Enter FinTech, transforming the landscape with its digital prowess. This article explores how it reshapes the financial world with SME banking software, addressing the businesses’ unique needs and opening up a world of possibilities.

What is SME Banking?

SME banking is a set of financial services custom-fitted for the smaller scale and specific needs of Small and Medium-sized Enterprises (SMEs).

What makes it important? According to the OECD, SMEs account for over 95% of firms and 60%-70% of employment. They also generate a large share of new jobs in the OECD economies.

Traditional banking services like loans, credit lines, and deposit accounts have been gradually sculpted to fit SMEs’ demands and industrious nature. However, the journey wasn’t straightforward. In the not-so-distant past, SMEs faced a banking landscape that was, more often than not, below accommodating. Navigating the traditional banking terrain felt like trying to solve a Rubik’s cube blindfolded. 

SMEs grappled with high fees, rigid credit assessments, and optimized one-size-fits-all solutions that barely fit anyone in practice. Securing funding was akin to a Herculean task, while personalized financial advice was rare and often accessible only to the privileged minority. 

The disconnect between what SMEs needed and what banks offered was glaring. It was this very gap, this misalignment of services, that set the stage for the FinTech revolution that promised to tear down these barriers and usher in a new era of customization.

With the advent of FinTech, the world of SME banking is undergoing a tech-savvy makeover.

Imagine a banking universe where every service, every product, is tailor-made, just like a bespoke suit perfectly cut to fit its wearer. FinTech is adding smart, high-tech accessories to that already well-crafted suit. In other words, with SME banking solutions, their financial needs aren’t just an afterthought—they’re the star of the show. 

As a more plastic illustration, picture a quaint local bakery that once spent hours on billing, now effortlessly managing transactions with a sleek digital payment platform. FinTech’s integration into SME banking is revolutionizing their game, making financial management not just more convenient but also smarter and more intuitive.

In essence, FinTech isn’t just redefining SME banking; it’s reinventing it, making it more inclusive, more accessible, and more aligned with the dreams and realities of small and medium-sized enterprises.

Challenges Faced by SMEs in Banking

• Limited access to capital
• High transaction costs
• Cumbersome payment processing
• Complex financial management
• Inadequate personalized services
• Inflexible banking hours and locations
• Credit scoring challenges
• Lack of financial literacy resources
• Data security concerns
• Regulatory compliance
• International transactions
• Delayed invoice settlements

FinTech’s innovative approach to these challenges improves the position of an SME in banking. It helps the companies operate more efficiently, scale effectively, and focus on their core business activities.

How FinTech Addresses SME Banking Challenges?

So, this is where FinTech starts as the hero. With SME banking solutions, it revolutionizes how these businesses interact and navigate the finance landscape.

Digital lending platforms, among other perks, are streamlining the loan process. It’s like having a financial wizard at your fingertips, turning weeks of paperwork into a few clicks. Take, as an example, a small tech startup that accessed seed funding through a digital platform, catapulting it from a garage to the global stage. Mobile banking and AI-driven financial tools are also part of this FinTech arsenal, empowering SMEs with real-time financial insights and control.

Here is an overview of the most notable FinTech solutions to common challenges. 

Access to Capital

Traditional lending can be a tightrope walk for SMEs, with banks often setting a high bar for loan approval. FinTech dances to a different tune, offering platforms like peer-to-peer lending and online crowdfunding, where SMEs can secure funds without the rigmarole of traditional banking.

Transaction Costs

For SMEs, every penny counts, but banking fees can take a big bite out of their budget. FinTech slashes these costs with sleek, automated processes, turning what was once a financial drain into a manageable trickle.

Payment Processing

Juggling payments with old-school systems can feel like navigating a hedge maze for SMEs. FinTech simplifies this labyrinth with swift, user-friendly payment solutions, ensuring SMEs keep their cash flow as fluid as a running stream.

Financial Management

Economic administration can be full of twists and turns. FinTech brings in a GPS in the form of intuitive digital tools that help SMEs easily chart their financial course, from budgeting to forecasting.

Personalized Services

SMEs often crave banking that understands their unique needs rather than semi-usable cookie-cutter solutions. FinTech tailors its suit to fit every SME, offering specialized products and advice that resonate with their individual business models.

Banking Hours and Locations

Traditional banking hours can be a hassle in the contemporary business landscape, feeling like a square peg in the round hole of an SME’s schedule. With FinTech’s 24/7 online platforms and SME mobile banking, financial management becomes a flexible process suitable to any timeline.

Credit Scoring

Conventional credit scores can unfairly label SMEs, leaving them in the financial cold. FinTech uses a broader lens, considering various data points to paint a fairer picture of an SME in banking, emphasizing their creditworthiness and warming them up to more funding opportunities.

Financial Literacy Resources

Navigating the financial landscape without a map can leave SMEs lost. FinTech provides this map through accessible, easy-to-understand educational resources, guiding SMEs toward better financial health.

Data Security

In a digital world, data leaks are like open floodgates for SMEs. FinTech reinforces the dam with advanced security measures like encryption and blockchain, keeping SMEs’ financial data safe and dry.

Regulatory Compliance

Staying on top of regulations can feel like a high-wire act for SMEs. FinTech acts as a safety net, incorporating compliance features that help SMEs adhere to financial laws and standards, all without the circus act.

International Transactions

Global business can tie SMEs in knots with currency and cross-border payment complexities. FinTech untangles these knots, offering streamlined solutions for international transactions, turning a global headache into a walk in the international park.

Invoice Settlements

Late payments can strangle SMEs’ cash flow. FinTech offers a lifeline with solutions like invoice financing and digital invoicing, ensuring payments flow as smoothly as a serene river, bolstering the SMEs’ financial health.

Through these innovative solutions, FinTech addresses the specific challenges of SME banking, empowering companies to navigate the financial landscape with greater ease, confidence, and success.

Collaboration Between Banks and FinTechs

The evolving tale of banks and FinTech companies relies on partnership and cooperation, where each party brings its strengths to the table. This beneficial fusion thrives on blending the reliability of traditional banking processes with technological innovation. 

Among the bountiful case studies, the best examples here might be the FinTech giants themselves. TransferWise, co-founded by Skype alum Taavet Hinrikus, is a prime illustration of FinTech innovation meeting SME needs. Originating from a personal need to avoid high fees in cross-border transactions, once an SME itself has grown into a leading player in the field, offering efficient, low-cost international payment solutions now widely used by other SMEs. 

The stories of Lending Club and Revolut further epitomize the fusion of tech-driven solutions and traditional financial services, catering effectively to the global business needs of SMEs.

Opportunities for Growth in SME Banking

The business landscape for small and medium-sized enterprises is changing, closely following FinTech innovations as they unlock new growth opportunities. Digital lending platforms use algorithms to assess creditworthiness, providing quicker and more accessible funding options. This is particularly beneficial for businesses previously overlooked by conventional banks. In addition, personalized banking services involve a variety of integration possibilities and a level of customization that was previously out of reach for many.

Example: A boutique coffee shop with a stellar prospect that may struggle with traditional bank loans due to the nature of its business.

In addition, AI and data analytics are revolutionizing SME banking, transforming guesswork into strategic decision-making. SMEs can leverage these tools for cash flow forecasting and customer spending analysis, enhancing their inventory management and marketing strategies in return. To quote Wealth and Finance, “Thanks to the advent of predictive analytics tools such as machine learning algorithms or modeling software, SMEs can now look at historical data and make projections for what may happen in the years ahead.”

Example: Small construction companies can now streamline their financial operations with customized solutions from a single FinTech platform.

FinTech is also paving the way for SMEs to expand into international markets. Simple, efficient handling of international payments and currency risk management opens global opportunities once hindered by complex banking processes. A study conducted by Chinese experts, based on the data of listed small and medium-sized enterprises from 2011 to 2020, proved that FinTech in banking can significantly ease the financing constraints of SMEs. Their results showed a decrease of 0.0767% for every 1% increase in FinTech.

Example: Small artisanal soap makers or chandleries are often confined to local markets. By utilizing a FinTech platform to seamlessly handle international transactions and manage exchange rates, they gain the opportunity to expand their customer base and reach multiple countries with ease.

The Future of SME Banking

It doesn’t take a crystal ball to detect that SME banking’s future sparkles with FinTech innovation. Technologies like AI, blockchain, and open banking evolve day by day, promising to revolutionize this space further. 

SMEs have already begun managing their finances with the help of AI assistants, in addition to using blockchain for secure, transparent transactions. This future is not just a possibility; it’s unfolding before our eyes, reshaping the entire banking landscape into a dynamic, tech-savvy ecosystem.

Wrapping Up

In summary, the marriage of FinTech and SME banking is more than beneficial—it’s transformative. It’s a venture of overcoming challenges and seizing opportunities, where SMEs are no longer bystanders but active players in the banking arena. As FinTech continues to evolve, it’s clear that SME banking will never be the same.

In such an inspiring landscape, companies like Intellectsoft emerge as key players with their tailor-made FinTech solutions. They harness their vast global experience to fuel SME growth, providing bespoke financial technology platforms: innovative, practical, and accessible.

Intellectsoft’s commitment to delivering top-notch services ensures that its software is seamlessly woven into the fabric of SMEs’ business operations, empowering them to navigate the complexness of the global market with confidence and efficiency.

The post SME Banking: FinTech Challenges & Opportunities appeared first on Intellectsoft Blog.

Off the back of increasingly sophisticated automation and financial technologies, core banking is emerging at the forefront of this financial revolution.

As recently as 2022, the global market for core banking software hit an impressive 10.89 billion USD, and there’s no immediate sign the trend is slowing.

Experts predict a growth phase of 9.3% annually through 2030, and the USA, China, and Asian Pacific regions are leading the charge.

These stats are a clear sign of how crucial core banking has become in the day-to-day financial dealings with our banking institutions.

So, what is core banking exactly? Think of it as the powerhouse behind your bank’s operations. 

It is the back-end system that seamlessly connects different branches of a single bank, making facets such as loans and credit processing smoother and faster not just for the bank but for customers too. Read on to find out more.

What is Core Banking?

The term “core” is an acronym for ‘Centralized Online Real-Time Environment’, and represents both the physical and topological structure of core banking. It enables a bank to operate from both the perspective of the instrument itself and its customers as a single entity. 

Customers are provided with consistent and efficient services, regardless of where they live, their country, or even the presence of local bank branches. The core banking system is central to modern online banking, streamlining account management, loans, and transaction processes.

Customers who interact with a core banking system can expect more convenience and independence. Actions such as withdrawals and deposits are processed centrally by back-end servers, which can either be hosted on-premises or cloud-based. 

