Financial technology, commonly referred to as “fintech”, is a rapidly growing sector that continues to evolve due to consumer appetite and groundbreaking advancements. Advances in the fintech sector allow consumers to have unprecedented insights, control, and options with the management of their finances.
As these advancements continue to revolutionize financial services and fintech trends become mainstays, businesses must adapt to stay current and relevant to their customers. Here we discuss 10 fintech trends for merchants to keep an eye on.
Fintech Trends Making Waves in the Financial Services Sector
Not so many years ago, merchant-facing fintech was primarily a credit card terminal and an internet-connected point of sale (POS) system. For many retailers, reporting and analytics, while important, were somewhat limited by rudimentary technology. Widespread digital transformation and advancements made in the past two decades have dramatically changed consumer expectations – and as a result, revolutionized the way merchants do business.
Contactless Payments Continue to Expand
Mobile wallets and Near Field Communication (NFC) enabled payment cards are convenient, fast, and secure payment methods that have seen a large uptick in adoption in recent years.
Contactless payments are made possible by small chips embedded in payment cards which emit short-range radio waves to communicate with the payment terminal. Contactless payments are more secure than swiping because the transactions are processed with a one-time use code that is encrypted and nearly impossible to hack.
Additionally, the use of NFC payments decreases wear and tear on the cards and the payment terminals and processes more quickly than using the chip.
Currently, there are more than 190 million contactless Visa cards, and many other banks are increasing the amount of NFC-enabled cards in circulation. Contactless payments require both the card and terminal to be equipped for NFC transactions.
Merchants who have not upgraded their POS systems to accept contactless payments should consider modernizing, as this trend is surely here to stay. Among our other services, Stax offers payment terminals that are ready to accept contactless payments.
Biometric Payments Now Include Pay-By-Voice
It doesn’t get more contactless than using your voice to make a payment. Pay-by-voice may seem quite futuristic, but then again, so did using fingerprints and facial recognition to make a payment. Smartphones and other digital assistants, like the Amazon Alexa or Google Home, can use voice-enabled technology to hear account balances, pay bills, and complete purchases for linked accounts.
While pay-by-voice raises some concerns such as security, data privacy, and potential issues with dispute resolution, it is one for merchants to keep an eye on as the technology’s accuracy and security will certainly improve over time.
Crypto Payments and Blockchain Technology are More Widely Adopted
The advent of blockchain technology was a groundbreaking advancement in an increasingly digital world. Blockchain’s use in fintech is still growing and was primarily popularized by cryptocurrency. Crypto payments, once associated with the dark web, have become an investment tool and more commonly accepted form of digital payments in recent years.
Decentralized finance, or DeFi, is a term used to describe financial services that are hosted on a public blockchain. This is most commonly associated with the Ethereum platform and supports many functions banks are used for, including accounts that earn interest, borrowing and lending services, and asset management. DeFi essentially creates a digital alternative to Wall Street, and if popularized, could help to create more open, free, and fair markets.
Digital-only Neobanks Offer Alternative Banking Options
With so many technological advancements and a public preference towards convenient digital solutions (especially in a post-pandemic world), banks without physical locations are a natural evolution. Most financial institutions have adapted to provide robust mobile banking services, but the financial services industry is evolving even further. Neobanks are fintech companies that offer all of the same banking services as a brick-and-mortar bank–without the bricks or mortar.
For many tech-savvy consumers, digital banking is a great alternative to traditional banks and offers added financial services like crypto trading and a more customer-centric and mobile-native experience. It may be difficult to imagine a world without physical bank locations, but digital banking is already used by more than two-thirds of Americans–and for some, the need for physical banks seems non-existent.
Open Banking Delivers Convenient Solutions and Customer Insights
Many of today’s consumers use open banking but may not know the term. Open banking provides third-parties access to banking information like transactions, balances, and other financial data. This is done through application programming interfaces (API) which can serve a number of functions for the customer.
