FinTech: Definition, Benefits, Challenges, and Solutions [ A Detailed Guide ]

What does FinTech mean?

The term FinTech or ‘Financial technology’ is known since 1950. The term has evolved since then and is known as FinTech in the 21st century. FinTech is a combination of two words “financial” and “technology”. Since its inception FinTech is trying to improve financial services through automation. Moreover, FinTech is also an industry that regulates different financial transactions for both businesses and customers.

 

Earlier financial institutions use to apply FinTech for their back-end systems. Since then there is a shift in the trend. Nowadays it’s focusing more on consumer-oriented services. Further FinTech includes the following industries – education, retail banking, fundraising, and investment management.

 

The change in the dynamics of Modern banking through FinTech is allowing customers to take charge of their financial lives which indeed helps them on many different levels. However, this is achieved by the convergence of a stack of technologies. 

 

FinTech: Benefits, Challenges, and Solutions 

FinTech is important from a financial perspective. To further understand this let’s look at some important benefits it brings to the table.

Benefits:

✦ Accessibility 

FinTech is accessible at any location around the world. So it doesn’t matter your company is in a different location. However, the internet connection plays an important role here because with slow internet connectivity the performance will not be up to the mark but with the advancement in networking technologies (4G and 5G), it’s easy to use across the globe.

 

✦ Security 

FinTech is secure. Just reading that first sentence brings a sense of trust, doesn’t it? Well then what if we tell you that- FinTech is more secure compared to the traditional banking system. How? You say.

 

The simple answer- FinTech works on new emerging technologies. Traditional banking lacks security due to legacy software. It compromises various aspects for instance say Compatibility issue- banks use outdated Legacy software and systems for many years after the expiration of the license.

 

✦ Affordable

Traditional banking system takes too much time for processing customers’ requests. This eventually makes the experience of a customer a disaster. FinTech provides a seamless user experience and solutions to the customers. So, this saves customers time as a result customer remains loyal to your services. The charges for services in FinTech are nominal.

 

✦ One spot Payment

FinTech combines both physical and digital payment methods into a single interface. As a result, businesses capitalize on this more convenient transaction method to their advantage.

 

✦ Meaningful data

All the businesses gather Bigdata from their customers and especially banks. They extract this data through sources like internet traffic, revenue and etc. The data is not organized and so FinTech provides the service for conversion of this raw data into meaningful data.

 

✦ Reachable to Any user

As we discussed earlier, FinTech services are accessible from any location. This also extends to the user set. To clarify, all the potential users across the globe get to access FinTech services.

 

✦ Bankrolling 

FinTech is transforming credit by giving risk evaluations, boosting the approval process also making more credit available at the same time. As a result, many people can apply for loans using their Smartphones. 

 

✦ Insurance

FinTech is new to the insurance market. So, many FinTech startups are collaborating with conventional insurers. The purpose of this collaboration is to simplify processes.

 

✦ Consumer Relationship 

FinTech enables direct consumer relationships through crowdfunding platforms. As a result, entrepreneurs, startups, and artists gain benefits from it. This omits the dependency of traditional investors.

 

Nowadays, many developing countries have services like Microfinance and digital lending networks also many Asian and African countries have access to FinTech mobile applications or payment services.

 

Challenges and Solutions:

 

 

✦ Security against Cybercrime

Even after the entire enhancement in Cyber security, it is hard to maintain and protect each piece of information from Cybercrime. For this reason, banks try their best to keep their customer’s data safe.

 

The traditional security from the bank includes a vault, security guard, cameras, and at most a bulletproof door. But virtual security is far more difficult compared to traditional security because; here not only money is at risk but also the customer’s data.

 

Solution

• Two-factor authorization
• Biometric authentication
• Data Encryption and Masking
• Real-time alerts & notifications
• Behavior analysis

✦ Big Data and AI Integration

Big Data and AI integration have shown their worth since their inception. Both have undoubtedly made their mark on various organizations, especially banks. Big Data helps banks collect personal customer data such as social status, financial behavior, and in-app activity.

 

This data collected is very critical in terms of credit ratings and high-risk services. The AI helps with the automation of fraud detection using Big Data and also executes risk analysis along with managing effective transactions.

 

So both Big Data and AI seem to be providing benefits so how do they really put up a challenge?

 

Big Data requires powerful analytics tools to acquire the benefits. On the other hand, AI is an emerging technology and challenging because of its complexity. Banks just don’t switch to the new process and break the sequence of banking procedures carried out over the years.

 

Hence combining both the emerging technologies seems a hectic process.

 

Solution

For the integration of Big data and AI you will require need tech experts to train the machine by executing Machine Learning Algorithms. In order to do this, a huge amount of Data set is required to actually train the system.

 

So, you can sort out this issue with the utilization of a one-shot learning model that allows you to train the system using small data sets.