The servers handle everything from transaction processing to authentication, which ensures speed and security. The centralized servers are robustly protected against cyber threats, safeguarding customer and bank data.

Types of Core Banking Systems

Generally, core banking platforms are divided into two types:

• Traditional
• Digital-first

Traditional systems operate on the basic aspects of banking—the foundational services and processes one would expect from a “traditional bank.” 

Digital-first core banking, on the other hand, is at the forefront of financial technology (fintech). They leverage innovations such as automation, AI, and blockchain, offering advanced functionality and technologies to their customers.

Core Features of IT Core Banking

Typically there are several (information technology) IT features present in banking institutions that have adopted the core banking structure. Each key feature plays a role in shaping how the bank operates and interacts with its customers.

Real-Time Transaction Processing

Transaction processing done in real-time is a hallmark feature of IT banking. It ensures that financial activity conducted within the system, like deposits or transfers, are processed and updated instantly. 

This kind of fast payment system is essential for not only customer satisfaction but also the accurate management of banking records.

Unified Customer Data Management

Unified management of customer data is a vital component of core banking. Systems bring together information from various touchpoints to create a complete customer profile. 

The integrated approach facilitates the rapid delivery of personalized services and enhances risk management strategies. 

Multi-Channel Support

Customers who interact with core banking services will often experience multi-channel support. This enables the customer to engage with their bank through a myriad of different mediums – mobile apps, websites, or in-person visits. This ensures a seamless and consistent banking experience. 

The multi-channel support is particularly important with digital-first core banking systems, where a brick-and-mortar branch is not available.

Automation and Scalability

Automation in core banking software plays a key role in optimizing routine tasks. It reduces manual workload while simultaneously reducing the likelihood of errors. 

Equally important is scalability, which allows banks to expand their offerings and accommodate growing customer bases without sacrificing performance or security.

Multi-Factor Authentication (MFA)

Cyber security is taken seriously within core banking, due largely to both the centralized and mobile of the system. 

Multi-factor authentication adds an extra layer of protection and typically requires a customer to authenticate sessions and transactions with a one-time passcode or token. 

For example, a customer transferring money from an account can expect to authenticate the transaction with a 4-digit code sent to a linked device such as a smartphone. 

The feature is critical for safeguarding transactions and preventing unauthorized account access.

Know Your Customer (KYC) Onboarding

Finally, KYC onboarding is integral to IT core banking systems. KYC stands for ‘Know Your Customer” and ensures the bank thoroughly verifies the identity of new clients.

While traditional banks might have required a customer to bring physical identification such as a passport or residency papers, a core banking service can verify a customer with secure online submission of ID. 

This process is streamlined in modern systems, enhancing efficiency while adhering to regulatory compliance.

The Transformative Benefits of Core Banking Solutions

Core banking solutions, pivotal in the modern financial landscape, offer an array of benefits that not only streamline banking operations but also revolutionize the customer experience. 

From enhancing data security to boosting operational efficiency, these solutions are reshaping how banks function.

Enhanced Customer Experience

One of the most noticeable benefits of core banking systems is the enhanced customer experience. 

These systems allow for more personalized and efficient service, offering customers quicker transaction processing, easier account access, and a range of convenient online services. 

Improved Operational Efficiency

A core banking solution streamlines various banking processes, significantly improving operational efficiency. Automation of routine tasks reduces manual labor and minimizes errors, leading to a more efficient, cost-effective operation.

Enhanced Data Security

With the increasing prevalence of cyber threats, the enhanced data security provided by core banking systems is invaluable. 

These systems employ sophisticated security measures to protect sensitive customer data, ensuring safe and secure banking transactions.

Regulatory Compliance and Risk Management

Core banking platforms are designed to comply with the ever-evolving regulatory landscape, which is crucial for banks to avoid penalties and legal issues. 

These systems help in risk assessment and management, ensuring banks operate within the set regulatory frameworks.

Case Study: NKGSB’s Transformation with Core Banking

A prime example of the benefits of core banking solutions can be seen in the transformation of NKGSB, an Indian bank established in 1917. 

The traditional bank undertook a 17-month process to overhaul its traditional banking infrastructure. This was in collaboration with Modus and the InfoSys Finacle platform, a niche core banking software provider, and Data Systems Group.

This transformation included the implementation of Automated Clearing House (NACH/ECS), Real Time Gross Settlement (RTGS) systems, National Electronic Fund Transfer (NEFT), and Mobile Banking. The outcomes were remarkable:

• Unified Core Banking System: NKGSB moved to a single, integrated core banking system, enhancing coherence across its services.
• Internalization of Processes: Previously outsourced processes were brought in-house, leading to better control and integration.
• Automation and Information Capture: The automation of tasks and improved information capture significantly enhanced operational efficiency.
• Easier Access to Customer Data: Retrieving customer information became more straightforward, aiding in better customer service.
• Increased Readiness for Change: A core banking system means the bank is now better equipped to adapt to future technological advancements and market changes.

This case study of NKGSB not only highlights the multifaceted benefits of core banking rollouts but also demonstrates how traditional banks can successfully transition into the digital age, setting a precedent for others in the industry.

Challenges in Implementing Core Banking Solutions

While the transition to core banking solutions offers numerous benefits, it’s not without its set of challenges. These hurdles can range from technical complexities to human factors, each requiring careful consideration and strategic planning.

• Integration with Legacy Systems: Many banks operate on dated systems that might not seamlessly integrate with a modern core banking solution. 
• Data Migration and Cybersecurity Concerns: Shifting data from legacy systems to new core platforms involves significant risks. The process needs to be secure to protect sensitive financial information. Additionally, ensuring data integrity during migration is a critical challenge.
• Staff Training and Change Management: The shift to a new system necessitates staff training. Employees must be brought up to speed with the new technologies and processes. 
• Cost Implications and ROI Analysis: Implementing a core banking platform often requires substantial investment. Banks need to conduct thorough cost-benefit analyses to ensure that the long-term return on investment (ROI) justifies the initial expenditure.

Pioneers in Core Banking: Fintech Success Stories

SDK Finance: As a veteran fintech software vendor with over 15 years of experience, SDK Finance has carved a niche in enabling various financial services like P2P lending, mobile banking, and e-wallets.

Skaleet: Next-generation platform, scalable and capable of continuous deployment. Skaleet specializes in services like card issuing and banking accounting, underpinned by robust KYC, KYB, and AML-CFT frameworks.

Fintech Lab’s offerings are comprehensive, including PSD2-compliance, SWIFT, neo-banking, and open banking APIs. Their solutions, which also cover e-wallets and currency exchanges, are popular across Europe and Asia.

The Future of Core Banking Platforms

As we peer into the future of banking, it’s clear that the sector is on the cusp of a transformative era propelled by emerging technological trends. 

These advancements promise to redefine the banking experience for both institutions and customers. 

Let’s explore the key trends shaping the future of banking.

• Instant Real-Time Banking: The shift towards real-time banking is accelerating. This trend is about providing immediate transaction processing, account updates, and customer notifications, making banking more responsive and efficient.
• Open Banking: Open banking is revolutionizing the industry by promoting greater financial transparency and data sharing between banks and third-party providers. This fosters a more interconnected and innovative banking ecosystem, offering customers more personalized financial services.
• Artificial Intelligence (AI) and Machine Learning (ML): AI and ML are at the forefront of driving smarter, more predictive banking solutions. From personalized customer service to fraud detection, these technologies are enhancing the efficiency and security of banking operations.
• Blockchain: Blockchain technology is gradually gaining traction for its potential to enhance security, transparency, and efficiency. Its application ranges from secure transactions to streamlined cross-border payments, presenting a new frontier in banking technology.

As these trends continue to evolve, expect core banking deployments to become more agile, secure, and customer-centric. 

The Future of Banking with Intellectsoft

As we conclude our exploration of core banking, it’s evident that this field is about redefining the banking experience. 

From the integration of real-time processing and open banking to the innovative use of AI, ML, and blockchain, the core banking system is set to revolutionize the financial landscape.

At Intellectsoft, we stand at the forefront of this transformation. Our expertise in financial software development propels banking and financial services into the future. We specialize in crafting customized online banking platforms, and mobile apps with a focus on security and user-friendly UI/UX, and systems integration. 

We have implemented cutting-edge solutions in blockchain and cryptocurrencies, digital wallets, and AI & ML technologies to redefine efficiency and customer service in banking. 

Our success stories, including a blockchain wallet app and a banking web portal, demonstrate our commitment to innovation and excellence. 

Join us in this journey to architect new banking experiences and advance your business performance with Intellectsoft’s future-proof solutions. 

Embrace the change, and let’s shape the future of banking together.

The post Core Banking Systems: Redefine Financial Services appeared first on Intellectsoft Blog.

Since more businesses employ digital technologies, the popularity of online transactions is bound to grow. According to Statista, the global transaction value of digital payments is expected to reach 14.79 trillion USD in 2027. As a result, the need for payment processing services is also growing on a global scale.

In this article, we will define payment processing, examine its components, and review the benefits and drawbacks of its integration into custom software solutions.

What is Payment Processing?

In the context of cashless or online payments, payment processing is the sequence of steps that enable digital transactions between merchants and customers. The purpose of this procedure is to ensure the secure transfer of funds, such as mobile payments or transactions involving credit or debit cards, digital wallets, cryptocurrencies, and so on. Developing and maintaining a payment processing system is a very complex and resource-consuming process subject to strict regulations. On the other hand, integration of existing digital payment means into custom software is essential for businesses of all types and sizes. It is especially important for the retail e-commerce market, which is growing rapidly and is expected to reach 8.1 trillion dollars in 2026.

All digital payments may be roughly divided into three main areas: digital commerce, mobile POS (point-of-sale) payments, and digital remittances. 

Digital commerce covers transactions made via websites or mobile apps using credit cards or online payment systems, such as PayPal. The most common example of digital commerce activity is online shopping, where customers browse goods and services and pay directly in an app or on a website.

Mobile point-of-sale (POS) payments generally involve using smartphones with mobile wallet applications or other devices with NFC chips, such as smartwatches, fitness trackers, etc. Nowadays, many restaurants, stores, and other outlets use terminals that allow such contactless payments.

Digital remittance is a new way of money transfer between countries that offers several advantages over conventional methods. Instead of going to banks or other financial institutions, customers may use mobile apps or websites that enable a secure and convenient alternative with lower exchange rates and transaction fees.

Key Components in Payment Processing

Effective payment processing requires a well-organized cooperation of several components. Here is a brief description of these components, as well as some relevant terms.

