Banks, companies classified as fintech and insurers share major challenges. They are in charge of responding to the needs of users in a very sensitive field for them: money. The competition in the sector, the impact of the economic situation and the guarantee of security are three important factors that they must take into account in their daily operations. It is not surprising, therefore, that they have always been companies that have made a decisive commitment to evolve their traditional models to take advantage of new technology. As the world and needs change, the main concern they face is how to offer the best product for that particular moment. Below, we will review some of the most important trends in the financial sector and how market leaders are addressing this ongoing transformation.
Banking as a Service (Baas)
The “as a Service” concept has been gaining more and more weight throughout the business world. Born in the field of technology, many companies hire Software as a Service (Saas) services, which allow them to have a tool that is more customized to their needs, instead of standard packages that rarely fit what they are really looking for. In the same way, banks and fintechs are betting heavily on the concept of Banking as a Service (BaaS) with the idea of being able to offer their customers personalized experiences with a greater level of detail to the different customer profiles they have. An example of this trend is the way in which banks now contact their customers. Today’s technological capabilities, thanks to Big Data and Artificial Intelligence, allow them to anticipate what their customers’ next needs are going to be and thus be able to offer them the most suitable product for their financial situation. From investment products to financing lines, including new banking products that allow them to be closer to their customers and gain their trust and loyalty.
Open banking & Open finance
Time is a scarce commodity and anything we can do to streamline the processes that fintech customers must perform in their daily operations is welcome. Avoiding complexity and unnecessary redundancies is something that should always be in the minds of all product and service developers. The concepts of open banking and open finance are two clear examples. Open banking can be defined as the ability of a user to view and manage all his or her bank accounts from a single portal or application, instead of having to log on to different platforms to perform the same operation. From simple operations, such as printing bills, to more complex processes, such as applying for and approving a mortgage, can be greatly simplified with this concept. When we transfer this concept from bank accounts to any financial product, such as an insurance company or an investment fund, then we are talking about open finance. The management of all this information by third parties must be done securely, so cybersecurity measures are an essential element to safeguard such sensitive information for fintech users.
Embedded Finance
This simplification when it comes to accessing our financial information from a centralized point leads to a natural reflection: should I access a strictly financial platform to obtain this type of information? Is this the best option I can offer my users? The concept of embedded finance arises precisely from this reflection. Through Embedded Finance, users will be able to access their financial products in an even more agile way, as they will be able to do so while using other applications, accessing e-commerce platforms or even while browsing their social networks. Offering users the ability to manage their finances through simpler, more intuitive and agile interfaces is a distinctive success factor that will require the implementation of technology and connections between platforms through open APIs. Process automation will play an important role in this field, offering both users and companies the ability to manage their resources more efficiently.
Financial inclusion
One of the challenges we face as a society is the ability to offer the same range of services to all citizens. Place of residence or level of education should not be an insurmountable gap. The work of many technology companies to bring the Internet to the most remote areas of the planet finds its equivalent in the financial sector through the concept of financial inclusion. Although it may seem strange, there are many people around the world who do not have the possibility of having a bank account. This problem of financial exclusion exists in both developed and developing countries. It is obvious that not having a bank account is a problem in the different tasks we have to deal with in our daily lives. Providing a financial product to improve the lives of these people is a priority for banks and fintechs around the world. But it is not just a matter of offering a product that contributes to achieving equal opportunities among the citizens of a society. There is an important pedagogical work behind it that needs to be carried out. Financial education programs are, therefore, key for citizens to develop their financial skills and make more informed and secure decisions in the future. There is no better way to grow than knowing what tools are available to us and how we can use them.
Commitment to ESG criteria
The financial sector is playing a key role in promoting environmental, social and governance (ESG) practices. More and more financial institutions are incorporating ESG considerations when expanding their investment portfolio or lending to their clients. For example, many financial institutions are developing ESG evaluation criteria to select sustainable investment projects that have a positive impact on the environment. In addition, some financial institutions are providing specialized financing for companies that adopt fair and ethical labor practices, thus supporting social development. Another action that the financial sector is taking to promote ESG criteria is the disclosure of transparent information on its activities related to environmental, social and governance impacts. By providing detailed reports on their ESG initiatives, financial institutions can demonstrate their commitment to sustainability and corporate responsibility. Being proactive in showcasing these initiatives often results in customer loyalty and attracts new investors. Both can make informed decisions based on ESG criteria, serving as a driver for companies in the sector to engage in more responsible and sustainable business conduct.
Deepening the transformation
As we have seen, banks, fintech companies and insurers face great challenges in responding to the needs of their users. Fortunately, the sector has been undergoing a continuous and profound digital transformation process for years, placing it in an exceptional position to face these new challenges posed by society. Much of the success will depend on implementing the right technology to reduce the distance between the end user and the institution, with simple processes and services, but with the highest standards of reputation and cybersecurity. A safe investment that will allow them to receive great returns on the effort made.
Petri Alonso, Managing Director Banking and Insurance of Grupo Oesía