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Understanding the current landscape of Fintech
Transformation’s potential costs
Using mobile apps like Venmo, transferring funds without a teller, and covering a restaurant tab via a digital wallet are all conveniences consumers have come to value and demand. And they’re all examples of financial technology, or Fintech. In the financial services sector, digital innovations are breaking down barriers, streamlining processes, and bolstering security—with the goal of a more inclusive and efficient financial ecosystem.
Fintech has disrupted numerous “traditional” financial business models. And more disruptions are on the horizon. That requires financial services businesses—in particular, executives responsible for managing risk and fraud, customer onboarding, and compliance—to be ready for the changes, the risks, and the opportunities.
Undrestanding the current landscape of Fintech
The Fintech term has evolved over the years. Very simply, Fintech is the application of digital technology to financial products and services to improve, complement, or in some cases replace traditional financial services. Besides the examples above, others include peer-to-peer lending platforms, which connect borrowers with potential lenders; and robo-advisors, which provide clients with automated, algorithm-driven financial planning services.
Two interconnected drivers are driving Fintech’s growth. One is ongoing advancements in digital technologies such as cloud computing and AI. These and other technologies have enabled the development of innovative services and are laying the foundation for new ones. The other is consumer preferences for online convenience and digitally delivered financial management.
In recent years, several established banks have incorporated Fintech products to drive future growth. Examples include:
- Fifth Third Bank’s Newline, which helps enterprises launch proprietary payment, card, and deposit products.
- S. Bancorp’s Elavon Payment Gateway, a cloud-based merchant transaction platform that integrates with digital wallets to power capabilities including currency conversion.
Cashing in on Fintech
In other words, financial services firms see how Fintech can provide added value to their customers: increased accessibility, time-saving convenience, and personalized services (even if the customer isn’t interacting with a human person). Again, customers not only appreciate what digital finance offers—they’re increasingly demanding it.
At the same time, Fintech innovations have helped banks and credit unions reduce expenses and boost operational efficiency. Fintech allows both traditional firms and upstarts such as neobanks to deliver additional products and new services with fewer employees and less overhead (fewer or no branch locations, for instance).
Transformation’s potential costs
But Fintech and the digital transformation of which it’s a part also come with significant challenges that financial institutions and Fintech executives need to manage. Those challenges include:
- Online banking, mobile payments, and other platforms can increase attack surfaces for cyber-criminal activity such as phishing.
- Data privacy. This is part of the cybersecurity risk. Fintech can be susceptible to hackers seeking to access customer data for purposes of identity theft.
- Regulatory compliance. Fintech operations, whether they’re part of a financial services firm or standalone companies, need to conform to know-your-customer and anti-money-laundering rules, among other regulations.
Speaking of compliance: With the Trump Administration rapidly remaking federal functions, it’s impossible to predict Fintech’s regulatory future. Evidence so far suggests that the burden might be less than anticipated, at least in the U.S. In Europe, the Digital Operational Resilience Act (DORA), which went into effective January 17, 2025, is intended to make the EU’s digital financial sector more secure. This risk-management regulation will undoubtedly affect Fintech-related operations in EU countries.
Cryptocurrency represents a high-profile example of Fintech innovation, and a complex one. While crypto promises transactional capabilities at a lower cost, it is complicated to manage from a risk perspective. With Fintech, financial institutions need to balance embracing innovation and managing risk.
What’s next?
Boston Consulting Group forecasts that Fintech revenues will hit $1.5 trillion by decade’s end as this ever-evolving sector develops new technologies and opens new markets. There are several general future trends that financial sector businesses should anticipate. One is the expanded applications of blockchain, the distributed ledger technology used in cryptocurrency. Since blockchain can facilitate monetary transactions more quickly and more securely, banks may benefit from incorporating it into their operations. Similarly, the financial services sector should monitor Fintech innovations designed to help build the open banking model.
And of course, there’s AI and the numerous benefits it can offer in the areas of marketing, risk management, fraud prevention, and regulatory compliance. AI’s high-speed data gathering and analysis powers make it easier to identify questionable transactions, account applicants requiring more investigation before onboarding, and consumer trends that can inspire new products and services. Thanks to machine learning, AI’s capabilities will only get stronger over time. And those will come with risks of their own.
Be prepared
Fintech will continue to introduce new disruptions, new benefits, and new risks. This makes it crucial for financial services businesses to remain informed and adaptable. Digital technology’s ongoing evolution requires these firms to prepare for the risks—and for the profitable new opportunities. Learn more about navigating the future of finance.
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