Once referred to as an emerging industry, fintech has become an undeniable breakthrough category in business and financial services. Despite being a relatively young industry in terms of time, modern fintech is an independent field with its own trends and regulations. The industry has collected enough capital to peak vertically and start expanding horizontally. The velocity of the sphere’s development is only multiplying: fintech funding in the third quarter of 2019 topped the total of 2017 funding, and six more unicorns emerged in 2019.

However, due to the COVID-19 outbreak accompanied by the economic downturn, it’s evident that the pace of the funding to fintech companies for the first quarter of 2020 will likely mark the $6B rate and, thus, return to the level of 2017, reports CB Insights.

The businesses that launched as fintech startups are stepping out their comfort zones due to their solid market positions. As a result, they’re seizing opportunities to reach out to new demographics, introduce and test new products, and inhabit new locations. They’re now an integral part of the financial services value chain.

The industry is following the worldwide trend toward the digitization of services which is influencing virtually every aspect of human life, including everyday financial operations. Especially now, when the whole world has almost no other means of communication and ways of purchase except for online services. For example, the introduction of financial technology created alternative credit and rent-to-own formats for deals, while the well-established banks at last recognized that online services are not just the tribute of the time, but the basic necessity. Therefore, the inescapable observation of the industry today is that it is growing from its origins as a novelty sector into a mature financial field with stellar capacity. Furthermore, trends in this industry are global, and key players will need to be vigilant in order to keep up with the industry and remain potent in it. In this article, we analyze the fintech market as it has been predicted to be in 2020 and how the pandemia and following economic crisis will affect it. We’ll also explain how to leverage these trends to keep profiting from this industry.

Fintech Market Trends in 2020

Today, fintech covers a lot of territory, including personal finance, insurance, billing, capital markets, wealth management, real estate, regtech, and cryptocurrency. All of these have their own individual specifications and emerging trends. However, if you connect them to fintech as a whole, the trends ultimately involve the industry’s most dynamic branches and depend on the economic and political processes arising from fintech’s globalization. And, thus, they are strongly affected by the coronavirus outbreak at the global scale.

In this instance, CB Insights, for example, presume that a continuous economic downturn would reduce business and consumer spending even more than it’d been for now. Whether it happens or not, the current economic stagnation will become a serious challenge for those fintech players who won’t be able to reduce their costs while getting through the crisis.

In terms of geography, the industry is tending to target unoccupied locations in Asia and Africa. Meanwhile, British companies formerly within the European Union are maintaining their leading positions in the world. However, because of Brexit and massive spread of coronavirus in the UK, they now face turbulence and uncertainty, which, in turn, is affecting related companies worldwide. The resources for new markets and customers in fintech in the UK are now declining and the future of these businesses is in jeopardy.

Based on fintech development in the above sectors and the global market situation, we’ve identified five major fintech trends for 2020:

• Alternative lending
• Real estate ownership in digital mortgages
• Alternative payment flows
• Stablecoins
• Capital markets digitalization

But after the article has been written, the COVID-19 intruded the normal life so heavily that I just can’t ignore it and added the last and that much not the least one:

• Coronavirus outbreak and the crisis.

Alternative lending

Alternative lending works via online platforms through which traditional institutional borrowers seek investors looking for attractive investments. It started as peer-to-peer borrowing, and currently, most of the investors are institutional. However, the number of such deals worldwide reduced last year, largely because of regulatory intensification in Asia. Compared to the third quarter of 2018, the third quarter of 2019 saw a reduction in the number of deals and the amount of money extended via loans.And there’s a bare chance that the situation will get better as the pandemia doesn’t contribute to the people’s desire to spend money.

In addition, lenders may face a challenge in the inability of businesses and consumers to service their debts. And the on;y chance the situation will get better is that governments will assist the lenders with tax remissions and tax credits.

At the same time, there is South-East Asia, which has an emerging collaborative ecosystem between countries which will profit from alternative lending. The position of the region in the global fintech industry will solidify when countries create flow through such frameworks as the pan-Asian Fintech Cooperation Committee and the Asia-Pacific Fintech Network. Lending will retain its peer-to-peer nature, but will be regulated and used by larger players. However, the success of such steps is significantly threatened by the pandemic situation worldwide, though, SEA managed to cope with coronavirus more effectively than Europe, for example.

