Financial technology is causing significant disruption in the financial services industry. While FinTech offers many exciting opportunities, banks are also dealing with the challenges that it brings. It has the possibility for smart solutions that allow banks to operate more efficiently and at a lower cost, but FinTech is still in its early stages, and companies are unsure how technology will disrupt their daily operations.
Here are the main FinTech challenges and solutions to them to think about to meet the demands of the customers and regulatory agencies.
What Is FinTech?
Financial technologies (FinTech) were developed to either replace or supplement existing financial processes. Software, algorithms, procedures, and business models are examples of these. Personal investments, trade, financial services, and insurance are all major sections of practically any Fintech app.
Market Screener predicts that the worldwide Fintech market would be valued $ 26.5 trillion by 2022, with a 6% annual growth rate. Global economic development, growing demand for credit and insurance, and rising interest in investment are some of the causes for this rapid expansion.
7 Challenges in the Fintech Industry and their Solutions
We analyzed and selected the most significant FinTech industry problems. Many businesses struggle to cope with them, therefore we will present a solution for each.
In 2021, there were 1,862 data breaches with an average cost of $4.24 million. This is a new all-time high, raising new issues about data security and privacy. Companies must understand that they risk not just their reputation, but also their money.
To avoid a potential breach, create a FinTech app that incorporates the following features:
- Two-factor authentication;
- Biometric authentication;
- 256-bit AES encryption;
- Notifications about all actions.
Regular penetration testing is an effective method to guarantee that hackers do not affect your solution. You must take at least one test each year. Furthermore, tests must be run after each new update and integration.
Regulatory and Compliance Laws
Regulatory compliance is another vital challenge in the FinTech industry. This is due to the massive increase in regulatory costs related to earnings and credit losses during the 2008 financial crisis. As a result, while designing an app, you must ensure that the program complies with all key elements recognized by the government. As a result, your product's resources may be taxed, and its ability to correlate data from diverse sources may suffer. Companies must adhere to a variety of regulations, including the GDPR, GLBA, the Wiretap Act, the Money Laundering Control Act, and many more.
There are different methods to comply with all of the laws. What you can do is as follows:
- Hire a legal expert for advice;
- Hire a dedicated person or department to monitor regulatory changes.
Both options are viable. The cooperation and price mechanisms are the only ones that differ. Hiring a lawyer is significantly less expensive than paying a punishment, with the GDPR's potential penalty reaching €20 million.
Lack of Mobile and Tech Expertise
One of the most important FinTech challenges in 2022 will be a lack of technical expertise. The creation of high-quality and secure FinTech solutions, such as banking applications with smooth performance, necessitates extensive experience and a strong basis. Not everyone can put together an in-house team of professional engineers who are up to date on the latest tech advertising to ensure the app has a high level of security without sacrificing quality.
The following features are must-haves for any mobile financial app:
- A top-notch UI and UX;
- Comprehensive data visualization;
- QR-code payments;
- NFC support.
As a result, more businesses are choosing to outsource FinTech app development in order to get a well-thought-out application. A ready-made team often knows financial initiatives as well as little details that must be followed for success. You may engage an outsourcing company that specializes in FinTech app development with real-world examples to ensure that your app is completed by specialists alone. Furthermore, outsourcing helps to minimize development expenses in the long term and allows you to focus on more important things like marketing.
User Retention and User Experience
User retention and user experience are important challenges in FinTech industry. A financial app, on the other hand, must strike a balance between user experience and security. For example, you should provide a mobile app banking solution that is neither complicated to use nor easy to breach. Related article: Early Adopters: 5 Stages of Technology Adoption.
When creating a financial app, you must ensure that the UI/UX is secure and user-friendly. Furthermore, people are prepared to employ two-factor authentication to access an app. However, repeatedly asking for the data for login may annoy them. You may also look at what your competitors are doing to provide a consistent user experience.
For a long time, personalized services have been the key and core aspect of banking. Personalization, in today's context, implies communicating with a user at the correct moment, on their chosen channel, with a perfect answer to their particular demands.
Furthermore, clients are willing to embrace FinTech as their financial wellness advisor. Some users may feel overwhelmed by a vast range of options, and successful customization provides them with only the narrowed opportunities they need.
FinTech companies must have detailed client insights to solve this challenge. Furthermore, financial institutions must study user behavior and get knowledge about the user's health, social relationships, and events. You may achieve this goal by building trust with your consumers. You must keep the user's information secure and protected.
There are numerous fintech applications that use blockchain technology. Some businesses do not see blockchain as a viable option, while others see it as a means of improving data interchange.
