How is Fintech Application Development Changing the Financial Industry?
Technology is rapidly changing the world around us. So radically and quickly that the heads of companies from different industries are concerned about
08:01 27 October 2022
Technology is rapidly changing the world around us. So radically and quickly that the heads of companies from different industries are concerned about this pace. If earlier it took 80 years for society to get used to a landline phone, then it took less than 10 years to master a smartphone. To be in the trend, you need to be present on the Internet and offer modern IT-solutions. The same rule applies to financial organizations. What should be considered when developing Fintech applications for this industry? What functions should the program include in order to benefit the business?
Triggers for the financial services industry development
The financial industry is the driving force of the economy. It includes organizations that provide investment, insurance, banking, stock exchange and other services to individuals and businesses.
The financial services sector is developing all over the world, but at different rates and in different directions. The compilers of the PWC Global FinTech Report for 2019 determined that almost half of organizations and the media have included FinTech solutions in the workflow. Deloitte believes that financial firms have entered a new phase of evolution from a formidable competitor to a reliable partner.
By most estimates, financial services account for 20-25% of the global economy. The services market is expected to grow from $23.3 billion in 2021 to $25.8 billion in 2022. And by 2026, its size will reach $37.3 billion with an annual growth rate of 9.6%.
The main trigger for the development of the financial sector in the last two years has been the pandemic. Stock markets switched to remote trading, the share of mobile payments increased, and call center operators began to serve customers from home. Covid-19 forced companies to revise working models and adopt changes in a short time:
- It was necessary to create conditions for employees to work remotely.
- It was necessary to adjust to the clients and transfer the work to the online space.
- It was necessary to adapt business models to changing market requirements, offer new services or update old ones.
- Enterprises found and implemented IT-solutions to survive in conditions of social distancing and isolation.
These reasons have prompted organizations to look for technology partners who will offer the optimal Fintech solution to the problems and help to quickly implement innovations.
The state of technology in the financial industry
Any organization that uses innovation to update and improve financial services and processes becomes a Fintech company. It can be:
- a bank (insurance company, credit institution) that independently develops an IT-solution or orders it from a supplier;
- a small technology startup;
- an e-commerce store that uses nanotechnology in sales;
- a financial software development company that creates custom Fintech solutions.
These organizations use innovations to make services more accessible to a wide audience. As the Statista figures show, this practice works:
- The number of Fintech startups is growing rapidly. In 2020, there were almost 6.5 thousand of them worldwide. In 2021, 10,605 projects were recorded in America alone.
- 80% of enterprises prioritize improving the digital experience of consumers for the next two years.
- Revenue from the use of financial technologies is growing by an average of 12% per year and will reach 188 billion euros by 2024. This is twice as much as in 2018.
- Investments in innovation increased from 2010 to 2019, reaching a peak of $215.4 billion. Money transfers and payment services are the most popular category among consumers.
Technologies improve the work of financial organizations. They automate routine manual operations, facilitating employee tasks and speeding up customer service. With innovations, it's easier to analyze a huge amount of information and plan the strategy of the company based on the figures. Reduce the distance between the consumer and the organization, providing a more personalized experience.
Participants of the PwC survey in 2019 noted nine technologies that are important for the development of the industry. These are AI, Big Data, Cloud, Blockchain, IoT, 5G, RPA and others.
Customers need fast, convenient and personalized service. 95% of company executives confirmed their confidence that Fintech will provide personalization and increase revenue. By cooperating with IT-partners, the business receives additional benefits:
- Providing the target audience with useful up-to-date functions: budget management tools, mobile check deposits, P2P payments, and so on.
- Creating a simple Fintech solution that attracts consumers. For 30% of financial companies, the issue of ensuring the usability of the program is one of the main difficulties. The technology partner removes such obstacles and helps to retain the audience.
- Reduce the cost of Fintech applications development. It's more economical, easier and faster to apply for a project from an experienced IT-service provider than to create your own team from scratch.
- Scale up quickly. The technology partner knows the specifics of the customer, so it can offer solutions that are beneficial for growth and development.
Financial application market
In 2019, the financial applications market was in the range of $103.99 billion. According to analysts, by 2025 it will reach the figure of $164.01 billion with an annual growth of 7.89%.
If earlier financial software was more closed and generalized, now it seeks to respond to the unique requests of a certain type of users. Smartphones have changed the management of personal funds. It's enough to press one button in the phone to transfer money, pay bills or check the balance. Mobility, accessibility and ease of use open up a number of opportunities for people.
In 2020, users were 15% more likely to download financial applications. People have installed more than 4.6 billion programs on smartphones and spent 16.3 billion hours on them (45% more than a year earlier). The residents of Latin America were particularly interested: the number of downloads in this region increased by 35%.
Types of financial applications
There are many Fintech solutions on the market that meet the needs of customers in various fields: lending, leasing, insurance, investments, and so on. Here are the common types of applications:
- Payment gateway
A payment gateway is a program that processes consumer debit/credit card payments on behalf of a firm. It acts as an intermediary between the bank and the client.
