once the future business requirements have been decided upon, potential constraints like regulatory compliance need to be factored into the new framework. FinTech automation should consider all the potential constraints pertaining to regulators, creditors, and customers while designing the automation solution.

Once the design is complete, the product management and software engineering teams start their work of gathering requirements, prioritizing requirements, and designing interfaces. The scope of the automation project decides the lead time of the project, rollout time, and onboarding time. Complete automation can be costly and time prohibitive.

Another approach to FinTech automation is single-step automation. For some businesses, it might be better to automate singular application tasks or recurring processes, or admin tasks of a business. This approach can quickly and affordably integrate two systems to automate a task or step. The value of automating a task depends on how repetitive the task is or how prone it is to manual error.

Value addition of Automation in Fintech

How does automation add value to FinTech? There are several ways in which automation is beneficial to FinTech. The value of automation in FinTech lies in:

Fraud reduction:
Processing a high volume of transactions in short durations is beneficial for financial institutions. A transaction fee is the main source of revenue for digital payment companies like PayPal and Stripe. When a merchant does not follow through by providing goods or the payment platform has to pay to cover losses for customers, money is said to have been lost on fraud. Traditional financial institutes address fraud by declining transactions or blocking cards.

Using AI and ML tools makes fraud detection easier by automating the identity verification process by alerting the customer through an SMS for two-step authentication. Automated workflows within an enterprise automation platform can be created by integrating ML-based SaaS services into the tech stack of the company. These automated workflows can be used for fraud or invoice inaccuracies.

Reduction in internal operating costs:
Process automation can be used to cut out redundancies, accelerate time to value, and eliminate labor wastage on rote processes.

Improving operational efficiency:
FinTech automation cuts out process inefficiencies, by eliminating repetitive tasks from process workflows.

Reducing human error and bias:
Automating process workflows in FinTech companies helps reduce human error and bias.

Accelerating loan and credit approval:
Adopting automation technology for approving loans and credits helps FinTech companies accelerate point-of-sale loan approval time to seconds. Loan approval in traditional financial companies involves tedious paperwork and may take days to weeks for approval.

Automation trends in the Fintech Industry

The FinTech industry is taking rapid strides towards automation in order to improve the efficiencies of its processes. Automation tools and software programs improve the speed and accuracy of FinTech processes. It also improves accuracy and safety measures while minimizing human errors.

5 automation trends that are influencing the FinTech industry are discussed below:

Human resources management:

Employees are important assets in an organization. Effective resource utilization improves the productivity of business and employee satisfaction. The FinTech industry is adopting workflow automation tools to automate its HR function. Workflow automation tools like Cflow can be used to assist and streamline employee management systems. FinTech companies are looking to manage their HR function thoughtfully and efficiently by automating key HR tasks like employee onboarding, background verification, and approvals.

Customer Support:

FinTech is a customer-centric enterprise. Attracting new customers and retaining existing customers requires a top-notch customer engagement strategy. Automation of customer service is one of the most effective ways to deliver uninterrupted customer service. The workload on customer service personnel is significantly reduced by automating repetitive tasks in customer service. Chatbots are popularly used automation tools that improve customer service in FinTech.

Mobile:

Mobile-oriented tech is an integral part of the core workflow in FinTech companies. Use of automation software helps FinTech companies deliver higher levels of productivity and communication. Mobile channels that were once considered a security risk for financial transactions are now being viewed as flexible and more productive channels for conducting financial transactions.

Billing and Invoicing:

FinTech companies need to handle large volumes of bills and invoices on a daily basis. Automating the billing and invoicing functions is advantageous for the vendor and customer. Matching the information on purchase requests, purchase invoices, and payment invoices can be accelerated by automating the billing and invoicing system. Approval of vendor invoices can be effectively done through workflow automation.

Accounting systems:

Accounting, bookkeeping, and tax filing are imperatives for any business. Automating these functions saves significant human effort, improves accuracy, and reduces operating costs. FinTech companies can deliver better customer service by automating repetitive admin tasks in accounting systems.