Implementing a blockchain can increase the trustworthiness of the FinTech business. Because it allows you to examine and trace all aspects of a transaction and prevent any modifications to it, you can keep an eye on it at all times. However, incorporating a blockchain is a difficult process for many financial institutions.
Banks and other financial organizations have been slow to embrace blockchain technology. FinTech companies, on the other hand, are more likely to attempt to disrupt the Fintech sector. They should, however, consider established banks and governments, as these institutions remain skeptical of new technology.
As we all know, integrating blockchain technology is not easy. Make careful to follow all government laws and regulations while implementing this. Furthermore, avoid any regulatory limitations on your mobile services because governments are still cautious to enable widespread blockchain usage.
Effective Marketing Tactics to Acquire Customers
In general, FinTech companies do not understand their specialty, target audience, or strategies. In recent times, since the majority of people still utilize traditional banking services, FinTech businesses have struggled to overcome this challenge.
To improve your business and strategy, you must be much better than your competitors. And for that, you must either invest a lot of money, time, and human resources to provide seamless services to your consumers, or you must work with traditional banks.
Offering the best product is not what your customers expect in this competitive market. You must endorse yourself by telling them about your creation. Furthermore, you must design a powerful and successful marketing plan that includes advertising, collaboration, and so on. This will not only help you acquire popularity, but it will also help you increase brand recognition.
Top Opportunities in FinTech
Because the number of options is overwhelming, we've hand-picked the five most prominent technologies to employ.
AI has been utilized in finance for some time. The bulk of the time, it was used for real-time fraud detection and financial analysis.
Here are some examples of what AI can achieve in finance:
- Advanced cybersecurity and suspicious activity detection;
- Enhanced client experience through chatbots and tailored services;
- Risk score profiling, and other features
Many fintech difficulties in financial services can be mitigated using AI. Related article: AI in eLearning: The Importance of Chatbots.
Machine learning is one of the most significant FinTech potential and implementation challenges. It assists AI in adjusting to new settings and identifying patterns.
Here's how machine learning is being utilized to tackle fintech problems:
- More loan approvals with fewer risks;
- Fraudulent activity detection;
- Regulatory compliance analysis;
- Price prediction for stock trading, etc.
It is an excellent complement to any sophisticated solution.
Big data assists financial data organizations in obtaining reliable information about their clients in order to modify tactics and customize UX.
Here's how big data is being utilized to address important concerns in fintech:
- Developing comprehensive user portraits for customized services and marketing tactics;
- Improved risk assessment through analysis of many sources;
- Creation of accurate fraud detection systems
Big data development services can assist you in making the most of this technology. It provides a robust financial ecosystem when combined with AI and ML.
Web 3.0 is a new blockchain-based version of the Internet that focuses on decentralization, artificial intelligence, machine learning, and a better user experience.
Here's how Web 3 will impact the financial technology industry:
- Improved user data control; access to any information for operations such as BNPL or loans;
- Personalization and adaptation of material;
- Automation of processes for speedier payment;
- Errors and suspensions were reduced.
Traditional financial institutions will take a long time to embrace the new paradigm. Web 3.0 and big data in fintech are both promising.
Outsource Application Development to Experts
Developing an exceptional FinTech solution, including banking software, with good functionality and a high level of security requires a significant amount of knowledge and attention. Not every company can assemble a competent in-house team to develop an app. As a result, an increasing number of businesses are choosing to outsource financial technology software development in order to obtain well-functioning and user-friendly apps. Related article: How to Find App Developer for Your Business Requirements.
With a pre-assembled team of pros, you can begin creating your application right now. Furthermore, you will not have to spend money on recruiting, training new personnel, or vacation compensation. Outsourcing helps you to drastically cut long-term expenditures, save on operational costs, and meet your goals and perform activities promptly and efficiently.
However, there are other challenges that we must overcome in the FinTech industry. Regulations and numerous government laws are difficult for FinTech companies to navigate. However, in order to disrupt the financial business, we must always keep a balance between new technology and adherence to the established structure.
Traditional banking, on the other hand, finds it difficult to absorb new trends and technology. I anticipate that mobile technologies will become increasingly more widespread in the financial industry over time since they are impactful and convenient for individuals while also assisting institutions in working more effectively.
If you want to create a financial app, you can contact PioGroup Software, a FinTech, EdTech app development business. We assist you in developing your ideal app with the needed features and functionalities to provide a flawless user experience. Consider these digital FinTech challenges as a solid answer to becoming a fintech king.