• The Merchant. The merchant is the party that accepts the customer’s payment for provided or ordered goods or services.
• The Customer. The customer is the party that pays or promises to pay for goods or services provided by the respective merchant.

• Payment Method. The payment method encompasses credit or debit cards, digital wallets, and other means to conduct a payment operation.

• Payment Gateway. The payment gateway represents a specialized service that receives, encrypts, and securely sends payment-related data to the acquirer or the payment processing company from the connected POS system.

• Payment Processor. The payment processor is an intermediary company that performs and controls all technical aspects of transactions. These aspects include obligatory security procedures such as authorization, data validation, and so on. Currently, PayPal and Stripe are the most popular online payment processing systems, making them the most common choices for integration into custom software solutions.

• Point-of-Sale (POS) System. The point-of-sale system is a combination of software and hardware designed to receive customers’ payments at various points of sale, such as retail outlets, restaurants, etc. POS systems usually perform other tasks in addition to accepting payments, including tracking and management of inventory, staff, sales, and more.

• Acquiring Bank. The acquiring bank or merchant acquirer is a financial institution that holds the account of a business and receives payments from its customers’ accounts. To obtain the funds from a business transaction, an acquirer cooperates with the payment processor of a merchant and the issuing bank of a customer.

• Card Network. The card network is the provider of payment services that processes transactions made with credit cards and enables communication between the respective banks of the transaction parties. Some card networks, like Visa and Mastercard, allow their partner financial institutions to issue credit or debit cards connected to those networks. Meanwhile, other card networks, like American Express and Discover, issue their respective cards exclusively and act as both the issuer and the acquirer.
• Issuing Bank. The issuing bank holds the account of a customer and issues a credit card or a debit card as a payment instrument. The issuer authorizes or declines a transaction based on the request from the acquiring bank and the account information. According to IBISWorld, in 2022, there were 85 businesses that issued credit cards in the USA.
• Payment Security. Payment security encompasses various regulations, programs, and relevant technologies to protect payment information and verify its authenticity. This aspect is mostly governed by the Payment Card Industry Data Security Standard (PCI DSS). The creation of this standard was a joint effort of several major card networks that required a more effective alternative to separate security programs in order to ensure data safety and prevent fraud. PCI DSS is regularly revised and updated to match the current challenges in the industry and design safer ways to process payments. The most recent version is PCI DSS 4.0, published in March 2022, which contains 12 main requirements described in detail on 360 pages.

How Does Payment Processing Work?

In a typical scenario, when a customer uses a digital payment to make a purchase from a merchant, the transaction process may be roughly divided into five basic steps. Here is a simplified description of the payment processing flow.

1. Interaction with the POS System

The customer interacts with the point-of-sale system at the merchant’s outlet by swiping a credit card or using contactless means. This interaction may also be performed by inputting the customer’s credit card number and a CVV code at the checkout page on an online store, for example. Then, the POS system sends data containing the required sum and the card information to the acquiring bank via the payment gateway.

2. Making Contact with the Issuing Bank

The acquiring bank receives the data from the previous step and contacts the customer’s issuing bank. Using the relevant card network, the acquirer informs the issuer about the transaction.

3. Verifying the Transaction Details

The issuing bank checks the validity of the sent information, including the credit card number, the CVV code, and the card expiration date. It also checks whether the customer’s account has enough money or credit to perform the payment. If this verification is successful, the issuing bank sends the authorization code to the acquiring bank using the same card network.

4. Performing a Sale

The approval of a transaction means that the issuing bank has reserved the required sum on the customer’s account and is preparing to transfer these funds to the merchant’s account in the acquiring bank. At this point, it is assumed that the customer has paid for the ordered goods or services even though the money has not been transferred yet to the merchant. 

5. Forming a Batch and Settling the Transaction

Approved transactions are handled in batches. The merchant sends the daily batch of transactions with their authorization codes to the acquiring bank or the payment processor. The acquirer requests the sums defined in the batch from the issuer, which are then transferred from the customers’ account to the merchants’ account. Also, the applicable payment processing fees are collected in this process.

Importance of Payment Processing for Businesses

Even though payment processing is one simple action for a customer, business owners have to deal with its technical and much more complicated side. However, every business owner who has already implemented a payment processing system can indicate at least several tangible benefits they witness during every money transfer. Here are only a few advantages of payment processing for businesses and their customers.

Better Service and Customer Experience

A payment processing system is a tool that significantly reduces the wait time for financial transactions from days to seconds. At the same time, the system is responsible for the quality and the completion of every electronic transaction. 

Thus, when a customer buys something, they only need to make a few taps or clicks on their devices. Possibly the most convenient payment system processing feature is the additional simplicity of refund or chargeback processes.  

Enhanced Security

Dealing with sensitive information like the customer’s credit card and other personal data can be stressful for business owners in all industries. Trusted third-party payment processing systems or custom ones are safe to use because they are created with all required compliances (such as PCI certificates) that ensure customer data safety from all kinds of unauthorized access.

Reliable payment processing systems use encrypted channels to eliminate the occurrence of fraudulent transactions. Features like MFA (multi-factor authentication) and others make digital payments safe for customers and businesses they purchase from.

Cost Reduction

Dealing with paper checks and cash requires more actions when it comes to sending and receiving payments. As for companies, they commonly face banking fees, secure disposal charges, and additional costs when dealing with paper checks that, let’s face it, belong in the past as a payment option.

With a properly integrated payment processing system, business owners don’t need to hire accounting staff and minimize the department to 1-2 specialists.

Better Analytics and Reporting

Third-party payment processing platforms offer businesses advanced analytics and reporting functionality. With the help of this tool, you can track all payment transactions, monitor trends and performance, as well as detect problems and anomalies. Bespoke payment processing software can have absolutely any feature a company may need to streamline its business processes related to payments.

It is highly important for every business to have payment processing integrated into their platform by skilled and experienced professionals who know what they are doing. A poorly built and/or integrated payment processing system may result in losing time, money, customers, and reputation.

Challenges and Solutions in Payment Processing Development

The most difficult challenge for developers who build and integrate payment processing systems is compliance with regulations and ensuring the highest level of security. Another challenge is the constant modernization of fraud detection mechanisms in order to keep up with new threats. And finally, software developers should provide several payment methods for modern businesses. When a business accepts several ways to pay for goods and services, it brings more opportunities and improves customer experience.

The payment processing industry has prepared a unified standard, PCI-DSS, that contains guidelines and recommendations on how to solve security-related challenges. Compliance with this standard is the primary task for software developers who have to integrate payment processing services into their custom solutions. While banks, credit card networks, and payment processors have their means to deal with the mentioned challenges, software developers should provide additional security measures in custom solutions for businesses.

Conclusion

Payment processing systems can be a bliss to businesses when implemented and integrated properly and a curse when not. Depending on the size of your business, you have two options – use a ready-made payment-processing system like Stripe or build a custom one from scratch with the help of a reliable and certified software development vendor.

Whether you need to create a bespoke one for your company or want to properly integrate one into your business software, Intellectsoft is the team for you. For over 15 years, we have provided solutions for businesses of all sizes – from early-stage startups to SMBs and Fortune 500 enterprises. We have already successfully delivered more than 600 business solutions to clients engaged in healthcare, fintech, eCommerce, logistics, hospitality, automotive, and many other industries.

To learn more about our expertise in payment processing and other solutions, please see our most prominent Case Studies.

If you’re looking for a team to handle your problem with payment processing integration or need specific software to boost productivity and optimize your processes, don’t hesitate to contact us and tell us your requirements so that we can offer you the most efficient and cost-effective solution.

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AI in the FinTech Market

Fintech is an extensive concept that encompasses the implementation of various digital technologies in the financial services industry. These days, artificial intelligence, Big Data, blockchain, cloud computing, and the Internet of Things are the top five technologies that represent the leading trends in FinTech. Among them, AI arguably has the most diverse implementations thanks to its crucial role in data analysis and process automation.

One of the beneficial features of artificial intelligence is its ability to effectively cooperate with other digital technologies. Such cooperation greatly enhances the range of tasks that AI can perform. So, thanks to this feature, artificial intelligence has become a versatile and invaluable tool for the purposes of security, customer service, audit, and many other aspects of FinTech. 

The Role of Artificial Intelligence in FinTech

These days, companies of all sizes seek ways to optimize business processes with the help of digital solutions. As a part of digital infrastructure, artificial intelligence plays an essential role in many financial processes. Of course, the ultimate role of AI-powered solutions is to increase the profitability of companies through a range of benefits and business opportunities. 

The recent survey of 500 financial services professionals conducted by Statista revealed the most acknowledged benefits of implementing AI in the respective industry. Here are the results of the survey and some other applicable advantages in the context of FinTech:

1. Better customer experience.
2. Improved operational efficiency.
3. Lower costs of running a business.
4. Gaining a competitive advantage.
5. Access to accurate predictions and analysis.
6. Discovery of new business opportunities.
7. Improved risk management.
8. Better security of assets and property.

These and other benefits offered by digital technologies have revolutionized the financial sector. Even the oldest banks started investing in FinTech and shifted their operations from traditional “pen-and-paper” manual approaches to automated methods.

Opportunities Presented by AI in FinTech

Thanks to the constant development of artificial intelligence, experts keep devising new ways to implement it in FinTech.

Customer Experience. AI-driven chatbots are typically the first thing that comes to mind when considering the implementation of artificial intelligence in FinTech and other industries. However, having an AI-based personal wealth manager that analyzes your income and spending behavior is a financial service that has a prominent future. Artificial intelligence can also be successfully used for offering personalized investment advice that considers numerous variables like the client’s age, location, financial history, education, interests, risks, trends, and so on.

Risk Management. Artificial intelligence is vastly beneficial for every financial institution as a risk management system. The AI algorithms can gather and analyze the client’s financial history to make better decisions on whether they are eligible for specific loans. Credit scoring and automated loan processing empowered with FinTech AI or machine learning models can significantly minimize and even eliminate the risks associated with loan approval.

Fraud detection. Fintech companies need custom AI-empowered fraud detection software for successfully fighting cases of account botting like creating bot networks and fake accounts, online payment fraud, identity theft, and others. Here’s everything you’d like to know about fraud detection with machine learning and AI.

Innovation in Services and Products. Artificial intelligence algorithms boost the efficiency and quality of market research, customer surveys, trend analysis, etc., to create new offers that better fit customer demands. Additionally, AI takes significantly less time to generate multiple results and recommendations based on the analyzed data.