Finally, in the US, the alternative lending system has developed to the point where it can target not only SME stakeholders, but also students. This can help many people solve their student loan problems, which are severe for people who have no choice but to fund their education, and, as a result, overpay for it. Due to their unaffordability and the lack of other options, student loans become burdens for those taking them out and a problem for the government, as student-loan debt is increasing. In this context, an alternative lending model and income-sharing agreements (ISA) offer a long-awaited solution.

Though coronavirus evoked new challenges to the lending market, the mortgage lenders will be supported by refinancing measures offered by the government, in particular, due to the rates cut by the Fed. Meanwhile, alternative lenders provisioning auto-loans, student loans and mortgages have to be prepared to help their at-risk customers, most of whom are workers of gig-economy and other services affected by the quarantine.

Product example: Edly

Edly is an ISA marketplace for schools, investors, and students. It helps schools enable their students to get an education and helps investors find schools interested in funding. The fintech aligns the interests of all the participants: schools, students, and investors. Instead of returning the debt, the student connects their future post-educational financial profits to the pools of ISAs. Thus, there is no such drastic imbalance between the loan and the debt, as is the case with student loans.

New paths to real estate ownership through digital mortgages

There are two major tendencies in real estate fintech for 2020: the rent-to-own model, and cash guarantees. Both models facilitate real estate property purchases and create more comfortable purchasing conditions for buyers.

1) Rent-to-own

This model allows people looking for real estate deals to eventually buy a house without paying a mortgage. The rent-to-own agreement has two parts: the lease agreement and the option to purchase the property. The person that signs the agreement can buy the house within the period of the agreement. Here, buying the property remains an option, rather than an obligation of the party. Some agreements allow the lease payments to count towards the final purchase price.

Product example: Divvy

Divvy is an example of a successful implementation of the rent-to-own model. It works the following way: the client looks up available houses for sale and selects one they would like to rent and/or purchase. Then, Divvy buys the selected house and the client signs a rent-to-own agreement. White renting the house, the client builds equity with each payment.

2) Cash-guarantee

Essentially, in this model the company acts as a sponsor to the client who wants credit to buy a house or other real estate property. It’s a solution for people who are confident in their capacity to repay the debt but have certain issues with their credit record.

Product example: Flyhomes

Flyhomes is a company that provides the cash to guarantee the deal for the client. The cash in this situation acts as a guarantor, which the person must have if they want to take out a loan for the house. If they don’t have anybody, they can use this service and close their deal.

Alternative payment flows

This trend is dictated by the announcement of the US Federal Reserve about their plan to establish a real-time payment service that will simplify the process and work 24/7. The necessity for such a reform was also determined by technological advances and the speed at which people can recieve diverse services. At the same time, banking and payment systems remain quite conservative and slow compared to what technology allows today. Therefore, the US Federal Reserve plans to introduce its real-time payment system by 2024.

The attempt to launch such a system was introduced in 2017, but was not supported by all the banks in the US. The announcement created a conflict of interest between smaller and larger banks. The former saw it as an opportunity to access real-time payments without having to pay significant fees to their larger competitors. The latter, in turn, saw it as a threat to their existing private infrastructure, which they would potentially have to share with the Fed. The future payment system aims to unify all the banks and hold them to the same standard of rapid, round-the-clock payments.

For fintech companies, this is a good reason to focus on alternative payment infrastructure and the bright opportunities in alternative payment flows.

Product example: Rapyd

Rapyd is a UK-based business that offers a range of financial services, including rapid payments. It also deals with fund collection, checkouts, foreign exchange, and much more. Targeted at e-commerce merchants, marketplaces and banks, the product is based on a single API and offers most of the services its users might need.

Stablecoins: the new breed of cryptocurrency

In recent years, cryptocurrency has made a real splash due to the opportunities it opened up — not to mention the privacy, transparency, and security it offered. However, the major cons of cryptocurrency are instability in terms of rates, and unclear regulatory treatment. The cons proved to outweigh the pros for the traditional banking system, which is why financial institutions do not accept cryptocurrencies. For that reason, there is an emerging cryptocurrency that promises to combine the pros of blockchain and the traditional banking system: it’s designed to be as stable as the dollar or gold, and as transparent and secure as cryptocurrency. It is, logically, named Stablecoin.

