Defined as a fusion of finance and technology, fintech is incredibly hot today. This newly-emerged industry is now at the cutting edge of technology with 2,196 deals forged worldwide and global investment in fintech companies hitting $111,8 billion in 2018.
The key to its success is simple: fintech leverages today’s new gen technologies to facilitate financial interactions. What previously involved going to a brick-and-mortar institution, waiting in lines, engaging in lengthy conversations with personnel, and reading the fine print, can now be done in just a few mouse clicks. While banking service is the most spectacular example of positive disruption fintech brings, its application extends far beyond the now omnipresent online and mobile banking.
Types of Fintech Software
Below is an overview of the currently existent types of fintech software solutions revolutionizing global financial services worldwide.
1. Money lending commercial software
This type of fintech software targets the loan decision process and accelerates loan assignment. In essence, it can be divided into several subcategories:
Loan origination software for processing loan requests
This software type usually lets users access their accounts, manage forms, and store documentation.
Commercial loan software
Powered by NLP and big data algorithms, this type of fintech software captures and analyzes client-related data to provide financial companies with a clear assessment of clients’ creditworthiness and possible risks.
Both corporate and individual clients can benefit from these software types. Examples include Kabbage software targeting small businesses, and projects like Borrowell (Canada) catering to individual clients. Money lending software enables companies to accelerate the loan decision process, enhance productivity, and eliminate risks.
2. Banking software
Online and mobile banking are some of the most popular fintech software types delivering smoother and more pleasant banking experiences and faster time-to-value. Going to a brick-and-mortar bank is becoming obsolete since fintech solutions are enabling customers to fulfill transactions, transfer money between accounts, pay bills, and get financial advice online.
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24/7 service is another obvious benefit of digital banking, along with eliminating human error and being updated continuously about the state of your account. The new gen technologies applied in digital banking include AI, biometrics, NLP-powered chatbots, and more. For example, Moven uses AI solutions to help banks deliver digitized services and offers a full spectrum of online tools for managing accounts. UK-based app-only Atombank is an example of a customer-oriented bank leveraging new gen fintech solutions.
3. InsurTech software
Insurtech is, in many respects, an independent branch of fintech. In 2018, global investments into insurtech had exceeded $3 billion, and with tech giants like Amazon stepping into the insurtech market, its future looks brighter than ever. The industry is currently a hub for cutting edge technologies like AI/ML/NLP, AR/VR, IoT, and blockchain.
What gives insurtech companies a distinct competitive edge over traditional insurers is accelerated access to personalized solutions, automated document management, and, ultimately, increased time and operational efficiency. All in all, the insurtech software can be subdivided into two main categories:
Insurtech client management software
CRM systems helping insurance agents store and process client-related information. Such systems generate documents, assigns tasks, helps track progress, and build client relationships.
Insurance agency software
This software type automates and optimizes insurance agency operations, from general administration to storing client documentation. It also manages billing processes, claims management, and pretty much an entire insurance agency life cycle.
Client-oriented insurtech software
This software leverages modern technologies to deliver personalized insurance solutions. Thus, Allianz (UK) offers an AR service detecting possible dangers customers may encounter within their homes. A mobile app helps customers scan their homes and see potentially dangerous zones like gas leakages, and pipe breaks and take timely measures. Other services use IoT sensors and beacons to evaluate customers driving habits and offer insurance solutions based on this information. Metromile, for instance, is a customer-oriented service offering customers insurance products based on how much they drive.
Insurtech brings insurance services to people in world regions where they were never previously available. For example, BIMA, an insurance service, uses mobile health-monitoring solutions to offer microinsurance to its clients in developing economies.
4. RegTech software
As banks expand internationally, they are facing major regulatory obstacles. Laws and regulations differ depending on a country, and ensuring compliance is usually a tricky task. Regtech software helps companies observe rules and regulations, meet compliance challenges, and avoid potential legal issues and problems. It also tackles reputational risks, since the clients are no longer happy with products of dubious origin. With this respect, ML and big data analysis are a great asset.