Market Expansion. AI in the FinTech market is widely used for more efficient and reliable market research, customer surveys, and trend analysis to expand the business reach with fewer or zero risks. AI-driven forecasting helps banking, financial, and other institutions to open offices in new locations with a favorable business climate.

Regulatory Compliance. Custom AI systems vastly increase the quality and effectiveness of anti-money laundering (AML) and know-your-customer (KYC) guidelines. The system verifies customer documents by comparing them against various internal and third-party registries within minutes and helps the manager or the automated system make better-quality decisions on each client.

Automation of operations. Despite the fact that the implementation of artificial intelligence reduces the need for staff, it won’t replace qualified specialists. On the contrary, it only helps to accelerate processes like decision-making and data analysis. Thus, it serves as an assistant rather than a full-scale employee replacement. Most importantly, AI systems eliminate human errors that may result in money or reputation loss.

Enhanced security of computer networks to prevent breaches and data leaks is also one of the perks of using artificial intelligence in FinTech companies. The AI-based system effectively detects anomalies when employees perform actions like logging in, requesting specific information, etc., as well as protects the entire company’s infrastructure from malware.

AI and IoT for the security of offices and branches. Surveillance, face recognition, behavior analysis, and other security things are already widely and successfully used in FinTech and many other industries. Automated security protocols are designed and used to prevent and neutralize armed robberies and thefts, which is especially important when the company deals with enormous sums of money and the sensitive personal data of thousands of clients. 

AI Use Cases in FinTech

Nothing proves the validity of a concept better than successful real-life implementations. Below are a few examples showcasing the use of artificial intelligence in leading financial enterprises.

AI Assistants and Robo-Advisors

These customer-oriented solutions may take the form of a separate mobile or web application, but more often, they are integrated into a more complex online banking app. Usually, they communicate with customers via in-app chats, mobile notifications, or SMS. These FinTech AI assistants enable personalized approaches to improve customer experience and cover many vital issues, from account security to financial advice.

Many banks employ such multifunctional chatbots as their 24/7 customer support. Among them is Bank of America with its AI assistant Erica available for customers via a smartphone. Capital One offers Eno, a chatbot available both on the bank’s website and inside a mobile app. A standalone service Cleo is an AI-powered personal finance assistant available as a mobile app. 

Automated Fraud Detection Systems

For obvious reasons, financial enterprises do not specify the details of their security systems. However, most of them prefer to announce the implementation of AI solutions to prevent fraudulent activities. This way, FinTech companies attract clients and partners and send a warning to potential lawbreakers. For example, both PayPal and Mastercard use data processing systems that employ AI and ML for real-time detection of possible fraud attempts and other suspicious activities. 

AI Tools for Regulatory Compliance

Similar to the previous type of AI solutions, many FinTech companies employ the same technologies to meet applicable legislation. Many states enforce strict rules regarding data protection, anti-money-laundering (AML) measures, know-your-customer (KYC) processes, and other programs that are compulsory for the finance industry. To comply with such laws and standards, providers of financial services use AI analytics combined with machine learning and Big Data technologies. For example, JP Morgan has an AI Research team that creates synthetic datasets for further use in AML, fraud detection, and other programs.  

Challenges and Ethical Considerations

Though AI-powered fintech solutions have proven their reliability and improvement potential, many experts are concerned about related ethical issues and challenges. These problems slow further development and limit the scope of AI applications in FinTech. 

• Issues regarding data privacy and security. First of all, AI involves gathering and storing large amounts of data, which requires adequate security. Additionally, FinTech AI solutions are allowed to access financial information, so they can be used as a proxy by hackers to steal this data.
• Machine logic vs. fairness. AI decisions can be biased due to the flaws in algorithms and learning strategies. For example, when calculating credit scores or authorizing loans, AI may be discriminatory due to its reliance on statistical methods rather than a personalized approach to every specific situation.  
• Regulatory challenges. As digital technologies improve, governments pass more laws to regulate the use of sensitive information and enforce transparency and accountability. Providers of financial services must ensure that their AI solutions comply with the growing list of rules and regulations.
• Less human employment. Artificial intelligence performs most tasks faster and better than human workers. Some may see it as “job stealing,” which presents an ethical issue considering regular surges in the unemployment rate. 

Future Prospects of AI in FinTech

Numerous use cases prove that FinTech and AI are already inseparable, and the bond between them will continue to grow. The ongoing improvement of artificial intelligence is the hard requirement for this technology to remain efficient in all its current applications and discover new beneficial implementations. Below are several promising trends that will shape the future of AI in FinTech.

Improvement of Natural Language Processing

One of the current tasks of engineers is to simplify communication between AI and people. To engage in productive conversation, computers must learn to interpret human languages more accurately, take the context into consideration, and remember previous dialogues with every particular user. As one example, the development of NLP technologies will bring new capabilities for AI chatbots thanks to better speech recognition.

Focus on Deep Learning

To improve artificial intelligence, machine learning methods also have to evolve. Deep learning involves using multi-layer neural networks to analyze information, similar to thinking processes in a human brain. This is vital for financial services since data processing is the core task of AI in FinTech.

Further Automation of Financial Services

One of the ultimate business tasks of AI is ensuring high efficiency and profits for FinTech companies. To continue this trend, companies will increase the level of automation using bots integrated into the corporate infrastructure.

More Accurate Predictive Analysis

As a result of improved machine learning, Artificial intelligence will be able to perform more complex analysis and make more weighted decisions. This is especially beneficial for robo-advisors, risk management, and other financial aspects that depend on accurate predictions.

Closer Cooperation with Blockchain Technology

Further advances in AI and blockchain will improve automated secure transactions with high transparency. This is beneficial for every implementation that involves regular payments, which is vital in our era of subscription-based services.

Final Thoughts

Artificial Intelligence has already transformed the entire financial industry across the globe and continues empowering it with new enhancements. The automation of crucial processes, security increase, improved data analysis and forecasting, and better customer experience via personalization are only a few advantages from the long list for every fintech company that has already adopted AI or is considering it.

Being a company with over 15 years of experience in the Internet Technology market, we have delivered more than 600 digital solutions of different types and complexity in FinTech, healthcare, construction, logistics, eCommerce, and many other industries. 

Intellectsoft provides solid digital solutions to companies of all sizes – startups, SMBs, and enterprises. Thus, here you can get your custom solution for business needs – from a simple AI chatbot to complex enterprise artificial intelligence software.

To learn more about our software development expertise, check out the most prominent cases we have already delivered to our clients, including Fortune 500 enterprises. 

So, what can we do for your business together with artificial intelligence? Our AI-driven bespoke solutions include:

– AI chatbots and apps;

– Cloud-based AI models;

– Visual information processing;

– Deep learning and neural networks;

– Data generation and augmentation;

– Predictive ML models;

– Raw data and data analysis management;

– AI enterprise apps, and a lot more.

If you want to start empowering your business and future with AI FinTech, get in touch with us and tell us your requirements, goals, and needs. As soon we analyze and estimate the information you give us, our solutions advisor will reach out to you with our custom solutions and recommendations designed specifically for your case. Let’s make your business benefit from everything artificial intelligence offers.

The post AI in FinTech: Role, Opportunities and Use Cases appeared first on Intellectsoft Blog.

Banks can either embrace digital transformation with cutting-edge tools or risk becoming obsolete. Central to this transformative landscape is blockchain technology. Originally the backbone of cryptocurrencies such as Bitcoin, blockchain has evolved far beyond its initial application.

With its decentralized, transparent, and immutable nature, the use of blockchain in banking presents an enticing prospect for financial institutions seeking to optimize their operations – and expand their customer offering.

Common Problems in the Banking System

It’s no surprise that banking behemoths worldwide are pooling resources to explore this technology’s potential. Collaborative research and innovative initiatives are setting the stage for a banking ecosystem where blockchain isn’t just an afterthought but a core part of operations. But what are currently banking’s biggest challenges? Here are a few examples:

Ensuring Consistently Secure and Transparent Transactions

Blockchain applications in banking technology offer several key advantages in the banking sector. Firstly, it ensures secure and transparent transaction recording, a leap from traditional banking, where transactions are logged in a centralized database.

The blockchain operates on a semi-decentralized system, permitting only trusted entities to host validating nodes. This design minimizes the chances of the entire system getting compromised from a single weak point, thus curtailing the threat of fraud and cyber–attacks.

Inefficiency Caused by the Use of Intermediaries

Furthermore, blockchain technology in banking can significantly enhance efficiency and diminish expenses. Traditional banking processes involve intermediaries like clearinghouses and custodians, which extend the time and cost of transactions. With blockchain, the need for these intermediaries is drastically reduced, facilitating swifter and more economical transactions. Such efficiency can translate to substantial cost reductions for both banks and their clientele.

The Slow Process of Settlement

Banks often grapple with protracted settlement procedures riddled with numerous intermediaries. This is where the application of blockchain technology in banking can shine. The cumbersome processes inherent to traditional banking can be sidestepped using blockchain as opposed to centralized processing methods. As a result, transactions are not only traceable within hours instead of days but also streamline operations for both banks and customers, ensuring quicker turnaround times and more straightforward procedures.

7 Blockchain Benefits in Banking

There’s a long list of banking challenges that can be addressed by using blockchain banking solutions. Just a few of the use cases we see include:

Enhancing Security

Banks commonly face cyberattacks, technical glitches, and human errors that expose customer data. The use of blockchain in banking improves security through cryptographic protection for identity verification and data distribution without the need for intermediaries. Furthermore, blockchain reduces data breach risks by eliminating single points of failure. Smart contracts offer automated transactions, adding another layer of security.

Payments

Cross-border payments can benefit from blockchain’s direct lender connectivity, sidelining intermediaries like SWIFT – while SWIFT’s past vulnerabilities also make a clear case for blockchain applications in banking. Blockchain transactions are secure, fast, and low-cost, making international remittances more efficient.

Accounting, Audit and Error Reduction

Blockchain’s immutable records streamline accounting and audit procedures, likely enhancing regulatory compliance. Smart contracts manage exchanges, minimizing trust issues and reducing errors.

Overall, blockchain has the capability to ensure more control and implement further safeguards, drastically minimizing the risk of fraud and improper use of company resources. With blockchain, every transaction is transparent and easily verifiable, leading to more consistent and accurate processing by banks.

Lending and Borrowing

Blockchain in banking could revamp traditional lending by improving verification, reducing bad loans, and bolstering KYC and AML measures. Likewise, syndicated loans, which require multiple banks’ coordination, can benefit from blockchain by sharing KYC and AML data.

