Your Guide to Fintech 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. 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 2022
COVID 19 has changed the way every industry operates; the Financial Industry is no exception. With teams no longer able to work together at 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 2021 presented to them. Newer technologies have helped them respond well to changing work environments and bring agility and flexibility into business planning. The year 2022 will continue to see a rise in the adoption of technologies for building sustainable finance operations.
Finance trends to Watch Out For in 2022 are listed below:
- 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 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 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 behaviour is influenced by 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 superior customer experience.
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 behaviour 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 out of the online shopping arena by offering consumers with no credit or poor credit histories to secure loans easily.
Another FinTech startup, Tala, offers microloans 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 are 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.
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
- 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 transfer and payment of FinTech services
Clearly, FinTech has caught on around the world, entering the mainstream in all the 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 payments services is the highest across all categories. In India and Russia, almost 99.5% of the consumers are aware of the 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 check out.
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 towards 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 application 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 FinTech’s. The growing tech landscape, automation, and integration together enable FinTech’s to accelerate and streamline their services.
What should FinTech’s expect from automation and integration?
- 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.
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.
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 Slack channel or a spreadsheet.
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 application integration, data automation, 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.