 

✦ Lack of Mobile features and FinTech experts

The FinTech industry being new has a lack of experts in the technology. Many companies or banks don’t even have efficient banking services. However, some banks make an attempt to replicate websites but in this digital era, nobody would go with those websites or even mobile applications. Every individual wants seamless options to choose from, be it a website or mobile app.

 

Hence lack of FinTech experts in FinTech mobile app development services results in a non-user-friendly user experience. The FinTech app won’t get any benefits from NFC chips, geolocation features, or features like fingerprint unlocking if the customer’s mobiles don’t have that.

 

Solution

The mobile devices must have the following features to access FinTech app development services:

• QR-code for payments
• NFC supplies
• Automatic credit-card scanning through the lense
• Two-factor authorization with finger-print

✦ Blockchain Integration

Blockchain is known to be a key component in the fight against cybercrime. As a result, there are many FinTech applications are having blockchain integration. However, integrating blockchain into FinTech is quite tough. So, some companies don’t even find blockchain as a feasible solution.

 

Solution

While implementing blockchain make sure to follow government guidelines and laws because they are hesitant to allow blockchain technology adoption.

 

✦ Compliance with government restrictions

For decades governments have influenced the financial sector. You try any method or technology there will be government interference.

 

Solution

Make sure to check the legal compliance before starting to develop your FinTech app. Further, to ease up the process hire a legal consultant. Also, make sure your legal department is aware of the latest government policies.

 

✦ Employee and customer retention

These two are major challenges for any organization. While FinTech application has to manage the balance between UX and security it is important to address the customer concerns for better Customer Retention. 

 

Employee retention is necessary from the organization’s point of view. It is difficult to find the right employee. In the IT world, it’s a rare scenario where the employee has great qualifications and loads of talent. So to make sure the employee stays with you in long run adjust the company philosophy.

 

Solution

Customer retention

• Make sure that your UI/UX is secured
• Two-factor authentication
• Analyze competitors before developing your app

Employee retention

• Employment benefits
• Frequent team-building exercise
• Openness

Types of FinTech App

1. Payment apps: Paypal
2. Savings apps: Digit
3. Investing apps: Wealth Font

Features of FinTech App

FinTech is responsible for innovation in business for financial institutions, especially banks. FinTech modifies the business without replacing any core As a result of this, there is a significant amount of growth. Here are features your Financial Technology App should have:

 

✦ Data Analytics

Financial data is an important feature for any customer in order to make the right decision. So, data analysis becomes an integral part of the FinTech app. Here, the app must gather data and generate reports for an overview of finances. The app should have the following abilities:

• Report management – for users to check for a summary of their financial activities
• Transaction report – so users can keep track of their  expenses

Additionally, the app should provide visual data representation for understanding the statistics better from the user’s perspective.

 

✦ API Integration

The FinTech app functions better when it provides different solutions for financial aspects. So integrating the API is only going to increase the performance. The integration will help users carry out different tasks. For Instance, you can integrate Geolocation API for helping users find the nearest grocery store.

 

✦ Automation 

You can use automation in your Financial Technology app for executing manual tasks. This implementation will allow customers to quickly make decisions regarding their money i.e. withdraw, transfer or invest.

 

✦ Customization -Artificial intelligence

A.I gives exceptional customization abilities to your FinTech App. Further, A.I integration with FinTech will allow your application to give smart suggestions. This improves customer engagement. In order to achieve customer trust, A.I use complex algorithms to analyze the behavior patterns of customers. After the analysis, it sends feedback to the company.

 

Additionally, having A.I allows a developer to roll out updates easily after receiving customer feedback and improve their future experience.

 

✦ Blockchain

As mentioned earlier, there are certain challenges revolving around the implementation of blockchain in FinTech. However,  implementing blockchain in FinTech will provide a seamless experience. Companies can increase P2P payments and reduce transaction fees.

 

✦ Third-party authentication

The protection of data is of utmost concern for any customer. So, it becomes necessary to implement strict protocols for the FinTech application.

 

The simplest route to get there is Two-factor authentication. Another option is third-party authentication through apps such as Microsoft Authenticator, Google Authenticator, and Authy. These apps utilize QR codes or tokens for user authorization.

 

Now that you know how your FinTech app should look like let’s have a peek at some FinTech apps.

 

Top FinTech Apps List:

• Money lion
• Robinhood
• Nubank
• Revoult
• Coinbase

Check Out Mobile App Development Process

Build a FinTech App for:

• Improving Banking services
• Customer support
• Branding
• Cost efficiency
• Biometrics authentication
• Chatbots

Check out: Future of mobile banking

Future of FinTech- Conclusion

Despite many obstacles, it’s fair to say that FinTech is going to establish itself as a primary option while dealing with financial situations and related businesses.  The applications developed using the technology has made several processes simple.