The financial industry has undergone innovative transformations over the years. Cashless payments, mobile banking, and other technology-enabled solutions are reshaping how customers, financial companies, and banks manage their money. However, with so many opportunities come new challenges that financial institutions must face.
What is fintech?
Financial technologies, or fintech, include advanced technologies that are used to improve or digitize traditional activities in finance. Blockchain technology, cloud computing, artificial intelligence, advanced analytics, and other financial software solutions help modernize, automate, and enhance financial services.
Fintech platforms can perform tasks such as transferring funds from one account to another, paying bills, and much more. According to Statista, the value of transactions in digital payments increased from $4.1 trillion in 2019 to $5.2 trillion in 2020.
Fintech can also be applied across almost every industry, geographic market, and business model. For example, banks can leverage fintech to monitor account activity or implement customer-facing solutions, such as chatbots or mobile apps. Retailers, for example, can use innovative techniques to calculate taxes or simplify payment methods, even across borders.
The main challenges facing the fintech industry
As in any other industry, fintech faces its challenges, and fintech companies face some hurdles. From retaining users and exceeding goals to data security issues, there are some critical areas that companies need to focus on to ensure lasting success.
Let’s move on to the top three challenges companies face in their fintech transformation and how to address them.
Challenge 1: Data Security and Privacy Concerns
In today’s business environment, cyber security is more important than ever. According to IBM, the average cost of a data breach in the financial industry is $5.85 million. The increasingly digital environment in the financial sector, including phone banking and payment applications, is one of the most important targets of cybercriminals.
Cybersecurity weaknesses can affect customer funds as well as personal data. So that large, reputable companies have to take care of valuable information and make sure that their default security is in place.
advice: Use data encryption algorithms to encrypt data, such as Advanced Encryption Standard (AES), Rivest-Shamir-Adleman (RSA), TripleDES, Twofish and others. With data encryption, only people with private keys can access the information.
Make sure you have secure authentication methods in place in your fintech solution. For example, make sure that users of your software change passwords regularly. You can add the layer to your security by entering biometric authentication; Biometric cybersecurity relies on a person’s features (fingerprint, voice, iris pattern, etc.) that reduce the chances of a breach. Implement role-based access control so that only authorized users can access certain information, track failed logins, and monitor suspicious activity.
The second challenge: compliance with regulations
The financial sector is one of the most regulated sectors. As innovative technologies are increasingly integrated into financial operations and services, regulatory obligations for such operations also arise. Various legislative guidelines have been established to protect financial institutions from fraud and malicious actors, and to protect clients’ investments and sensitive information.
Furthermore, the applications of fintech are broad and cut across various business sectors. It only complicates the corporate process in formulating compliance strategies and defining regulatory requirements.
Tip: Start by checking legal compliance before developing an app or using software – partner with an experienced legal advisor to walk you through all the details and policies, if necessary. You can resort to regulatory techniques to automate the process of monitoring the introduction of new regulations or any updates.
Although there is no one-size-fits-all approach, fintech companies can create their solutions keeping in mind some of the best fintech compliance practices, including Know Your Customer (KYC), Anti-Money Laundering (AML), and others.
Challenge 3: Lack of technical expertise
Financial companies with outdated trading applications and systems will not be able to meet the growing demands of the digital world. Modern customers want a seamless and convenient way to access financial services. According to Business Insider, there are about 169.3 million mobile banking users, 80% of whom prefer mobile banking to access their accounts.
Outdated systems and a lack of technical experts lead to services that are not user-friendly and bring no value. A mobile application developed by a specialist without proper experience can deprive the company of various advantages, for example, NFC chips that simplify payment methods, fingerprint unlocking that enhances application security, and other features.
Building a top-tier financial solution is not easy; Requires practical experience. Many companies fail to build strong internal teams; Moreover, the recruitment process may take a long time.
Tip: Find a trusted technology partner to outsource your FinTech development. Outsourcing allows you to hire experienced professionals who can start creating your solution right away. An external team of experts will also help you reduce recruitment and training expenses for new employees.
Fintech will increase its market share in the future. But creating an efficient and secure FinTech solution requires a lot of effort and a skilled team. To create an efficient financial system and deceive the competition, cooperate with qualified experts.