The technology-driven world of finance

Nowadays technological enhancements have their impact in any aspect of life. It is impossible to mention a particular area where the use and dependence on technology is gradually decreasing. Moreover, along with the improvement of technology, the demands and needs of people are increasing more and more.

The world of finance is one of the leading industries where the role of technology is undeniable and unequivocal. Although the development of fintech may seem recent, its history began in the late 1960s with the invention of Automated Teller Machines (ATMs). Starting with ATMs, fintech has come a long way until reaching the digital currencies. It is unpredictable what the future holds, but it’s important to look at some of the key trends that exist in finance today:

1. Distributed ledger technology (DLT) – DLT is a digital database system that allows financial transactions to be recorded, accessed, validated in a secure environment, while covering multiple entities, locations and nodes. One of the key advantages of DLT is its ability to mitigate, if possible eliminate, prone to error processes. DLT improves Know Your Customer (KYC) procedures offering faster payments and secure digital identity alternatives. A very popular example of DLT is Blockchain.
2. Decentralized finance (DeFi) – DeFi is a blockchain-driven financial system that helps customers to obtain financial services without relying on banks or other financial intermediaries. The key advantage of DeFi is that operations are not managed and controlled by a single centralized body. The reason is to provide more power to individuals. Revenue in the DeFi market is projected to grow at a CAGR of 9.07% during the period from 2024 to 2028.
3. Cloud computing – Cloud computing is the practice of delivering different computing services over the internet. In finance, it helps to reduce costs, detect any fraud, improve customer relationship management (CRM) and leads to greater scalability in terms of decision-making flexibility.
4. Generative AI – The role of generative AI in finance is increasing day by day. It enhances the financial planning and reporting processes, offering more personalized solutions. Note that generative AI in banking and finance is projected to grow at a CAGR of 33% between 2023 and 2032. However, relying too much on it can be risky in terms of losing critical thinking and reasoning skills. ChatGPT is a great example of generative AI.
5. Software as a service (SaaS) – SaaS is a cloud-based model that allows access to software on subscription basis. Financial institutions can scale their operations and adapt to evolving market conditions by using SaaS. The global SaaS market is expected to grow at a CAGR of 13.7% by 2030.
6. Neobanks – Neobank is a new type of bank that operates exclusively online and has no physical location, providing 24/7 business banking and customer service. It offers lower or sometimes no fees, easy access to accounts, chatbot support, personalized customer-centric approach, seamless account opening, payments and other banking services. By 2027 neobanks are expected to grow at a CAGR of 14.7%.
7. Regulatory technologies (RegTech) – RegTech is the use of advanced technology to simplify and manage regulatory compliance, monitoring and reporting in the financial sector. It reduces costs and improves efficiency in business operations including KYC processes. AI is a crucial component of RegTech.
8. Robotic process automation (RPA) – RPA is a software technology that automates repetitive tasks, such as customer registration, security checks, mortgage processing, reduces cost and improves operating efficiency. It reduces the risk of errors because bots are less prone to making mistakes than humans.
9. Buy now, pay later (BNPL) – As the name suggests, this approach is based on a buy now and pay later principle. This makes the payment process more flexible, offering lower interest rates than credit cards (sometimes even no interest). The key disadvantage of this approach is that late payments can lower credit score despite the fact that no credit check is required at the time of approval.
10. Sustainable investing – This approach is based on environmental, social and governance (ESG) factors. Although ESG standards are not mandatory for financial reporting, they are very important to consider in managing risks and opportunities before making an investing decision. Currently, investors are paying more attention to institutions and organizations that invest in ESG.

As we can see, the fintech industry has a great growth potential. It is very important to keep up with these trends, which are just some of the latest trends, to stay well-informed and make better financial decisions. We need to embrace technological advancements and try to find the best technology or solution for the success and development of our business operations.

With CFOnline.co you will have the opportunity to enhance your financial management, make well-informed decisions, and progress towards achieving both short-term and long-term financial objectives.

Prepared by: Seda Janazyan, Business Analyst at CFOnline.co