Disruption in Fintech due to technology revolution

By Amarprit Kohli

Pune, 4th January 2025: The impact of technology on the fintech (financial technology) sector has been profound, reshaping how financial services are delivered, consumed, and regulated. Technology is helping fintech to delivered enhanced user experience, faster decisions and perform risk management.  Advancements in digital tools, artificial intelligence (AI), blockchain, cloud computing, and other innovations have reshaped the entire financial services landscape, creating new opportunities, enhancing efficiency, and addressing long-standing pain points. Below are some of the major ways in which fintech has transformed due to technology. Several key areas where technology has transformed fintech:

Artificial Intelligence (AI) and Machine Learning

• Automation of Financial Processes: AI has automated many manual tasks within financial services. From robo-advisors that provide algorithm-driven investment advice to AI chatbots that handle customer service, fintech has seen a rise in operational efficiency.
• Credit Scoring and Risk Management: AI has transformed credit scoring by analyzing large volumes of data from diverse sources such as payment histories, social media activity, and even behavioral patterns. This enables lenders to make more accurate and fair assessments of a borrower’s risk profile.
• Fraud Detection: Machine learning algorithms analyze transaction patterns in real time to detect and flag fraudulent activity, reducing the risk of financial crimes like identity theft and card fraud.

Cloud Computing and Scalability

• Cost Efficiency and Agility: Cloud computing allows fintech companies to scale their operations without investing heavily in physical infrastructure. Cloud platforms such as Amazon Web Services (AWS), Microsoft Azure, and Google Cloud provide on-demand computing power, enabling startups and established financial institutions to deploy, maintain, and scale services more efficiently and cost-effectively.
• Data Storage and Security: Cloud computing provides secure and accessible data storage solutions, essential for managing vast amounts of financial data. It allows for greater data flexibility, enabling users to access services from anywhere in the world.

Blockchain and Cryptocurrencies

• Cryptocurrency: Bitcoin, Ethereum, and other cryptocurrencies have introduced decentralized financial systems, enabling peer-to-peer transactions without intermediaries. Blockchain technology supports these currencies and also enables the creation of smart contracts, which automatically execute transactions when conditions are met.
• Decentralized Finance (DeFi): DeFi applications use blockchain to create alternative financial services, such as lending, borrowing, and trading, without relying on traditional banks or financial institutions. Smart contracts facilitate secure, automated transactions.
• Security and Transparency: Blockchain enhances transparency and security in financial transactions, reducing fraud and ensuring the integrity of data.

Popularity of Digital Payments and Cashless Society

• Mobile Payments: Mobile wallets like Apple Pay, Google Pay, Samsung Pay, and platforms like PayPal have facilitated an easy, seamless way to make payments digitally, without the need for physical cards or cash. These systems use Near Field Communication (NFC) and QR codes for contactless payments, reducing friction and increasing transaction speed.
• Cross-Border Transactions: Fintech platforms like Wise (formerly TransferWise) and Revolut allow users to send money internationally at much lower fees than traditional banks, leveraging technologies like blockchain and multi-currency digital wallets to facilitate borderless payments.

Big Data and Analytics

• Personalized Financial Products: Big data enables financial institutions to create highly personalized financial services by analyzing customer behavior and preferences. For example, banks may offer tailored loans, savings accounts, and investment products.
• Risk Management: Advanced data analytics allow companies to assess financial risks more accurately, optimizing portfolio management, insurance underwriting, and fraud detection.
• Customer Insights: Financial institutions use big data to gain deeper insights into customer needs and preferences, driving innovation in product offerings and improving customer experiences.

Open Banking and APIs

• Open Banking: The introduction of Open Banking, particularly in regions like the European Union (via PSD2), has allowed third-party developers to build applications that can access financial institutions’ data (with customer consent). This has spurred innovation, enabling new services such as personalized financial advice, easier payment systems, and comparison tools for loans and credit cards.
• APIs (Application Programming Interfaces): APIs enable seamless integration between different financial platforms, allowing fintech startups to build on top of traditional banks’ infrastructures and create more user-friendly and innovative solutions.
• with multiple stakeholders, including banks, fintech firms, and regulators.