Some examples of this are applications that link to a bank account to provide budgeting advice, automatic withdrawals for investing or saving based on rounding up transaction amounts, and cryptocurrency investments.
Fintech companies gain access to customer accounts, creating networks of information instead of centralized silos. This information can be useful to financial institutions looking to gain a more complete financial profile of their customers in order to provide the best rate. Alternatively, customers can use open banking services to analyze their finances and shop the best rate across multiple financial institutions.
For open banking services, cybersecurity is of the utmost importance given the amount of sensitive customer information needed to access and link accounts. While there are definite concerns about account security in allowing third-party access, open banking is the driving force behind major innovations in the financial services industry.
Robotic Process Automation (RPA) Increases Efficiency
Robotic Process Automation, or RPA, is used by many fintech companies to automate repetitive tasks such as information processing or data entry. Less complex and expensive to operate than artificial intelligence or machine learning, RPA can reduce human capital needs and speed up back-of-house functions with increased accuracy.
By automating rule-based tasks, RPA can reduce costs and mistakes caused by human error. The consistency, speed, and accuracy of using RPA is the driving force behind why many fintech companies use this technology to optimize their performance.
Autonomous Finance Revolutionizes Investing and Financial Advice
Advancements in artificial intelligence have also revolutionized how consumers look at investing. Cutting edge fintech companies have capitalized on automating financial transactions, using AI to conduct several types of transactions. Robo-advisor companies like SoFi, Wealthfront, Betterment, and more offer affordable wealth management and low-cost financial advice.
Using advanced algorithms and big data analytics, autonomous finance companies can deliver a range of portfolios to provide financial products that suit an array of customer needs.
Peer-to-Peer (P2P) Payment Integration
Peer-to-peer payments have gained market share and consumer popularity as a convenient way to send and receive money without the hassle of getting cash or writing a check. Some of the most prominent P2P payment apps include PayPal, Venmo, Zelle, Cash App, and Google, and Apple Pay. These services are linked to credit and debit accounts (a prime example of open banking) and encrypt personal information for security.
The undeniably convenient customer experience makes P2P payment apps ideal for businesses looking to accept multiple payment types. By accepting payment from applications such as PayPal or Amazon Pay, businesses are able to streamline the checkout process which decreases the odds of card abandonment due to the trouble of creating an account.
Payment Cards Go Virtual
With online payments amounting to over 6 trillion dollars globally, and rising cybersecurity attacks, added levels of payment protection are a natural development. Leading card providers such as Visa, Mastercard, American Express, and Discover have started issuing virtual payments to better protect their customers during online and mobile payments.
Virtual cards are one time use payment methods linked to the customer’s account for online purchases. Because the merchant can only access and use the information from the temporary card (not the actual account number), temporary virtual-only card numbers add a layer of protection for customers in the event of a data breach.
Cybersecurity and Fraud Prevention are Prioritized
With a massive array of devices connected to the Internet of Things (IoT), merchants must prioritize their cybersecurity in order to prevent fraud–and when that is not sufficient, to detect and mitigate it. Data breaches and ransomware attacks are on the rise, causing concern for consumers and businesses alike.
Though there are many levels of protection available with the use of virtual cards, two-way encrypted payment methods, and more, all businesses must shore up their cybersecurity. Companies who suffer data breaches lose more than just revenue–reputational damage, especially when a company doesn’t perform due diligence, can have long-lasting and severe consequences.
All merchants should be aware of trends in credit card fraud and develop strategies to mitigate those facing the business. Fraud can take many forms, but most types of payment fraud can be detected and prevented through good cybersecurity practices and secure payment processing systems.
Fintech Trends – In Conclusion
The financial sector continues to rapidly evolve as fintech companies innovate and create user experience-focused solutions. New technologies always seem to be on the horizon and businesses of all sizes must adapt in order to stay relevant and secure. Keeping abreast of and—where appropriate—incorporating new technologies is one way to improve the customer experience and build brand loyalty.
Stax can help you keep up with the latest fintech trends. Contact us to learn more.