In conventional systems, it can be a tedious process for lenders to assess a borrower’s credit history, especially since detailed credit reports from third-party bureaus might not be available for many small business operators. Blockchain, on the other hand, introduces mechanisms that can enhance the accuracy, transparency, and secure sharing of credit histories.

Trading

Blockchain can revolutionize clearing and settlement in trading, reducing costs and increasing efficiency. When thinking about trade finance, blockchain also has a role to play because blockchain can digitize the paper-heavy trade finance sector.

Trade finance, an industry still reliant on outdated paper processes, can take up to 120 days for individual transaction processing, but blockchain offers a solution by digitizing the trade finance lifecycle, enhancing security, transparency, and efficiency, and modernizing document authentication and financing structures.

Asset Management

Blockchain impacts asset management by streamlining asset and stakeholder processes. It enables automated fund launches, digitizes assets for better market access and liquidity, and integrates customizable privacy settings for secure transactions.

Additionally, blockchain enhances user experience by embedding shareholder rights into digital assets, which reduces human error and promotes transparent governance. It fosters efficient cap table management, automated fund administration, and transfer agency in asset management. 

Enhanced Compliance

The immutable nature of blockchain also bolsters compliance. By granting access to auditors and governmental authorities, every transaction can be viewed with unparalleled transparency on the blockchain.

Moreover, banks have an improved capability to detect and flag suspicious transactions swiftly, making the auditing process more efficient. This advancement benefits financial institutions and fintech companies alike, as they can now furnish digital records promptly, facilitating a swifter and more straightforward audit.

Popular Cases of Using Blockchain in the Banking Sector

Now that the benefits of blockchain in banking are clear, let’s take a look at a few use cases of blockchain in banking. In this section, we look at two most illustrative examples: CBDC projects and Onyx by JPMorgan.

CBDC Projects by Various State Governments

These days, Central Bank Digital Currencies (CBDC) are undoubtedly the hottest blockchain-related trend in banking. The concept of implementing digital tokens instead of physical tokens – banknotes – as national currencies has drawn global interest. That’s why more and more countries are actively researching the benefits and potential flaws of digital currencies issued by central banks.

One of such countries is Australia, where the Reserve Bank has conducted a CBDC pilot program. The results of this program outlined four financial aspects that can use digital currencies to their advantage. Overall, the potential Central Bank Digital Currency may lead to the following improvements:

• Ensuring uniformity among new types of private digital money. For example, such types include bank deposits in the form of digital tokens, as well as stablecoins backed by reliable assets. Here, the role of a CBDC is to ensure interoperability regarding new forms of digital money. 
• Promoting further innovations in asset markets. The main point of interest in this context is the implementation of specialized platforms using the DLT – distributed ledger technology. It gives the possibility to perform asset tokenization, including real assets, financial assets, and other types.
• Enhancing smart payments. The introduction of a digital token supported by the central bank can enable various complex transactions that are not currently supported by payment systems. Another related possibility here is the rising popularity of smart contracts using CBDCs. They enable performing automatic payments upon meeting certain predefined conditions. For example, this allows performing simultaneous automated transactions between several parties, reducing the need for reconciliation.
• Improving the resilience of the country’s digital economy. CBDCs provide an alternative method of payment for businesses and individuals. The most beneficial feature in this context is that this form of digital money does not require an account in a commercial bank. Additionally, with the help of modern technological advances, it may allow performing electronic transactions in “offline” or emergency situations, for example, during blackouts.

In the case of the Australian CBDC, it represented a direct claim on the Reserve Bank of Australia. However, other countries are actively experimenting with other types of digital currencies and their integration into national financial systems. For example, the Bank of England is currently developing a digital pound or “Britcoin” by testing the features of public blockchains and other distributed ledger types. Similarly, the European Central Bank is preparing the pilot program for the digital euro. 

Now, according to the Atlantic Council, 130 countries have CBDC-related programs, compared to only 35 countries in 2020. Moreover, 11 states have already launched their respective digital currencies. So, as you can see, blockchain technology in the form of Central Bank Digital Currencies is the next big thing in financial systems around the world.

Onyx by J.P. Morgan

In 2020, J.P. Morgan, a subsidiary of one of the largest global banks, JPMorgan Chase, launched its blockchain-based platform. The creators of this platform, called Onyx, aimed at revolutionizing the flow of assets and financial data around the world. For this ambitious task, Onyx uses blockchain technology to enhance and automate various steps of payment and settlement processes. 

Onyx has several components that are focused on providing different services. For example, Liink is a peer-to-peer network for the secure exchange of information. Coin Systems and its JPM Coin are designed to mitigate the flaws of existing payment systems. Digital Assets is a platform that enables converting financial assets into blockchain tokens in order to provide transparency and improve their mobility and utilization.

Overall, J.P. Morgan has surely found a way to integrate the benefits of blockchain technology into the banking sector. Onyx is constantly developing, bringing more services and improvements for its clients. The extensive list of features includes smart contracts with programmable payments, asset tokenization, cross-border, multi-currency, or machine-to-machine payments, and much more.  

Conclusion

As you can see, the banking sector is undergoing significant changes these days. Conventional methods can barely keep up with the pace and demands of the modern world. That’s why even the oldest banks have to undergo digital transformation, including the implementation of blockchains. Banks need technological advances to enhance their services and bring their clients higher levels of convenience, transparency, and security. 

Blockchain isn’t new, yet its potential in banking has still not been fully explored because of the industry’s conservative view and behavior. The fear of experimenting with blockchain and other technologies is fully understandable because of the risks. However, refusal to adapt to modern rules and technologies will very likely bring significant challenges in the future.

As a company that has 15+ years of experience in creating digital solutions (including blockchain-based) for the banking industry, we are open to collaboration with businesses of all sizes. A Neobank startup or an established fintech enterprise – we can satisfy every business need in blockchain and technology.

Our blockchain consulting and development services cover a wide range of solutions for banking, fintech, insurance, and many other industries – DApps (distributed applications), smart contracts development and audit, wallets and exchanges, AML/KYC compliance, and a lot more. If you’re looking for an experienced and reliable team that can build complex solutions from scratch and integrate them in your banking ecosystem, don’t hesitate to drop us a line and tell us what you need. 

Use all the advantages of blockchain to the fullest with Intellectsoft!

The post How Blockchain Changing the Banking Sector? appeared first on Intellectsoft Blog.

The digital wallet has emerged as a frontrunner in this evolutionary process. As society begins to lean more towards a cashless future, these digital wallets signify not only convenience but embody the ambition of a progressive society.

Imagine the last time you tapped your phone at a checkout or sent money to an overseas seller with a mere click. These simple and easy acts underscore the relationship between our evolving needs in the digital age and technology.

Digital wallets are no longer just a novelty or restricted to the domain of big business. They’re everyday essentials that reflect the broader societal shift toward efficiency and digital reliance. 

In this article, we delve into the inception of the digital wallet, their journey to ubiquity within society, and the promises they hold that will inevitably shape the future of money as we know it.

The Evolution of the Digital Wallet

In the world of finance, we’ve witnessed groundbreaking transformations, especially over the past decade. The rise and subsequent evolution of the e-wallet have been a pivotal component of that narrative. 

Let’s dive into this fascinating timeline, tracing the roots and progression of digital wallets and understanding their impact on consumer behavior today.

The Early Days

Back in 1997, Coca-Cola pioneered the first iteration of mobile payment by allowing users in Helsinki to purchase a drink with an SMS message. While not technically a digital wallet, this innovation hinted at the future to come with the innovation of mobile transactions.

Fast forward to 1999, PayPal emerged. It revolutionized online shopping by offering a secure intermediary for e-commerce payments that effectively shielded personal bank details. 

A decade later, in 2009, the world was introduced to what was to become the single most important driving factor in the evolution of the digital wallet – Bitcoin. 

Beyond being just a cryptocurrency, Bitcoin ushered in a novel payment system devoid of central oversight, prompting the rise of specialized “crypto wallets” to manage and transact in this new digital asset. 

These early ventures – Coca-Cola’s mobile experiment, PayPal’s secured online transactions, and Bitcoin’s decentralized finance system – collectively paved the way for today’s multifaceted digital wallets, shaping how we engage with our finances in the digital realm.

The Mobile Wallet Genesis with Google

In 2011, the idea of replacing the good old leather wallet with a digital counterpart seemed pretty far-fetched. It was during this period, however, that Google introduced what is considered to be the first digital wallet – ‘Google Wallet.’ 

What Google actually created was a ‘mobile wallet,’ or a wallet that can only be used on a mobile device. It was an ambitious feat at the time and an attempt to pave the way for what we now know as the digital wallet. 

In the initial rollout, the Google Wallet was only compatible with one card – a MasterCard issued by CitiBank. Nonetheless, the mere concept of paying using a smartphone was revolutionary at the time. 

The Surge and Beginning of Mainstream Adoption

Between 2016 and 2022, digital wallets experienced a meteoric rise. By 2022, it was estimated a staggering 45% of consumers in China were using a digital wallet, with only 6% in the US and Canada. 

Businesses who were keen to stay current integrated wallet-friendly payment systems enabling swifter transactions. 

The subsequent years underscored diversification within this realm, particularly as cryptocurrencies like Bitcoin and Ethereum gained prominence. Modern digital wallets transcended their original design, evolving into multifunctional platforms catering to both traditional fiat transactions and the blossoming decentralized finance sector.

Where Are We Now?

Digital wallets have journeyed from Coca-Cola’s first SMS-based vending machine transaction concept to today’s multifaceted financial hubs. Digital wallets are no longer futuristic – they’re entrenched in our daily lives and routines. 

They offer services from peer-to-peer transactions, online shopping, integrations, and cryptocurrency management, reflecting our adaptable dynamic financial zeitgeist.

By the year 2025, it is predicted that over 9 Billion US dollars will be transacted using digital wallets, with a significant portion of those being conducted in the Far East and China.

Advantages and Disadvantages Compared to Traditional Payment Methods

The way we view money and payments is undergoing a seismic shift. Today’s digital realm is dominated by digital transactions, and it’s imperative to understand the merits and drawbacks of using a digital wallet.

Advantages of Digital Wallet

1. Convenience. There’s no need to rummage through a wallet for cash or cards, a simple tap or scan suffices.
2. Speed. Transactions are processed instantly, which cuts down on wait times at checkouts.
3. Adaptability. Digital wallets cater to a range of financial activities, from bill payments to online shopping and even cryptocurrency management.
4. Compactness. Reduces physical bulk, eliminating the need to carry hefty wallets or purses.
5. Global Transactions. Facilitates seamless cross-border transactions without the hassles of currency exchange.