InsurTech

• On-Demand Insurance: Technology has enabled the rise of on-demand insurance platforms, where consumers can purchase insurance policies that are tailored to their specific needs, often via mobile apps.
• Usage-Based Insurance: InsurTech companies use IoT (Internet of Things) devices to offer pay-per-use or usage-based insurance. For example, car insurance companies might use telematics to track driving behavior and adjust premiums accordingly.

Lending and Crowdfunding Platforms

• Peer-to-Peer (P2P) Lending: Platforms like LendingClub and Prosper have democratized access to loans by enabling individuals to lend to one another, bypassing traditional banks. AI-driven credit scoring models have also enhanced the ability to evaluate loan risk, allowing for more accessible lending.
• Crowdfunding: Crowdfunding platforms such as Kickstarter and GoFundMe have provided businesses and individuals with an alternative means of raising capital, allowing for direct contributions from the public.

Cybersecurity

• Enhanced Security Measures: As fintech services expand, the need for robust cybersecurity becomes even more critical. Technologies such as multi-factor authentication (MFA), biometric verification (fingerprint/face recognition), and end-to-end encryption are being implemented to safeguard financial transactions and sensitive data.
• Blockchain for Security: The decentralized nature of blockchain offers increased security against hacking and fraud. Its immutability and transparency make it an attractive option for securing financial transactions and records.

RegTech and Compliance Automation

• Regulatory Compliance Simplified: RegTech (Regulatory Technology) uses technology to help financial institutions comply with complex and evolving regulations. AI-driven systems help monitor transactions for signs of money laundering and ensure adherence to regulatory frameworks like Know Your Customer (KYC) and Anti-Money Laundering (AML).
• Real-Time Monitoring: Cloud-based solutions allow for real-time monitoring and reporting, ensuring that financial institutions can comply with regulatory requirements without significant manual effort. Automation tools reduce human error and make compliance more transparent.

Peer-to-Peer Lending and Crowdfunding

• Alternative Lending: Technology has enabled new models of lending, such as peer-to-peer (P2P) lending, where individuals or businesses can borrow directly from others. Platforms like LendingClub and Funding Circle match borrowers with lenders, bypassing traditional banks and offering faster, lower-cost lending options.
• Crowdfunding: Similarly, platforms like Kickstarter and GoFundMe have democratized fundraising, enabling individuals and businesses to raise capital directly from a community of small investors or donors.

Personal Finance Management

• FinTech for Financial Health: Apps like Mint, YNAB (You Need a Budget), and PocketGuard help individuals manage their finances by providing tools for budgeting, expense tracking, and savings goals. These platforms often leverage AI to provide personalized recommendations and financial tips.
• Financial Education: Technology has enabled a wider range of financial education tools and resources, empowering consumers to make smarter decisions about their money and financial futures.

Conclusion

The transformation of fintech due to technology has led to the democratization of financial services, the removal of intermediaries, and greater inclusivity in global financial systems. As technology continues to evolve, fintech will likely experience further innovations that will drive efficiency, reduce costs, and open up new markets and services for consumers and businesses alike. At the same time fintech continues to evolve, challenges such as cybersecurity risks, regulatory compliance, and customer privacy concerns remain, requiring continuous innovation and adaptation.This transformation has brought about a more connected, efficient, and customer-centric financial world, with technology continuing to be the driving force.

(About author: Amarprit Kohli is Vice President, Lead Technology Manager, Deutsche Bank India. With over 24 years of experience in the fintech industry and an MBA in Information Technology, Amarprit Kohli is a recognized authority in technology leadership and innovation. Throughout his career, he has successfully established and scaled technology centers in India, driving cost-efficient delivery models and accelerating time to market.)