Funds are instantly transferred from the buyer to the seller, which is convenient for remote payment of services. During transactions, confidential data is encrypted and transferred between the website or mobile application and the bank/payment system.
- An application for financial management
As a rule, this is a mobile application for budget tracking. The program has a clear interface and visualizes the statistics of expenses and income of the account holder. Such software is easy to customize to the needs of a particular user: set goals, determine habits and savings strategy, and so on.
- Investment applications
Digital platforms give participants round-the-clock access to the stock market, the opportunity to buy and sell shares. Some mobile applications offer robo-advisors who analyze the market and recommend where it is worth investing. RPA can also automatically place bets instead of the owner and helps to make a profit without risking a lot of money.
- Retirement planning software
With the program, it is easier for working people to manage their finances in order to save a comfortable amount for retirement. The system automatically calculates the amount of monthly deposits based on input parameters: current salary, age, retirement date, planned expenses. The software calculates the pension balance and recommends an accumulation strategy to the owner.
- Lending applications
With the platform, consumers remotely apply for a loan, track its status and view information about the loan. Such systems include advanced underwriting models based on machine learning and artificial intelligence. Algorithms collect and analyze information about the borrower to assess solvency and decide whether it is possible to give him/her a loan.
Usually it is a mobile application through which an individual manages a loan and repays it. Through such a program, it is possible to receive an advance. The main idea of the lending software is to simplify and personalize the issuance of loans. Some programs support peer-to-peer (P2P) lending, which allows people to borrow money without the participation of a bank and receive a percentage.
- Accounting software
Accounting software is a system that allows organizations to manage financial transactions. The standard program includes functions for tracking expenses and income, tax accounting, invoicing and the ability to calculate wages. The program also automatically generates reports based on the collected information.
- Digital banking
Online banking applications help owners manage accounts and conduct financial transactions without visiting branches. Customers can open an account, check the balance, transfer money, make payments and deposits or take out a loan through a mobile/web application at any time.
The system will notify the user when the salary has arrived. The program is able to pay bills automatically if the owner activates this function. Through the software, a person tracks his/her credit rating and deposits money into funds.
- Tax management software
The tax software collects data on the income of an individual/company in order to calculate the amount of taxes taking into account the current legislation. The system automates the preparation and submission of declarations. It can be used by everyone without special accounting knowledge and skills.
- Insurance applications
Insurance for most people is a tedious and unpleasant occupation. Applications make it easier to apply for insurance coverage or to process claims. Agents assess risks more quickly and offer clients more profitable deals.
For example, automobile insurance agencies collect data about an insured car using IoT, evaluate the driving habits of its owner and possible risks. Firms reduce monthly insurance payments if the driver behaves carefully on the road. It is also easier to process claims. It is enough for the driver who got into an accident to take a picture of the scene and send it to the agent through the application.
The choice of the type of financial application depends on the niche and goals of the enterprise. Nevertheless, statistics show that in the United States, people most often use full-service banking programs, peer-to-peer payment applications and financial management software. 63% of users have at least one Fintech application on their smartphone.
Functions of financial software
Each financial software is unique in design, goals, technologies and functions. But there are common points that should be included in a program that works with users' money:
- Tools for monitoring funds. Whether it's a mobile banking application, insurance or investment software, the user should see how his/her funds are being used. It's necessary to provide an opportunity to check the account balance, the amount of insurance premiums or deposits. It's useful for a person to analyze the history of operations and track achievements.
- Tracking expenses. It's important for the user to see where the funds are going. It's worth providing them with detailed information, up to the classification of expenses by groups.
- Notification functions. It's important for users to receive messages about a low balance level, about the account balance after purchase, and so on. They want to receive reminders to control expenses and manage the budget correctly.
- High level of security. Financial programs work with the user's banking and personal data. According to the law on the protection of confidential consumer information and for ethical reasons, organizations must ensure the safety of users. Two-factor authentication, encryption, and biometrics are reliable means of protection.
- Communication tools. The user doesn't always understand how to work with the program correctly. In addition to instructions and reference books, they should be given the opportunity to consult with a technical support agent. This can be done in four ways: via a chatbot, messengers, email or by phone.
Advantages of financial software
Financial software helps companies to do business better and serve their audience:
- Allows you to improve internal accounting processes. Accountants work without errors and delays.
- Automates tax accounting. The organization complies with tax requirements and submits declarations on time.
- Provides organizations with financial transparency. The data collected by the system can be used to effectively manage assets and prognosticate cash flow.
- Simplifies reporting. Managers track the success of the enterprise according to reports on the accounting stock, profit or loss. These documents are necessary for holding meetings and making important business decisions.
- Increases the awareness of the organization among consumers. Financial software simplifies communication and work with clients. When users like a solution offered by a Fintech firm, they are more likely to stay with the brand and recommend it to their friends.
Financial software can be a good tool for improving the internal processes of the company and working with the target audience. Employees spend less time on simple manual processes and focus on more important tasks: thinking through a development strategy.
