Transformation in the financial industry is being driven by digital and cloud-native technologies. These provide users faster and more convenient access to services, while increasing transparency.
Several groundbreaking technologies are on the cusp of becoming mainstream in the financial industry, ushering in a paradigm shift in how customers embrace financial products and services. Powered by cutting-edge technologies, FinTechs are reshaping user behavior with faster payments and embedding financial services.
While the journey to modernization has not been without challenges for conventional banks seeking to overhaul their legacy systems, embracing cloud technology and partnering with innovative FinTechs have become a vital strategy for driving innovation and progress across the sector. A significant driving force behind this transformation is the concept of Banking-as-a-Service (BaaS), which acts as a bridge between traditional financial institutions and agile FinTech entities. This collaboration enables secure data access through Application Programming Interfaces (APIs), fostering a symbiotic ecosystem for the benefit of all stakeholders.
The emergence of microservices architecture has challenged the conventional monolithic banking architecture. The modern model revolves around customer-centricity, catering to the unique needs of individuals and businesses. The digital payments revolution has ushered in a new era of financial services, giving rise to FinTech segments like Payment-as-a-Service like (PaaS). For example, PayTechs now constitute a significant 25% of the FinTech value chain, representing a staggering $2.17 trillion within the $240 trillion payments industry. Their meteoric rise can be attributed to their ability to support swift, frictionless, and integrated payment. An example of this is open economy, which has solved a major problem for the gig economy and enabled variable recurring payments (VRPs) to support their cause.
Several factors have contributed to the rise of FinTech and its far-reaching implications for the financial industry. Let us delve deeper into the proponents and prospects of digital payments impacting the expansion of the FinTech industry.
Adopting real-time payment rails unlocks a plethora of opportunities for innovation across overlay services. With the support of open banking, account-to-account (A2A) transfers are accelerated, enhancing the capabilities of Payment Service Providers (PSPs) to serve customers better.
The introduction of flexible and agile overlay services enhances revenue streams and transaction volumes, benefiting various stakeholders, ranging from financial institutions to PayTechs.
Payments are being simplified through web-connected devices in this tech-driven era, making IoT the most convenient way of ordering things online. IoT payments offer diverse applications, from supply chain monitoring for credit recovery to security enhancement via network scans. This technology presents a world of possibilities, facilitating enhanced visibility, transparency and secure financial transactions through location-agnostic zero-trust networks.
These are the one-stop solutions for hyper-personalized financial needs. Major banks are now establishing digital ecosystems that provide users with a unified experience across various services. The integration of digital wallets within super apps reduces transaction fees and opens avenues for loyalty programs, security enhancements, and the transition from closed to open-loop wallets. The future promises an increased share of transactions being conducted through super apps, catering to the preferences of consumers worldwide.
The idea of availing goods and services on credit with just a tap on the app has made ecommerce smoother than ever. The digital-first neobanks and various other financial architectures are forming the foundation of the democratization and globalization of finance.
This payment option has proved to be a gamechanger for retailers and merchants, reducing cart abandonment and attracting new customers. The growth trajectory of BNPL is staggering, with projections indicating a market worth $3.98 trillion by 2030.
The digitalization of banking has led to evolving risk management and regulatory compliance strategies. Regulators are increasingly focused on cross-border coordination and information-sharing, given the global nature of FinTech. Payment Service Providers (PSPs) are well-positioned to adapt to these regulatory developments and design offerings that facilitate seamless global payments for Small and Medium-sized Businesses (SMBs).
While the transformation of payments lies at the heart of the evolution of FinTech, the security of these digital transactions is paramount. Embedded payments are propelling us towards the metaverse via alternate currencies and digital identities. Cutting-edge technologies, such as blockchains and smart contracts, are paving the way for enhanced customer journeys within FinTech. Distributed Ledger Technology (DLT) promises instant and atomic settlement, increased automation, transparency, and efficiency in payments, while enabling the creation of innovative business models.
The seismic shifts in the financial landscape are undeniable. To harness the full potential of this revolution, we invite you to become part of the movement and reap the rewards by modernizing your payment processes. Embrace innovation, seize the opportunities presented by FinTech, and power your financial services in the digital age.
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