Disadvantages of Digital Wallet

1. Security Concerns. Vulnerability to hacks and breaches is a genuine concern.
2. Tangibility. Some people prefer the tactile assurance of cash or cards as a measure of control.
3. Dependence on Technology. If a device’s battery dies or if there’s no internet, access to funds can be restricted.
4. Potential Misuse. If lost, smartphones with digital wallets might be misused, leading to unauthorized transactions.
5. Limited Acceptance. Not all merchants, especially in remote areas, accept digital wallet payments.

Super Apps: The All-In-One Digital Powerhouses

As the digital landscape evolves, super apps have emerged as a contemporary juggernaut of the ecosystem, but what is a super app?

A super app is a holistic digital hub, it encompasses a myriad of services, be they gaming, shopping, transportation, or payments – super apps unify these functionalities. 

This transforms your devices into versatile tools for every conceivable daily need. These super apps are often referred to as ‘multi-service tech platforms’ or a marketplace for micro apps. 

Super apps come with a single sign-on experience meaning users only need to remember one password and can switch seamlessly between applications.

Examples of SuperApps

The rise of super apps, predominantly in Asia, symbolizes the convergence of services into unified platforms. These digital behemoths have expanded far beyond their initial functionalities, creating ecosystems that cater to a plethora of user needs, from mundane tasks to complex financial operations. 

Here’s a closer look at some global frontrunners:

• WeChat (China). Starting as a mere messaging service, WeChat’s metamorphosis into a super app is truly remarkable. WeChat’s users today can indulge in online shopping, make payments, access entertainment, and even book doctor appointments all within a single platform.

• Alipay (China). Initially rooted in payments, Alipay has branched out significantly. It now offers utility bill payments, investment services, and travel booking making it an essential tool for millions.

• Grab (Southeast Asia). Ride-hailing service Grab’s foray into the super app world has seen it delve into areas like food delivery, digital payments, and even insurance services.

• Omni (Central America). Serving Central America, Omni combines essential services like transportation and delivery with digital payments, creating a unified experience for its user base.

• Revolut (Europe). Though primarily known as a fintech solution, Revolut’s ambitions continue beyond banking. The platform has expanded to offer cryptocurrency trading, stock trading, and even travel insurance, emblematic of its super app aspirations.

Broadening Horizons: The Ever-Evolving Digital Wallets

Once seen as mere tools for performing transactions, digital wallets are undergoing a renaissance. As the future of payment technology unfolds before our eyes, these wallets have taken on new roles that surpass financial boundaries. 

Some additional functionality is becoming evident in several ways:

• Loyalty Programs Integration. There’s no longer a need to juggle multiple loyalty cards and apps. Digital wallets are seamlessly integrated programs such as reward points and cashback that are instantly credited and easily redeemable. 
• Ticketing Systems. Whether it’s for movies, concerts, or public transportation, digital wallets are simplifying ticketing processes, allowing users to book, store, and even share tickets all in one place.
• Government Services. Some advanced digital wallets are bridging the gap between citizens and governments. They facilitate processes such as tax payments, license renewals, and even paying fines.

This paradigm shift is a testament to the underlying goal of digital wallets – evolving from simple transactional platforms to multifunctional hubs that cater to everyday needs. 

Blending Boundaries: Digital Wallets and the Confluence of Modern Technologies

As digital wallets continue their march towards becoming more sophisticated and essential tools, they are increasingly intersecting with leading-edge technologies. 

The incorporation of Blockchain, for instance, moves beyond its well-known connection with cryptocurrencies. In the realm of digital wallets, it promises enhanced transparency and rock-solid security by leveraging decentralized ledgers, making every transaction intrinsically trustworthy and tamper-proof.

Simultaneously, Artificial Intelligence (AI) is injecting a new level of intuitiveness into these wallets. Instead of just facilitating transactions, AI-equipped wallets now offer personalized spending insights and robust fraud detection, tailoring the experience to each user’s patterns and needs.

And then there’s the broad universe of the Internet of Things (IoT). No longer are digital payments an exclusive feature of smartphones. IoT is expanding the scope of digital wallets, embedding them in wearable tech, home automation systems, and even our vehicles. 

This seamless integration across devices paints a future where payments are as ubiquitous as the technology we interact with daily. These tech integrations are reshaping both the landscape of digital wallets and how we perform financial transactions. 

Opportunities and Emerging Digital Wallet Trends

The landscape of digital payments, much like the broader spectrum of technology, is in a constant state of evolution. As we gaze ahead, a multitude of digital payment trends emerge, promising to refine our transactional experiences and heighten the functionalities of digital wallets.

• Predictive Analytics. The infusion of data science into the realm of digital wallets presents a game-changing opportunity. Through predictive analytics, wallets can now anticipate user needs, tailor offerings, and ensure that each transaction or service feels individualized and intuitive.
• Biometric Authentication. Gone are the days of cumbersome passwords. With biometric authentication, security takes a quantum leap forward. Whether it’s fingerprint scans, facial recognition, or even voice patterns, this trend guarantees that access to one’s financial assets remains both convenient and iron-clad in terms of security.
• Crypto Wallets. As the world warms up to cryptocurrencies, digital wallets are expanding to embrace them. Now users can not only store their traditional currency but also manage their cryptocurrency portfolios seamlessly, integrating with the decentralized financial ecosystem.
• Virtual Cards. The tangible plastic card is undergoing a virtual transformation. Digital wallets now offer virtual cards allowing users to transact without revealing their primary card details, ensuring an additional layer of privacy and security.

Navigating Challenges in the Digital Wallet Odyssey

The horizon for digital wallets teems with promise; however, it isn’t devoid of challenges. 

In a world awash with information, data privacy becomes a huge concern. Digital wallets and mobile applications must ensure that financial details remain confidential and secure. 

Security breaches are, unfortunately, not just theoretical risks. As “digital wallet security concerns” rise, it’s imperative that digital wallets and mobile applications ensure that financial details remain confidential and secure. This necessitates continuous upgrades in security protocols to stay ahead of potential threats.

Another challenge for not only digital wallets but decentralized finance is the ever-shifting regulatory landscapes across the globe. Adhering to these regulations without compromising on user experience can be a delicate balancing act. 

Finally, the rapid pace of technological evolution requires that digital wallet providers remain ever-agile and ready to adapt. These dynamics are not just about security but also reliability in an always-changing digital environment.

Conclusion

As we’ve journeyed through the evolution and potential of digital wallets, it’s evident that the blend of innovation opportunity and challenge will continue to shape our financial interactions. 

If you’re seeking expertise in navigating this dynamic landscape of financial software, choosing the right partner is paramount. 

Choose Intellectsoft for top-tier financial software development services ensuring a future-proof solution tailored to your needs. Join us in defining the next chapter of digital finance.

The post The Future of Digital Wallets: From Payments to SuperApps appeared first on Intellectsoft Blog.

The digitization of the financial sector is surging and has created an immense opportunity for tech entrepreneurs and businesses to exploit. 

But what does it take to bring these innovative digital services to market? The focus of this guide is to shed light on and break down the costs of building a fintech application.

Factors Affecting the Cost to Develop a FinTech App

So, how much does it cost to build a fintech app? It’s important to be aware that it is not a flat-rate venture, as numerous factors play their part in determining the final cost.

The scope and complexity of the project, regulatory compliances, and secure payment gateway integration all play a significant role.

In 2023, a global surge in fintech startups with North America and the EMEA leading the charge has created an intensely competitive environment. In this landscape, it is essential to build an app that not only stands out but fulfills a unique requirement. Often this comes at an extra cost.

In addition to increased competition and the need to create a niche market, numerous factors also come into play with it comes to the price tag.

Features and Functionality

Fintech apps often come with complex features such as payment gateway integration, real-time analytics, security protocols, and more. More advanced features will inevitably escalate development costs.

UX/UI Design

User interface and user experience design is crucial in fintech applications. An aesthetically pleasing and intuitive design not only enhances user satisfaction but also boosts product functionality.

Security Measures

Given that fintech apps handle sensitive financial information, they require robust security measures. The implementation of such measures, including encryption and secure payment gateway integration, adds to the development cost.

Location and Structure of the Development Team

Whether you choose in-house development or outsourcing can significantly impact your budget. The location of your team also plays a part. Developers in North America and Western Europe, for instance, typically charge higher rates than those in Eastern Europe or Asia.

Maintenance and Updates

Post-development apps require regular updates and maintenance to keep up with changing user needs, regulatory demands, and technology trends. This is an ongoing cost that must be factored into the overall budget.

Outsourcing vs. In-House Development

A vital aspect of the fintech app development journey involves navigating the decision between outsourcing and in-house development. The preference for either approach will ultimately shape the trajectory of the project and impact both the overall cost and the quality. 

The decision is contingent on various parameters, including cost, control, expertise, and scalability.

In-House Development

Owing to having direct control over project aspects from conception to the final product, in-house development might seem like an appealing choice. This control allows for real-time monitoring, immediate feedback, and actionable quick iterations – giving you an intrinsic sense of involvement and ownership of the process. 

The approach, however, comes with a unique set of challenges. Training, hiring, and retention of talent all contribute to the costs associated with building a highly skilled development team. In addition to these factors, the costs of maintaining infrastructure workspace and advanced software tools can quickly add up.

Outsourcing

Outsourcing opens the door to a global pool of seasoned professionals all with the required skills, experience, and tools to turn your fintech vision into reality. 

Outsourcing alleviates the burden of hiring and training costs, and the requirement for constant infrastructure and software tool updates, patching, and maintenance.

Interestingly, a growing trend within the United States hints at the increasing popularity of this approach. According to Grand View Research, the custom software development market has witnessed a steady climb, with a projected growth rate of 22.3% by 2030. 

This surge in outsourcing application development suggests that businesses are beginning to recognize the value and convenience of external expertise.

In a 2021 report titled “Global Shared Services and Outsourcing Survey Report,” Deloitte reveals that 65% of information technology is currently being outsourced. 

Again, this significant figure underscores the trust businesses have placed in outsourcing, appreciating both its cost efficiency and the readily available access to specialized expertise.

While outsourcing may seem promising, it is not without its challenges, and diligence is required when choosing the right partner. Careful evaluation of their portfolio, reputation, communication skills, transparency in cost estimation, and – most importantly – specific experience in fintech should constitute a large part of the selection process.

This meticulous approach ensures you reap the benefits of outsourcing without compromising on quality, security, or functionality.

The Hidden Costs in FinTech App Development

The costs associated with fintech application development don’t stop with the completion of the development project itself. One must not overlook the additional ongoing costs that arise post-development. 

