The ABCD of Financial Technology
When the concept of Financial Technology emerged in the 21st century — it certainly earned a stereotype. Fintech, when mentioned, was known to refer to applications and the technology employed at the back-end systems of established financial institutions. But today, the industry has reached a much broader level, extending to the different sectors and industries such as offices and financial ledgers of banks, insurers, property management firms, government regulators, education, retail banking, fundraising, nonprofit, and investment management.
Since its evolution, the Fintech industry has seen a shift to a more consumer-oriented service portfolio and thereby shifting towards a more consumer-oriented definition.hence it has already today, become a big part of our own personal and professional day-to-day lives.
The latest Global Fintech Adoption Index of Ernst & Young Global- one of the largest professional services networks in the world shows that nearly two-thirds (64%) of the world’s population was using Fintech applications in the year 2019, with a 16% increase from the year 2015. According to the report, 3 out of 4 consumers in the world had become users of money transfer services and payment solutions.
Therefore with alternative finance i.e. Fintech, slowly transforming the offerings of financial services and the providers of such services, it is vital to understand the four key and interrelated technologies that have allowed it to flourish. These can be known as the ABCD’S driving Fintech. They are identified as,
■ Artificial Intelligence or AI
■ Blockchain
■ Cloud Computing
■ Data Science
Artificial intelligence (AI)
Artificial intelligence (AI) refers to the intelligence demonstrated by machines, in contrast with “natural intelligence” displayed by humans and animals. AI is assuming an increasingly important role in traditional banking as it is widely used in analyzing and managing data in the financial sector. Technologies such as voice recognition, natural language processing, computer vision for user-account management, fraud detection, machine learning methods, deep learning networks for anti-money laundering and credit modeling are provided to consumers through the use of AI.
With the level of process automation and digital transformation activities increasing in financial services, AI technology is witnessing rapid growth in the global financial industry. Experts have predicted that the global market size of AI in Fintech will reach a staggering USD 26.67 billion in the near future.
Blockchain
A blockchain is a distributed digital ledger that keeps track of business dealings, offering users a new level of freedom and security through its distributed, decentralized, transparent, and immutable digital ledger technology.
Blockchains being decentralized means it does not require the assistance of any third party to keep track of the transaction or record it in its database. Blockchain being immutable means that once a transaction has been verified and added to the chain, there’s no way to change anything again without redoing every single one of the completed verifications again. This makes blockchain highly secure because there’s no central authority that can be hacked or otherwise compromised by hackers. Users can feel confident about their transactions being secure when they take place on a blockchain network. Popular examples for Blockchain networks include Bitcoin and Ethereum.
Cloud computing
The International Business Machines Corporation of USA (IBM) defines Cloud computing as on-demand access, via the internet, to computing resources such as applications, servers (physical servers and virtual servers), data storage, development tools, networking capabilities, and more which is hosted at a remote data center managed by a cloud services provider (or CSP). The CSP makes these resources available for a monthly subscription fee or bills them according to usage.
Cloud computing has become one of the most important aspects in financial services. Fintech start-ups and established financial organizations are now racing to provide customers and end users with more speed, reliability and 24/7 uptime in their digital products and services. Cloud computing enables all of this in a cost-effective manner while also providing additional security in the digital age.
The technology is an accelerating trend driven with its powerful impact it has on the Fintech industry. Answering many of the financial sector’s requirements, cloud computing has brought numerous advantages to the financial sector across many areas in terms of security, service, innovation and scalability. Cloud computing in the industry has even been credited with helping grow the sector’s forecasted compound annual growth rate of 23.84%.
Data Science
The Fintech industry uses data science to get a deeper insight into customer behavior. This helps financial institutions create products and services that will align with the market trends and increase returns for their business. Therefore, Data Science is capable of providing valuable insights on consumer behavior and spending habits for businesses, allowing them to better understand their customers.
Overall, the synergy between Finance and Technology can be visualized as a combined effort to enhance business operations and the delivery of financial services.