The financial services industry has dramatically expanded beyond traditional banks and credit unions to include countless new players, from startups such as Acorns, Venmo, and Mint to tech giants including Apple and Google who are now expanding into fintech.
Customers are gravitating toward services that offer the easiest user experience (UX), which should mean the fintech playing-field is level whether you’re a bank, a tech giant, or a startup. But there’s one key advantage that established institutions have over new players in the sector: data.
Why Is Data Key to the Future of Fintech?
Artificial intelligence (AI) is already being used by financial institutions of all sizes to improve personalization through chatbots, increase security to reduce fraud, and even help customers make decisions that would have required a meeting with a financial advisor in the past. But this is just the beginning. AI is expected to enable smart banking that can help customers manage their money more efficiently. Finextra predicts a future where smart (AI) financial advisors can help customers:
- Track utility expenditure and tariffs and advise when it’s time to move providers
- Know when it’s a good time to change credit card providers to save on interest
- Make transactions more secure through blockchain distributed ledgers and biometric identity tools including facial recognition
- Understand the best time to buy a product you’re interested in based on your financial health and arrange to fund the purchase
- Know when it’s the best time to pay off debts
- Budget for monthly bills and pay them as they arrive
- Know when it’s the best time to top-up long-term investments such as pension savings or college funds
AI, however, cannot function without data. And the more data that’s available, the better the machine learning will be at creating an increasingly personalized and streamlined experience for every customer.
This is why banks have an enormous advantage for now; they have decades of consumer data sitting in transaction histories and account records. As the popularity of app-providers such as Venmo increases, more data will flow through their systems and banks will lose their current advantage. The banking industry is expected to spend $79.2 billion on AI-enabled solutions in 2022, with a CAGR of 38% over 2018-2022.
According to Lemnisk, the four key areas of banking investment in AI will be in:
- Fraud detection and risk management
- Credit risk assessment, pricing, and underwriting
- AI chatbots
- Customer engagement
How Are Apple and Google Getting Involved?
The rival tech giants have taken the next step beyond Apple Pay and Google Pay by partnering with banks (Citigroup with Google and Goldman Sachs with Apple) to create new consumer finance products that are linked to Apple and Android’s digital wallets. CNBC reports that doing so will allow Apple and Google to capture fees and (importantly) data that is currently funneling through to banks and fintech startups.
Both of these tech giants already have access to enormous consumer data pools, but financial data such as paychecks, spending habits, credit card payments, and mortgage payments will open up new possibilities in data-based sales. Apple offers its credit card customers cashback incentives for purchasing Apple products or the products of selected partners using its card, while Google is expected to offer incentives such as discounted phones for users of its new checking account.
Fintech providers of every size will be looking for ways to integrate with voice assistants, which will not only be able to carry out simple payment transactions but will eventually be able to offer sophisticated financial advice using data-driven machine-learning.
What are Some of the Concerns Surrounding Future Banking Solutions?
- Critics of the Apple and Android banking solutions are concerned about consumers being “locked-in” to the phone ecosystem once all of their banking and payment technology is concentrated in one place. Potentially this will reduce consumers’ ability to easily change to another service provider, ultimately reducing market competition.
- Cybersecurity and fraud are (as expected) a key concern as increasing numbers of players enter the market, but security is improving with AI-driven facial recognition technology, other biometric solutions such as fingerprints, and transactions taking place on the blockchain. Security can be strengthened by requiring multi-factor authentication to prevent fraudsters from falsifying identities.
- Finally, banks are generally regarded as trustworthy when it comes to safeguarding and not passing on their customers’ data. Tech startups and giants such as Apple and Google will need to earn a similar level of trust, although consumers are content to sacrifice some level of data privacy for increased convenience.
Image Credit: Hadrian / Shutterstock