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Regtech software categories:
Financial risk management software
By pinpointing potential risks, this type of software helps companies make informed business decisions. This software type analyzes risks as well as steps customers have to take to avoid them and helps companies with risk-based capital budgeting.
Fraud detection software
This fintech software type analyzes client activity and data for signs of fraudulent behavior and helps detect suspicious activity at the early stages. Such apps are usually equipped with real-time monitoring and alerts to instantly notify companies about the signs of possible fraud.
Suade is an example of a service dedicated to helping companies observe rules and regulations, while companies like Passfort help evade fraud by offering advanced monitoring and storage service for client passwords on multiple devices.
5. Investment software
This software type helps customers manage their investments and make better investment decisions. By aggregating their assets in the same place, people can get a clear picture of their financial situation. By accessing investment analytics and data, users can optimize their investments, accelerate investment operations, and boost efficiency.
Investment management software collects useful data, processes transactions, and generates reports, assesses client performance, and displays financial metrics using visualization tools. Most importantly, clients can access investment info via a smartphone or a laptop. Hedgeable and Addepar are good examples of such automated platforms.
6. Personal finance management software
Fintech solutions are also gaining increasing popularity in personal finance management. Digitizations eliminates the need to go to a physical bank and adds an educational and fun element to personal finance management. Assistance on personalized finance management, budgeting and savings, online banking features and multiple currency support — all accessible through mobile devices and available 24/7 make this fintech segment one of the most fast-growing ones. Reminders on paying loans and bills on time, individual balance reports, charts, and reports on spendings make for increased client loyalty and account for the high popularity of these types of fintech software solutions.
For example, digital fintech solutions like Mint enable users to create personal budgets, and CompareAsiaGroup provides detailed advice on savings and personal finance management. Moreover, it leverages AI to connect users to companies that can offer them exactly the type of services they need.
Fintech Business Models
Understandably, these fintech software types are built to serve the most widespread fintech business models, which have emerged in recent years:
1. Credit scoring
With self-employed people, traditional credit scoring is not applicable, since their income is hard to evaluate using traditional ways. Here’s when advanced fintech solutions come into play: by assessing alternative data points, like clients social activity, such solutions can offer alternative credit scores. Likewise, lenders can use alternative channels to estimate possible risks.
2. Insurance underwriting
As with credit scoring, fintech solutions assess data from alternative sources for insurance underwriting. How often a person exercises, their social activity, and medical records – all can make a difference when it comes to alternative insurance underwriting. NLP, ML, and big data algorithms help get a clearer picture of a client’s lifestyle and assign insurance based on more accurate info. It also gives users insights on alternative payment models, such as co-payment.
Within this business model, customers can use a platform which connects individuals to individuals, borrowers with lenders. Customers can borrow money from one or several individuals, and thus, fund their projects more effectively, while investors can get better ROI than via traditional investment methods. The platform called Funding Circle derives profit from fees paid by borrowers.
4. Payment gateways
These software solutions enable customers to pay for products and services on commercial websites. While traditional banks will usually charge hefty fees for transaction processing, regardless of a payment method (credit card, debit card, cryptocurrencies, digital wallets, etc). Fintech companies are offering electronic payment systems which eCommerce companies can easily incorporate into their sites.
5. Mobile/Digital wallets
This business model enables users to store a portion of their fiat money in a digital form and make purchases and payments, while the fintech company charges a small fee for transaction services. Being a combination of a virtual bank account and a payment gateway, such wallet is usually used by eCommerce retailers or service providers. The example of services leveraging this fintech business model is Pay-Pal owned Venmo and Google Pay.
6. Asset Management
Within this business model, investors are allowed to buy stocks without having to pay any fee. Instead, fintech companies ask them to share their data. Afterward, companies like Robinhood send this data to traders who can use it to influence the price of an asset. Usually, an asset increases in value, but the difference between trading fees is still positive.
To conclude, we can predict, that despite a multitude of fintech business models and software solutions, their number is definitely set to increase in the near future, along with the demand for fintech R&D. As predicts KMPG, this year we are bound to witness further “consolidation, collaboration and expansion” of regtech, insurtech, and blockchain. Fintech is rapidly maturing and will need innovations and talent to successfully evolve.