Understanding these costs is key to efficient budgeting and ensuring the longevity of the app. Here we’ll devolve into these essential aspects and discuss strategies for cost optimization.

Marketing & User Acquisition: The Gateway to Success

As discussed earlier, the marketplace of fintech apps is rapidly becoming overcrowded, and standing out is no easy feat. Investing in a comprehensive marketing strategy and user acquisition is non-negotiable. 

Whether leveraging social media, search engine optimization, or paid advertising, every marketing strategy entails additional costs. Additionally, attracting and retaining users necessitates a budget for customer relationship management tools, promotional offers, and loyalty programs.

Operational Costs: The Steady Stream of Expenditure

Running a successful fintech app goes beyond the realm of technology. It involves the day-to-day administrative costs, employee salaries, office rent, and utility bills. 

These operational costs, while seemingly mundane, are critical to the smooth functioning of your business and must be factored into the overall budget.

Legal & Compliance Costs: The Price of Integrity

The financial industry operates within a web of regulations. Staying compliant is not an option but a necessity to avoid heavy penalties and maintain user trust. 

Whether it’s data privacy laws, anti-money laundering regulations, sanctions, or banking standards, compliance involves costs for legal counsel, audits, and implementation of necessary security measures.

App Store Fees: The Unavoidable Expense

Hosting your app on platforms like the Apple App Store and Google Play is unavoidable and comes at a price. Apple charges a developer fee paid annually of $99, and Google Play requires a one-time fee of $25. 

In addition to these upfront costs, both platforms claim a percentage of every single transaction performed within the app. 

These expenses can add up significantly over time and must be incorporated into your financial strategy.

Strategies to Reduce FinTech App Development Costs: Making Every Penny Count

Despite the mounting costs, there are strategic approaches to managing your budget effectively. Here are the two main approaches:

1. Prioritizing Features: The Minimalist Approach

Starting out straight away with a full-fledged app can quickly become an expensive venture. Instead, focus on developing core features that solve a specific problem.

This Minimal Viable Product (MVP) approach allows you to launch your fintech app fast while gathering valuable user feedback. 

Based on these user preferences, future updates can be rolled out, ensuring that every feature added contributes to functionality and user satisfaction – avoiding unnecessary expenditure and lowering costs.

2. Choosing the Right Development Partner: The Path to Quality and Efficiency

Choosing the right development partner is vital for cost-effective, quality fintech app development.

An experienced company prevents issues like poor-quality code or security vulnerabilities. But expertise should also extend to emerging technologies such as blockchain and smart contracts, crucial for enhanced security and streamlined transactions in fintech. 

The right partner thus not only saves costs in the long run but also ensures a high-quality and technologically advanced app. Paving the way for success in your project and the dynamic fintech industry.

Conclusion: Deciphering the True FinTech App Development Cost

Building a fintech app is a multi-faceted approach, and the costs associated with building it depend on many factors. Understanding these variables is essential in estimating the budget accurately. 

Amidst all the number crunching and cost optimization, the quality of the application should never be compromised. 

A well-built fintech app can be an absolute game changer, especially when designed to facilitate a niche market. It offers seamless services to customers and disruptive competition to traditional financial market players.

Trends indicate a bright future for fintech apps, making it a worthwhile investment. 

When considering the potential costs involved, it’s crucial to consider all aspects – the development strategy, ongoing and post-development costs, selecting the right vendors, and keeping up with emerging technologies.

When equipped with this knowledge, you can venture into the fintech world prepared and confident.

Why Choose Intellectsoft for Financial Software Development Services?

Discover why Intellectsoft is the ideal choice for your financial software development needs. As a leading software development company, we specialize in creating secure and user-centric fintech applications across various industries. 

With our extensive expertise, we offer the perfect guidance and services for your fintech app development journey.

From inception to implementation, Intellectsoft delivers end-to-end solutions that guarantee a seamless and successful fintech experience. 

Embrace the opportunity to explore our cutting-edge financial software development services today and transform your fintech idea into a groundbreaking app that reshapes the digital financial landscape. Let’s work together to drive innovation and elevate the financial industry to new heights.

The post The Comprehensive Guide to Understanding the Cost to Build a FinTech App appeared first on Intellectsoft Blog.

Like many industries, the banking sector wasn’t immune to the tsunami of instability – quite the contrary. Covid-19 was only the start of uncertainty. It may have been the catalyst for rising interest rates, inflation, and political disruption, but what has become unquestionable is the fragility of financial institutions.

So, where does this leave commercial and business banking? To understand the challenges it faces, one needs to identify the threats.

Accelerated digital banking, a surge in cyber hacking, geopolitical threats, and climate change are all disruptive forces that can potentially reshape the sector.

According to The Banking in 2035: global banking survey report, about 76% of banking executives surveyed believed the industry has an obligation to address societal needs and issues, while 82% were of the opinion that financial services organizations can simultaneously better society while pursuing profit.

How do banks go about doing this? By prioritizing client needs without compromising on profit. In this article, we’ll take a look at the future of business banking and how adopting certain business models can help you be at the forefront of future banking trends.

Future Business Models and Competitive Arenas in Business Banking

In the ever-changing business landscape, banking institutions have to fight to stay relevant. According to EIU’s financial outlook 2023 report, fintech and cryptocurrency sellers will find it harder to weather the storm.

Adapting to your new reality isn’t always easy, but adjusting your business model is one way of keeping abreast of the latest developments.

Banks that are open to change can benefit directly from disruptions “by combining their unparalleled domain expertise, reputation, and relationships with innovations in technology and a client-centric approach,” said Dr. Christian Thun while writing for Moody’s Analytics Risk Management: The Decade Ahead.

“Fortunately, the business banking sector has proven its resilience over the past decade by bolstering their capital and liquidity positions, and leaving behind non-core activities and markets,” EIU’s financial outlook 2023 report found.

It also sets up the sector for benefiting from future trends by improving digital services, becoming more financially inclusive, and investing in sustainable banking services.

So, what will business banking look like in the future?

Accenture’s Global Banking Lead Michael Abbott’s predictions could soon become a reality. According to him, business and corporate banks’ innovative products could mirror that of the Amazon Prime model.

Just like mobile platforms, banks will take a dip into the metaverse, which will open a world of possibilities, but Abbott warns this won’t be without risk.

As a way of outperforming their peers, banks must help their clients solve their problems rather than increase their customer base. This taps into the notion of “life centricity”, whereby institutions take a holistic approach to customer wellbeing.

Abbott also believes data should be viewed as a product “that has the potential to transform the foundations of banking.”

The Banking in 2035: global banking survey report mirrored Abbott’s predictions when listing its most important outcomes for banks over the coming decade, with improved cybersecurity and data protection leading the pack with 46%.

The Impact of Data and Money Regulation on Business Banking

Banking regulations are a way of enforcing rules to protect the client, ensure financial stability and prevent financial crime. By design, they ensure sound banking practices.

Who regulates the banking system? In the US, four federal agencies have been tasked with this duty, namely the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation, the Federal Reserve System, and the Consumer Financial Protection Bureau.

Easier access to data has become a building block for successful business practices, and a way of doing this is via application programming interfaces. APIs have been utilized in the banking sector for years, even more so in recent times.

But like other innovations, data sharing raises questions around privacy and regulations in the digital market.

The 2007-2009 financial crisis was a huge eye-opener for banks, prompting governments to install their own initiatives.

OECD cited an example of this with the 2015 EU Payment Services Directive II (PSD2) – a regulation that aims to enhance competition by granting open access to certain types of customer banking data for nonbank licensed providers.

During its research into Digital Disruption in Banking and its Impact on Competition, the NPO mentioned how Japan revised its Banking Act in 2017 to include provisions encouraging banks to open their APIs and facilitating banks’ acquisition of or collaboration with FinTech firms.

Nonetheless, banks can leverage their digital technologies in response to regulatory authorities’ questions by improving both regulation and supervision and, in turn, helping regulators and firms decrease the costs of compliance, OECD recommended.

Implementing Digital Transformation for Business Banking

Customer expectations are growing, and so too should your business if you want to grow with them.

Digital transformation is a given when it comes to business banking. By taking advantage of the huge data pool, businesses can automate processes and reduce costs.

Simple changes such as AI, cloud technology, and automation can help improve services and functionality, resulting in customer loyalty.

Below are the key drivers to consider when going digital:

Customer Needs

Here’s where data aggregation takes the lead. It can be challenging at times, but analyzing it leads to a clearer understanding of who your customer is and your targeted audience.

When segmenting your strategy, consider the following: Which products are generating the most profit? Which of your digital services mostly appeal to your customer? Which new offerings could encourage growth?

The intention here is to offer digital services via targeted marketing.

Cloud-based Systems

Previously, business banking was only sought out by big corporations and brands. It was associated with companies that had clout behind their names. Today, the environment is fast-changing and becoming accessible and inclusionary.

With a complete cloud-based system, banks can close the socio-economic gap by offering full access and functionality to clients, from loan applications to international money transfers.

However, there are setbacks to using this type of technology. Old legacy software systems might not be adaptable to comply with new software. The challenge coming with this is the huge costs involved to ensure a fully integrable system.

Thankfully, there is a workaround – some cloud-based technologies are consumption-based, meaning clients can experiment with them before doing a complete rollout.

Compliance Ready

Regulatory requirements are growing steadily, and to make sure your systems are compliant, you need to keep up-to-date of the latest rules and regulations governing the banking sector.

Dismissing these could lead to costly repercussions, which could easily have been avoided.

Security

In June 2022, Flagstar Bank, one of the USA’s largest financial providers, fell victim to a massive data breach whereby the Social Security numbers of almost 1.5 million customers were leaked.

Initially, the bank failed to disclose how cybercriminals hacked into the system, but investigations showed that the attack may have happened as early as December 2021, highlighting the urgent need for ransomware protection.

The Credit Sussie data leak from February 2022 saw the details of accounts linked to 30 000 of its clients leaked. This resulted in one of the world’s biggest private banks having to do brand damage control after it was discovered some of its clients built their wealth on drug trafficking, money laundering, and corruption.

Building the Future of Banking

Overall, banks should future-proof themselves by investing in products that give them a competitive edge. This doesn’t only apply to business banking; commercial banks are finding themselves in the same boat, jostling for a larger clientele.

Major trends are reshaping the industry, forcing the sector to evolve instead of fighting against the current. The good news is that digital business banking has embraced rapid change, considering the environmental, social, and governance (ESG) concerns the world is currently experiencing.

