What exactly is FinTech? Is it secure, is it for “big banks” only and how does an institution integrate and connect it with their existing systems? We sat down with Metova CTO, Andrew Cowart to learn all about the ins and outs of Financial Technology, or FinTech.
What is FinTech?
FinTech is just an abbreviation for Financial Technology. It’s all of the new ways that finance-related businesses are updating to embrace new technology, and it’s all of the not-previously-possible financial automation tools that are coming into being. This includes everything from depositing checks via your phone, trading stocks online without anyone’s assistance – and even bitcoin.
Is FinTech solely the realm of new “disruptive” startups?
Definitely not, many of the innovations are actually coming from old players in the space who want to remain relevant and remain leaders – many of them know that to stay leaders, they can’t just match the existing offerings, they’ll need to provide additional innovation. Digital Transformation is what we call it when companies put a focus on the technology that will drive their business, and it’s important to note that this isn’t fully replacing the existing way the company operates, but also augmenting existing systems.
Can technology emulate the “friendly and personal” in-lobby banking experience?
Used correctly, our customers have found the main draw for technology is that it enables more touchpoints, not less. Banks can be more proactive with messaging customers with tools like push notifications and message centers in their apps, while still allowing the customer to pick up a phone and call someone if they need to actually talk to a person about a problem. That’s where we’ve found this works best – when it augments communication instead of fully replacing it.
How would a smaller, single location credit union leverage a mobile app?
Honestly, building and supporting a mobile application is expensive. The easiest first step is for the bank to make their website responsive – allowing it to look good on both mobile and desktop. After that, the bank should probably look for a company that offers whitelabeled credit union or banking applications – allowing them to offer some more advanced security/mobile-specific features, push notifications, etc., without the added effort of building out an entirely customized experience.
Can mobile banking be trusted as much as in person banking?
Yes – honestly, in some cases, it’s easier to catch mistakes and issues with mobile banking as opposed to in-person banking. Bank tellers, while great at their job, do still experience mistakes – for them, every transaction is one of hundreds they do that day, whereas for you, it’s money that directly affects you. You’re going to double check the account numbers and do your best, instead of it being routine.
From a technology perspective, mobile banking doesn’t carry significant risks. It’s much more likely that the old standby methods of card/identity theft will be used – from card cloning to writing down a customer’s card numbers.
A recent survey of over 1000 consumers on banking and technology revealed that over 94% use electronic banking services. Does this number surprise you?
It really doesn’t – I realize I’m tech-savvy, but it’s been probably 20 years since I stepped into a bank myself. I know the same is true for most of my friends and coworkers – the only time they’ll physically step into a bank is if they’re required to. Even for less tech-savvy or older generations – it’s so easy to check your account balance online, send/receive money from others, I’d guess even if people don’t use it every week, they’ll at least check every few months.
What sort of challenges exist in managing a bank’s backend architecture with new FinTech offerings and capabilities?
A lot of challenges banks will face center around the fact that less interaction is happening in person, and more is happening online – even the opening of an account. Numbers, such as rates, can only be adjusted so much to be competitive – instead, banks have to turn to adding new features and integrate with more partners. Cash back, rewards, coupons, credit score monitoring, online loans, concierge services, one-time-use cards for safe online shopping, integration into more and more services – anything a bank can offer to try to draw more customers, they will.
However, there’s an increasing number of laws around data/information sharing. GDPR, and recently the California Consumer Privacy Act (CCPA), offer ways for consumers to request the removal of all of their information from a company – and anywhere that company sent it to. So, let’s say a modern bank integrates with maybe 20 different third parties for technology efforts – these laws start getting more and more inconvenient, since there’s no single standardized privacy law. The bank might have to send 20 requests to their partners for every one request they receive for CCPA, and then they might have to send another 20 requests, formatted differently, if they receive a GDPR request.
So, compliance is probably the big challenge. The above is just an example of two laws/statutes in the past couple years that banks just had to deal with – additional work, additional workload, and the more they integrate with third parties to try to stay afloat, the more work they had sprung on them with these new requests.
A recent survey found that over half of people expect to pay for bank checking services while 96% feel it is very important that with paid checking, they receive additional bundled benefits and services. How can FinTech help banks provide these additional bundled benefits and services?
This goes back to the earlier question, in that customers expect these additional benefits and services – but they require increasingly more management and infrastructure from the bank’s end to handle. This is where FinTech companies pop up that help bundle these offerings and services and handle that management layer for the banks – allowing larger banks to get by with less dedicated staff, and allowing smaller banks to remain competitive by offering the same services without the infrastructure. Econocheck Corporation is an example of one of those companies that Metova works with, offering identity theft protection, secure checking, credit score monitoring, and more.
Do you feel fingerprint readers, geolocation and facial recognition are essential security of FinTech offerings?
They’re definitely contributors. More data points leads to more legitimacy – so banks or other FinTech companies can assign risk to a transaction. If I make an Apple Pay transaction with my phone, and authorize that payment with my fingerprint, and it’s the same phone I’ve used for months and the app reports that I am in that physical location that the store is in – that’s a pretty good indicator that it’s a legitimate transaction. Less data points can lead to riskier transactions – such as a card entered online in an online store that you’ve never shopped at before, maybe in a retail category you don’t normally shop at or in amounts that you don’t normally spend. If a FinTech company was able to integrate more data points around that transaction – if the transaction involved a fingerprint reader or if the site you ordered from told the credit card the user’s IP address that did the ordering and it matched with the expected location of the user, etc., that could help increase security.
What new technologies are coming to increase FinTech security? (iris scanners, etc…?)
I think a lot of security that’s coming is going to rely more on Machine Learning and AI, as well as more data points coming from the bank’s users. FinTech companies are already starting to go this direction, and credit card companies already have some protections in place using this – such as the “suspicious activity” alerts you might get when you try to make an unusual transaction. Some banks are starting to use GPS on your phone to further refine what constitutes suspicious activity – and these should only keep getting better trained to prevent fraud.
Physical biometric technologies are reliant on the user having access to them – so even though a lot of advancements have been made there, if most of your users don’t have access to it, it won’t be helpful.
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