Product example: Wells Fargo

Wells Fargo is a traditional banking and insurance company. In 2019, it created a pilot for its own stablecoin, Wells Fargo Digital Cash, which is backed by the US dollar. The company plans to run it on their own blockchain platform and only within the bank itself. If the pilot proves successful, the bank will use it for external operations.

However, certain factors are slowing the development of this potentially ideal currency format. The main factor is its reliance on the stability of traditional currency, which is tied to traditional financial institutions. For the stablecoin to be backed by traditional currency, it must establish traditional banking relationships with conventional banking systems. Here, the complication is that few banks are willing to take on this role due to compliance and credit risks. If stablecoin is backed by traditional currency, and then hacked, the bank backing it will incur an immense risk, which is why few banks are willing to jump on board with this idea or support its development.

Besides, there is the G-7 report that introduced new regulations to the cryptocurrency market and the operations within it. The problem is, before the report, blockchain had a lot more freedom, as it was not regulated, like a traditional financial institution. The cryptocurrency market had its own sandbox, which was disconnected from the global financial markets. The growing concern of the latter highlights the lack of regulation in the virtual currency world, which has weakened its position among traditional institutions.

Capital market digitalization

Capital digitalization itself is not the newest trend. It started a while ago and proved to have a niche in the market. Today, there are many online platforms for private and business investments, such as Clear Minds. However, the emerging trend is expansion — specifically, exchange houses going digital. Evidently, this process will take a lot of time, but there are reasons to believe that this trend is on the horizon.

Particularly, the shareholders of the London Stock Exchange supported the exchange’s $27 billion takeover by the data and analytics company Refinitiv. The deal was overwhelmingly supported by LSE shareholders and received upvotes from 99.27% of participants due to the “compelling opportunity” they saw in it. The chairman of London Stock Exchange views it as being in the long-term strategic interest of the company. Digitalization of the exchange will allow to raise revenue as well as distance it from politically sensitive areas, and embrace data and analytics as an inseparable component of the exchange market.

Thus, the deal has become a certain signpost of the tendencies concerning both the fintech and capital markets. For exchange houses and shareholders, it means that the principal factor in exchange will become the search for profits, as opposed to the political background of the investment and the players.

Coronavirus outbreak and the crisis

If I put this in the beginning, there wouldn’t be any need to read further. Joking. But we should admit that the virus outbreak was a surprise even for fintech analytics.

As mentioned in some points of the described above trends, COVID-19 has strongly affected the industry and became the major trend-setter of the season. Though the virus caused vast decline in spendings, there’s a chance that governmental support will eliminate the adverse effects of it. In the meantime, I would suggest that mass quarantine and inability to go outside, would raise the demand for online finance services sky high.

It’s a good opportunity for startups (yes, those who need investments as they are still being issued nonetheless of the crisis) that are ready to suffice the demand for convenient and secure fintech products.

In the meantime, financial market behemoths, such as well established banks, investment companies, mortgage lenders and insurance providers, have the best (and, actually, the very last) chance to become a part of the fintech market and acknowledge the crucial role of digitization. To put it short, oldies are still in the risk zone.

Things Fintech Companies Should Consider in 2020 to Survive

The trends we’ve reviewed each have a different development velocity and influence. However, they are shaking up the whole industry and its players, to some extent. To survive and profit in FinTech, a business has to navigate these changes and prioritize its goals. You don’t want to be overwhelmed with updates, but it’s crucial to know what companies need to pay closer attention to and follow the trends in this fast-growing industry. It’s best for a business to stay one step ahead of its competitors.

In that spirit, here are a few tips on what to keep in mind to thrive in FinTech in 2020.

1. Open architecture

You’ll want to prepare your product for integration with any API, which is why it makes sense to focus on creating interoperability. Regarding the trends we mentioned, products will gain new users, which is why companies should make sure products work equally well on different platforms. So, the goal is to balance cyber security, control, and accessibility, as well as to manage your product in the cloud. If your product is integratable with any API, it will be easier to adjust it to the needs of the market and emerging trends, as it will be possible to add new functions to the code you already have.

As the coronavirus outbreak created new challenges for financial industry players in terms of inability to serve customers in person, more and more companies realized the need to digitize. Whether it’s about making the existing web-site more user-oriented, or updating the mobile app with more relevant features, API solutions can significantly reduce the time for development.

Re-developing the product from scratch, in comparison, will require a lot more effort, resources, and valuable time, so you risk missing out, which is off-limits in the world of digitalization.