The complexities of Fintech application development
The development of financial software has its own features, which are easy to cope with if you cooperate with an experienced IT-service provider. The following points can create difficulties:
Problem 1. Software security.
Data is a valuable asset of organizations. It's also the reason that the products of Fintech organizations become the target of cyber attacks. In 2021, the financial sector became the second after health care in terms of the number of attacks. Fintech also suffers the highest costs from cybercrime — $18.3 million per firm. Hackers are becoming more sophisticated by inventing new ways of hacking: file-free malware, social engineering and other methods.
Experienced IT-service providers know the best cyber defense practices. One of them is DevSecOps, which allows you to implement security tools during the Fintech applications development. Programmers find and fix vulnerabilities in their code, reducing the risks of hacking at the design stage.
Problem 2. Difficulties of integration with legacy systems.
Financial market leaders often have outdated systems. They have a complex architecture and there are vulnerabilities that pose a security threat. Such programs may not always integrate with new financial software.
Therefore, it's worth looking for a financial software development company that will appreciate the difficulties of integrating old and modern programs. It'll offer solutions on how to carry out this procedure with less costs and risks.
Problem 3. The company's unreadiness to modernize.
Not all enterprises are ready to modernize their infrastructure: move it to the cloud, use microservices, containers, and so on. According to the owners of firms, IT is expensive, long and impractical to update the IT-infrastructure.
DevOps engineers are able to prove that these opinions are wrong. Experts will find and fix vulnerabilities in the infrastructure, plan migration to the cloud, select a profitable package of services and help the business scale.
Problem 4. Compliance with the law.
The creators of financial software should know the legislation governing the Fintech sphere. There are many subtleties in the regulations of each region or country that should be taken into account when developing Fintech applications. Failure to comply with these standards will result in fines at best, and theft of confidential information at worst.
Financial software development companies usually have lawyers or programmers on staff with experience working on similar projects. They will check that the application complies with the regulations of a certain industry or country.
Problem 5. The pandemic has accelerated the digital transformation.
Covid-19 has shaken traditional ways of doing business. Physical offices have closed, employees work remotely, and mobile services and online presence have become a priority. In order to survive in these conditions, enterprises are trying to introduce innovations quickly. But not everyone has a modernization strategy and means.
This problem can also be solved by finding a reliable technology partner. Employees of the IT-firm will determine the potential audience and goals of the product, choose the type of financial application, calculate its profitability and prepare software requirements. In 1-3 months, the team will design a minimally viable product that can be put on the market. MVP will simultaneously serve customers, bring money and be finalized by developers.
Trends in the financial services modernization
PwC in the report “Financial Services Technology 2020 and Beyond: Embracing disruption” identifies several areas in the modernization of the financial sector:
- FinTech will be the engine of a new business model. Disruptive startups will grow rapidly due to technology and offer a better user experience at a lower price. Thus, they will bypass strong, stable organizations with an established customer base, but with a slow pace of digital transformation.
- Digital transformation is becoming mainstream. 69% of enterprises say that improving the digital experience and service quality is their priority.
- Information about customers is more important than forecasts of the company profitability. Thanks to technology, enterprises will collect as much useful data about the target audience as possible. Analyze their behavior and provide consumers with relevant services and functions.
- Development of a joint economy. People are already familiar with the elements of the sharing economy: car rentals, hotel rooms and taxis. Similar trends are penetrating the financial services sector in the form of peer-to-peer payment systems between people without the participation of a bank.
- Widespread implementation of RPA and AI in Fintech programs. Algorithms are being improved because:
- they help to collect and analyze useful information;
- they can make decisions instead of a person;
- they analyze user reviews to improve software functionality;
- they assess credit and insurance risks;
- they protect applications from scammers and perform other functions.
- Financial institutions automate control and monitoring of commercial and government organizations. For example, in the UK, the Financial Supervisory Authority (FSA) is investigating how insurance companies use big data and whether they comply with current legislation.
- Clients with a difficult financial situation will be in the spotlight. The economic crisis caused by Covid-19 has put many people in a difficult position. Taking into account these events, banks and credit firms should learn how to cooperate with such users. Businesses will look for such people to help them cope with the crisis and manage costs. And firms will create products and services to support financially vulnerable people.
Each organization will react differently to trends. It depends on the market situation, brand positioning, specialization, legislation and capabilities of the enterprise.
A financial application is an innovation that is needed by both people and organizations. With programs, it's easier for consumers to manage funds, and for businesses to do business and retain their target audience.
To create a useful application that will appeal to users and bring income, you need to carefully plan the development of Fintech applications. An experienced IT-service provider will help you with this as well as possible. It will determine the goals of creating a product, research the market and potential audience. In addition, it will offer functions and technologies that should be implemented in the application. It will also evaluate the budget and deadlines of the project, which he will follow. As a result, it will bring the project to a successful end and release relevant high-quality software to the market.
If you need a reliable technology partner, contact the financial software development company Andersen Our developers have implemented more than 250 projects and know how to create mobile banking applications, trading platforms, insurance and lending software, and other programs. Our experts will set up a well-coordinated Fintech application development process and release software that will increase your income.