It is essential that FinTech companies are aware of automation trends and ensure that their business stays updated. Companies that quickly adapt to these changes are able to sustain themselves in the competitive landscape. With automation impacting FinTech operations in a big way, it is critical for employees to understand and get trained on new workflows. FinTech automation is here to stay. The sooner companies adopt automated workflows for key business functions, the better equipped they would be to compete in the market.

RPA in FinTech Industry

The efficiency and productivity of FinTech operations can be improved significantly by using RPA to augment their core processes. Robotic process automation (RPA) is an effective substitute for repetitive human actions. RPA is a UI-based process automation tool that automates repetitive and rule-based tasks using cross-application programs. FinTech companies are inherently focused on technology-driven business, which means that the adoption of RPA is faster and easier.

In the service sector, robotic process automation refers to non-physical robots like chatbots or robotic software that enable companies to automate activities as if a human was executing work across apps. Banking, financial services, and insurance organizations are actively adopting RPA to improve their process efficiency and reduce operational overheads. According to recent market research on Robotic Process Automation Market Process, the market value is expected to reach 2,467 million USD by 2022. The rise in the adoption of RPA is happening in business functions such as contact vendor outsourcing, banking, financial services, insurance, procurement outsourcing, and human resources outsourcing.

The adoption of RPA in FinTech has significant advantages over traditional workflows. RPA uses specialized software and tools for carrying out rule-based, recurring, high-volume tasks. Adopting intelligent RPA helps improve problem-solving capabilities, increase productivity and accuracy of business processes, and improve business outcomes. A number of banks and financial institutes are using RPA in key processes like account opening, KYC processing, anti-money laundering processes, and client request processing.

The main types of RPA robots in FinTech are:

Verification and validation robots: Financial services companies spend a substantial amount of time on the review and approval of the customer, employee, partner, and provider data. Each employee performs a manual checking routine as part of their daily tasks. RPA can effectively automate such recurrent, rule-based tasks to save time and effort for employees. Validation and verification robots in banking are capable of making real-time requests to internal and external systems for authenticating data. Data verification when done manually was tedious and error-prone, RPA changes that to a smooth and accurate process.

Scheduled robots: FinTech companies have several pre-planned and scheduled tasks that run regularly. The timely execution of such tasks is pivotal to banking and finance businesses. RPA can be used for triggering tasks automatically upon completion of preceding tasks or at specific timelines.

Data Input robots: if bank employees were to name a single task that wipes out the joy of working, they would unanimously agree on “data entry”. Manual data entry from one app to another can be tedious, unreliable, and costly. Robotic process automation adds great value by automating data entry tasks.

System interoperability robots: smooth functioning of FinTech companies requires seamless communication between multiple apps. RPA is an effective tool that bridges the gap between systems that are too complex to be integrated.

Popular use cases of RPA in FinTech are customer onboarding, account opening, KYC and AML procedures, automated report generation, loan underwriting, and mortgage lending.

Conclusion

FinTech is an industry that has evolved beyond its early stages into a significant influence on consumer expectations. As Fintech becomes the norm, businesses that are looking to stand out need to adopt FinTech automation. Clearly, Fintech has caught on around the world entering the mainstream in worldwide markets. The Global FinTech Adoption Index by EY shows that consumer awareness of FinTech services is high across all financial categories, including payment services and money transfers. New technologies like machine learning, artificial intelligence, data-driven marketing, and predictive behavioral analytics will eliminate uncertainty in financial decisions.

Adopting workflow automation tools like Cflow enables FinTech to streamline its processes and limit the number of human resources utilized as customer touchpoints. While traditional banks are turning to automation for serving their customers and key operations, automation in FinTech is more focused on a specific community of financial users, the unbanked. RPA can enable FinTech to sustain its online-only operating principle. Leveraging automation in FinTech requires the adoption of intelligent automation powered by AI and machine learning.

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