To make your product flexible and ready for integration, it’s best to use Python. In it, you’ll be able to modify your product’s parameters or features without making major or irreversible changes to it. Making sure you have great professionals on your team is another smart move you should make in fintech 2020.

2. Access to skilled employees

It may be an obvious idea that a company needs outstanding and motivated employees to grow. However, today’s industry is quite mature, which means there’s more competition among employers. It means that a decent expert can choose from a variety of options in the labor market, and their workplace criteria now go far beyond compensation and subject matter. For that reason, companies have to invent new recruitment methods that are not limited to the financial industry.

Also, companies need to create educational and growth opportunities for their talent based on the future competency requirements and the expertise of the employee. With practical training incorporated in the company’s culture, it will be easier to navigate trends and adjust to new developments.

Another challenge that today’s employers face is the inability to find talent locally. Naturally, in this case, the search must expand worldwide, and recruiters must be aware of the migration policies for the talent they’re looking for. As an example, the UK is a current leader in FinTech, but the Brexit situation and the COVID-19 outbreak might result in a shortage of human resources, especially due to decreased funding in the industry. According to International Financial Law Review, “Brexit has resulted in a lack of resources for new markets and customers for fintechs”, which, for companies, translates into an emerging need to find new ways to recruit the best employees.

3. Reduce costs by improving legacy systems and adopting AI

A number of human activities can be assigned to AI instead of people. The introduction of of robotics and automation will reduce the cost of human resources and optimize processes. Today, advanced robotics can perform not only jobs that require low skills and training. In fact, artificial intelligence can enhance the performance of, if not substitute for, higher-ranking positions.

The question of whether robotics will enter and change the approach to the intellectual workforce is not on the table anymore. Now, it’s only a matter of time. Thus, it’s in every company’s best interest to seek out opportunities to automate — today. Explore them, and figure out what potential benefits they will bring, deploy iterations, and adjust them to your particular business needs.

However, the launch of robotics will not mean a lack of workplaces. Conversely, you will soon need specialists that work with artificial intelligence, and they may be hard to find. This will both challenge companies to train AI specialists and allow them to save on wages in the future. In any case, artificial intelligence promises to become a vast part of fintech, which is why the best option is adopting it as soon as possible.

Conclusion

Today, the main focus in FinTech is exploring and claiming niches that are underdigitalized or not yet occupied. Companies can invent new ways to reach users whose needs or problems cannot be fixed, and are sometimes even caused by conventional banking. For example, look to the solutions that allow people to get student loans or buy a house without overpaying. These are revolutionary. Another aspect of banking digitalization is its potential increase in scale due to the participation of exchange houses and the introduction of a unified instant payment system. It signifies that conventional financial institutions are now collaborating with digital ones to make services faster and more user-oriented. The growing number of examples of successful collaboration between fintech and conservative financial systems only proves that the position of fintech will only strengthen.

Though it’s a bit early to declare the consequences of the coronavirus for fintech this year and how it will affect the mentioned trends, no matter the effects will be, they will change the way the industry works. And I hope that it will drive digitization and will make the domain more diverse.

Finally, to survive the dynamics of the industry, fintech players should focus on the flexibility of their product architecture and be ready to adjust it to accommodate market and technological changes. To do so, these companies must have the brightest talent and provide these people with educational opportunities, including those in robotic technologies and automation. This year will also show which trends will solidify in fintech and which ones may lose their relevance, so it’s important to keep on keeping up with these trends.

This article about 5 Trends that Will Disrupt the Fintech Market in 2020 is originally published on Django Stars blog.
Written by Artur Bachynskyi — COO at Django Stars.

5 Trends That will Disrupt the FinTech Market in 2020 was originally published in DataDrivenInvestor on Medium, where people are continuing the conversation by highlighting and responding to this story.

In January 2019, a small research company called Small Biz Trends — famous for investigations of trends and reasoning behind the most notorious marketing campaigns in digital business — released the results of their most recent work on why startups fail. The main takeaway is that 9 out of 10 startups fail — and sadly, not all the reasons are clear.

What I admire about this kind of research is that it doesn’t focus on advice for the young and aspiring, or reveal secrets about how to build a fintech company. Rather, it serves as a precaution for the bold ones who decide to involve themselves (or are already involved) in the generally troublesome startup sphere.

Read the original version on Django Stars blog.