Australian author James A. Gardner poured his years of experience as a career innovator into his book ‘Innovation and the Future Proof Bank: A Practical Guide to Doing Different Business-as-Usual.’ In it, he discusses in detail how banking institutions can become future-proof by “leveraging the power of the new to establish unexpected revenue lines, or make old ones grow.”

Steps to Success in Digital Business Banking

According to Statista, about 27% of Americans use an online-only bank, and 60% of consumers say they are very interested in using digital banking in the next year.

If your company is not using innovation and the latest technology to snag customers, you’re setting yourself up for failure. How do you go about rewriting your success story?

For starters, by hiring a reliable and professional fintech software development partner, you’re already halfway to reaching your goal.

Intellectsoft is a financial software development company that helps clients accelerate innovation by creating tailor-made software solutions.

Why Choose Intellectsoft?

Specializing in banking and financial institutions, Intellectsoft has a proven track record. Our clients include some of the most prominent brands in the world, including the NHS, Universal, and Jaguar.

Some of the financial software development services we offer are online banking, blockchain and cryptocurrencies, digital wallets, AI and ML, trading and securities, and robotic process automation (RPA).

To Sum Up

One positive that the pandemic produced was the uptake of digital payments. About two-thirds of adults worldwide now make or receive a digital payment, resulting in growing developing economies from 35% in 2014 to 57% in 2021, the World Bank found.

One could look at it as purpose-driven banking, a social responsibility of sorts, which we may add, has been predicted to be another big banking trend in the next decade. Banks that are more engaged with societal issues could have the biggest positive impact.

Microsoft CEO Satya Nadella once said, “Longevity in this business is about being able to reinvent yourself or invent the future.”

It’s fitting words, considering the world is always in flux. Reinvention is the name of the game. Ask yourself, can you afford to be left behind? If the answer is negative, get in touch with us to get the most efficient digital business or commercial banking solution.

The post The Future of Business Banking appeared first on Intellectsoft Blog.

The boom of smartphones and mobile technologies supported the growth of neobanks, driving further demand for online banking services. The COVID-19 pandemic also became a power force for neobanking, being the safest available option: contactless payments decreased the spread of disease.

Now the global neobanking market is valued at 66.82 billion and analytics predict steady growth till 2030. Fintechs use the power of modern technologies to compete with traditional banks, and cloud computing solutions are at the top of this list. It seems cloud-based banking is the industry’s future. Let’s take a look at the success of neobanks and the cloud that backs it.

Five Things to Learn from Neobanks

 Fintechs changed the way people save, spend and invest. Naturally, neobanks grabbed market share from traditional banks: in different regions, they make up 30 percent of the total banking market. So, traditional banks have been forced to learn from neobanks and adopt the best practices to stay competitive. Let us consider the main advantages of cloud banking.

Online Access

Neobanks do not have physical branches, they are accessible via web and mobile applications. Surprisingly, for most routine banking operations, this is enough. In-person visits to the bank branch seem like a waste of time.

Biometric Identification

Customers use biometric data — fingerprints, retina scanning, face ID — to access neobanking services. Mass demand for this technology made it available and secure. It is safer than traditional identification methods like PIN-code, signature and identification by photo.

Transparent Costs

With traditional banks, the cost of services can be high and unclear. With cloud-based banking, every fee is clear and transparent. Moreover, a client knows the cost beforehand and can reject a deal if he or she is not satisfied with the price.

High-skilled Support

While a neobank client cannot visit a physical branch to deal with a problem, all issues can be solved online. This means cloud banks have excellent online support teams, with a high level of technical and soft skills. Traditional banks can rarely claim the same.

Automated Approvals

With traditional banks, the approval processes for services and transactions take time because they are manual. With neobanks, the approvals are mostly automated and take seconds.

Traditional banks could probably develop and offer these advantages with time, but the situation in the world and the banking services market evolved very quickly and they just could not react with the same speed. So, neobanks appeared as an alternative to traditional banks and introduced the above-mentioned features. But there is even more.

‍Five Benefits of Neobanks

Cloud-based banking has a lot to offer a new generation of customers. While older people mostly trust traditional banks more than innovative mobile solutions, youngsters appreciate the benefits of neobanking. People who stay online 24\7 require banking services at their fingertips. Simply speaking, online access to banking services comes with a host of other benefits.

No More Queues

Nobody likes queues at the bank especially when it’s for a small transaction like utility payments or card-to-card transfer. Neobanks proved that most routine operations can be conducted online, and there is no need to waste time in a line.

Quick Problem Resolution

It would be incorrect to say that the online support team solves all problems immediately. Sometimes it takes time for a problem to be resolved. Anyway, it cannot compare with offline service, including the time to visit a bank office.

Transparency

With neobanks, customers have immediate access to routine services, like account balance checks, transaction history, card-to-card payments, etc. It means better control and transparent money movement. For example, a client can immediately see an unauthorized transaction and call support.

User-centric Experience

While cloud banks are only available online, they pay much attention to their application to make it accessible, convenient and customizable. A client can get many custom functions, from interface color to automated regular payments.

Cloud Data Storage

Neobanks store their data in cloud storage, without relying on outdated legacy systems. It means faster operations, automated approvals and faster services in general.

Looking at the benefits of neobanks, it seems they are a perfect stage in the banking industry evolution and should push the traditional banks out of the market. However, nothing is perfect, and cloud banking has its challenges.

6 Challenges of Cloud-based Banking

The challenges of cloud-based banking solutions can kill the euphoria of their benefits. In particular, there are some major and minor risks both for banks and customers.

Human Factor

Modern technologies implement the best data protection solutions. However, people can still intrude on the processes. The impact of the human factor can appear at different levels, starting from a simple data entry mistake up to system failure. It is impossible to protect the cloud system from human incompetence 100 percent of the time. Traditional banks are less vulnerable to human mistakes because of slower processes.

GDPR Violation

All companies promise to keep clients’ data safe, but not all keep their word. For example, in 2020, Google faced a five billion dollar lawsuit for GDPR standards violation. We never know which company will break its own promises and start trading sensitive information. Of course, traditional banks can also do this, but neobanks seem more vulnerable to this because of all the data in the cloud.

Force Majeure

A bank does not control its infrastructure. Mostly, it is a benefit, but when the cloud service provider faces unforeseen circumstances, like a natural disaster, server downtime is possible. A bank cannot manage the situation and its customers can be without access to their banking until everything is fixed.

Contradictory Regulations

The banking industry is the most regulated in many countries. Failure to meet the regulations results in fines. At the same time, cloud solution providers also follow regulations, which sometimes contradict banking regulations. The simplest way to avoid fines is to hire a compliance expert to remove the conflicting rules and mitigate the risks.

Status Issues

As we mentioned above, neobanks are not banks but financial organizations. The main difference is the type of license. As a result, neobanks act like banks and provide a broad range of banking services, but they cannot operate without the support of traditional banks. This precarious situation causes many contradictions and requires changes in the global banking system.

Data Migration

When traditional banks start using cloud services, they always face the need to migrate the entire architecture into the cloud. According to Bloor Research, one in three migrations ends with failure. The problem lies in the absence of a high-skilled IT team that can handle the process. Finding a team of experts is a pain due to scarcity.

Need a team with expertise in financial solutions? Get in touch with us. 

What Is a Hybrid Cloud?

There are three main types of cloud solutions, differentiated by level of privacy: public, private and hybrid cloud. Public clouds are familiar to most of us: Google Environment and Microsoft 365 count a billion users. A private cloud, also known as an on-premise server, is a popular enterprise solution. It can be assessed only by authorized staff.

However, modern businesses want to combine the secure on-premise server with the benefits of public clouds. This combination is called a hybrid cloud and for now, it is the most popular in the enterprise segment.

Hybrid Cloud Adoption in the Banking Sector

There is no question that banks and financial institutions should adopt hybrid cloud technologies. If they do not migrate to the cloud and modernize their infrastructure, they cannot follow their more innovative and responsive competitors.

According to Gartner, 70 percent of banking and investment respondents increased their cloud spending in 2022, and plan to do more until 2025. Most of them prefer a hybrid cloud solution that combines an on-premise server for sensitive information and public clouds like Amazon AWS for customer relationship management, marketing, data analysis, fraud detection and other functions.

Migrating to the cloud for banking means better efficiency in operational processes and greater flexibility in new business models, better customer services and products and the ability to focus on the core business without needing a series of machines to run it.

How to Start Implementing a Hybrid Cloud in the Banking Sector

The process of modernization and data migration to the cloud can take months. To avoid failure and banking service disruption, a bank should have a well-trained internal IT team or hire a professional service vendor.

A strategy stage is crucial for successful hybrid cloud implementation to ensure continuity of service without interruption or downtime. An IT team and bank representatives should discuss, develop and approve a comprehensive implementation strategy and consistent architecture. A migration strategy should include not only the specific needs of the banking business but also all related institutions. Only after strategy approval can the process of implementation start.

Hybrid Cloud Implementation: Main Challenges

Adapting traditional IT to new hybrid infrastructure is a key issue for banks due to the large volume of legacy technology and compliance requirements.

• Many banks have existed for decades and even centuries, so they have long track records. It means that they have significant legacy technology that needs to be adapted for use in a new hybrid ecosystem.
• Banks need to make sure that any data stored in the cloud is secure and compliant with applicable laws and regulations. To do this, they must ensure that their hybrid cloud environment has strong security measures.
• Banks also need to keep an eye on third-party vendors and make sure that they are not using any outdated or insecure technologies or services.
• Additionally, they need to choose a technology partner that has experience with banking solutions and understands their specific needs so implementation projects can go smoothly.

When it comes to selecting the right platform for their hybrid cloud solution, banks must consider a variety of factors such as storage capacity, scalability requirements, cost-effectiveness, customer experience delivery timescales, etc., before making a decision.

Where to Get Hybrid Cloud Services

Major banks can afford to keep the internal IT department to develop and implement both private and public clouds for the bank, integrate it, set up all the necessary applications, check compliance, and perform other steps.

However, the internal team has its own weaknesses. Having broad expertise in local infrastructure, networking, hardware and software, they usually lack experience in the cloud for the banking industry. The alternative is to find an independent banking software development company.

Intellectsoft offers to advance your efficiency, customer experience and business performance using the power of Intellectsoft software development for banking and financial services.

If you want to learn more about how your bank can use cloud technology as the catalyst for enterprise transformation, don’t hesitate to contact us. Our managers will reach out to you in order to provide you with the most detailed information and help you make your first step to a more digitized business.

The post Banking on the Hybrid Cloud: What Big Banks Can Learn from Neobanks appeared first on Intellectsoft Blog.