Although trying to capture even one-tenth of the real reasons for early collapses is a ridiculous idea itself (because nobody really knows them), informed observers — like Small Biz Trends — are aware of some predictors of startup success. Let’s talk fintech here. If you think about it, fintech startups are more like kids — they are highly vulnerable, immature and need constant attention and support. Like with kids, you only get one or two chances to succeed, and penalties for misbehavior (regulatory incompliance) can destroy your future.

The Emergence of Decentralized Finance | Data Driven Investor

On the other hand, for most people, it’s worth trying to realize a smart idea right off the bat, but even the best of ideas it is not the primary predictor of its success. What is it, then? The known ones include an appropriate market fit, a competent technology team, sufficient funding, and the age of the founders.

Surprised? Not all predictors boil down to the successful shipping of a new product. Small Biz Trends points out that:

The inexperience of CEOs and Directors can lead to bad decisions, frequently related to quick scaling, hiring of inadequate employees and problems in establishing a winning culture

Another famous study by MIT on the relationship between the startup founder’s age and a startup’s success rate draws more radical conclusions on the topic of age. The average age for a successful start-up founder appeared to be forty-five. “Knowledge comes from experience,” they say.

It’s funny that by the time one has acquired a university degree or dropped out — recall the well-known stories of Steve Jobs and Bill Gates — one is around 22–24 and probably does not know a thing about business. But the desire to start a company and be included in the Under 30 is stronger than the research data indicates. And there are many more factors like that, both obvious and not.

This article is about these factors.

The Market Factor

The success of a fintech startup — the ability to perform business functions without external investment — is possible only through the quality performance of all business departments, executed at the right time, aimed at the right audience.

Achieving market fit prevents a company from a number of problems. One problem leads to another. When a founder has an idea and wants to create a fintech platform but cannot fund a startup, he looks for investments. Investments allow quick development. During development, marketing can be neglected. No marketing leads to missed market fit. No market fit means no users (=income). No income leads to underfunding. Underfunding shuts down the entire company.

Unfortunately, we again made the mistake of focusing on engineering first and customer development second. We released our first version to some moderate success, and then proceeded to continue to churn out features without understanding customer needs. Only later on, after finally engaging potential customers, did we realize that market was too small and the price point was too low to have Caliper sustain our company by itself.
– Amy Kniss

How is it, then, that some startups gain new rounds of investment, one after another, while others do not?

Time to market

One important stage of the development of a fintech startup is a period when the MVP is released to the market and early adopters (the first batch of active users) provide feedback and share it with the community. After that, the product is improved according to the feedback, and the next version is a better fit for users.

Simply put, focusing on the MVP to find the niche and then nailing it validates your business idea. Well, how do you do it? Based on my experience, I would suggest performing these activities continually:

1. Market research. Google for competitors to discover whether somebody’s already doing what you want to do. If so, try their product and identify its flaws. Find out if the competitors are in demand. If not, why? It’s either because their service solves a problem but does it poorly (green light for you), or there’s no need for such a product (red light — time to pivot!).

2. Customer development. After you’ve studied your competitors, you will have a set of assumptions regarding what about your product might interest people. Customer Development is the activity of discovering, testing and validating your business assumptions. Simply put, you talk to your customer to see if your business is progressing in the right direction, the direction being the market fit. Do not assume that if ‘they just don’t get it’, you can educate your customers. The link below digs into the details of customer development. For the time being, keep in mind that you will be doing this frequently.

Customer Development Guide For Product Managers

3. Keep the development/marketing balance. With each new release, you must get feedback. Either positive or negative, aim for feedback. The truth is that people do not expect to get a solve-it-all product. Neither do they expect it to be technologically perfect. In the early stages, you should keep it good enough. Spending your budget to get the best IT product leads to a high-end application and no awareness of its existence, which in turn leads to zero ROI.

4. Be ready to pivot. It requires much courage and money to pivot — that is, to change the course of your product development to fulfill the needs of customers. The term “pivot” was coined and popularized by Eric Reis, author of the bestselling book Lean Startup. Here are a few reasons that Reis says should indicate when it’s time to pivot:

• Too much competition
• You can’t make the product on time
• You get little to no feedback
• You are too focused on that game-changing feature

These four activities are considered universal. Over the course of 20 years or so, they lead to all sorts of talks, lectures, and discussions among the top managers of successful companies, each of which was once a startup. Dealing with market research, customer development, development/marketing balance, and readiness to pivot increases your chances of shipping a product that people may find useful. It will demonstrate profitability and attract more investment until your startup becomes a mature, independent business.

If you re-plan to include a Time to Market stage (I hope I have convinced you on that matter by now), you’ll want your MVP to be ready ASAP. This depends on the tech partner you choose and the tech stack they use. More on that in the second part.

Partnership factor

When a brilliant idea strikes you, you are probably all alone with it. If you’re lucky, you have a partner (a co-founder) who is as enthusiastic about it as you are. But then, as you start elaborating the idea, you find yourself acquiring more and more partners — technological partners, investors, mentors, and so on.

The financial services industry is a very particular industry where experience really matters. Noam Wasserman, a Harvard Business School professor, discovered that 65% of fintech startups failed as a result of a co-founder conflict. Below you will find a brief overview of what to look for in partners.

Investors

Fintech startups looking to raise VC funding must choose people with both experience and understanding of the space. If you decide to go with an online banking or insurance partner, it is crucial to think about what it takes to raise money from regulated financial services incumbents. Fintech startups must ask if regulatory approval is needed and plan accordingly.

Before closing an investment with an incumbent, they must ask what type of reporting they will need, what type of governance, and what type of ongoing information they will require. These organizations work under different rules and cultures.

Technical partners

As for technological partnerships, you must both share the same long-term perspective to avoid hasty decision-making. The tech team should be even more actively involved in creating a fintech app to meet the Time to Market line. The Time to Market version is your MVP that is good enough and markets well enough to get the first batch of active users. Ask for references or portfolio, if one exists.

Big ideas require big measures. No matter how great your idea is or what a great professional you are, you can’t do everything yourself. You don’t want to burn out completely before your product is even ready to hit the market, right? Besides, you should be able to take a step back and look at your product from a distance to see the bigger picture. This is why you need…

A proven technology provider can support their claims with previously developed fintech apps and documented success stories from their clients. Be careful about the technology-first-approach. Sometimes, technology is used for the sake of using the technology. Always keep in mind that technology is only a medium for achieving business objectives. A shared attitude and approach towards market-oriented products and quick MVP development is what makes a great tech partner.

Django Stars has been developing Python/Django fintech products for a decade now, and our wholesome engagement into this technology helped us become o proficient and focus on marketing MVPs rapidly.

We’ve written a separate guide on using Python/Django for startups, so if you’re in the middle of choosing this technology, you might find it useful.

You May Also like:

What You Need To Consider Before Building a Fintech Product - Django Stars Blog

Mentors

Having a mentor for a startup increases your chances for promotion by five. As with other partnerships, you have to be careful when choosing this partner. Simply finding a more experienced manager does not work. What works, instead, is identifying your gaps and finding somebody who can help you cover those gaps. Like a puzzle. What differs a mentor from a co-founder is that a mentor will challenge your ideas, views, and business decisions to make you consider other points of view while using their own experience to sort of guide you. They should not dismiss your propositions daily, though. Opt for someone who is credible, empathetic and a few ‘levels’ above you in terms of experience. Your views should also align since the mentor will contribute not only to the fintech software development but to the company’s culture as well.

Discovery Stage Handbook

Validate business idea

1. Look for competitors. Compare what they do with what you are going to do. If possible, learn whether their business is engaging.
2. Create a one-page site, include a call-to-action to measure potential market response.
3. Do the Mom’s Test. Talk about the customer’s life instead of your idea, and ask specific questions about their past instead of their future (e.g., “When was the last time you bought insurance online?” vs “Would you buy insurance online if you could?”).

Find partners

Feedback > Results > Validation > Repeat. Learn from your customers and gather qualitative and quantitative feedback. Put forward a hypothesis and validate it. Share this approach with the tech partners so that you follow the same development routine.

Start engineering. The technologies should be directed towards achieving business goals, not vice versa. Explain to the tech partners that you are seeking help with building a whole product — not lines of code. Set clear expectations, metrics, and long-term goals.

Seek advice. Mentors are there to share their experience, so don’t neglect it. Most likely they have been in your shoes, so listen carefully to what they have to say. When in doubt, show them the research data and ask, “What do you think the next step should be?”

The conclusion I would like you to draw from this post is that the more you plan, the less you suffer afterward. This takes time and effort, which is one reason why not every entrepreneur goes beyond the idea stage. And even after that, most startups fail, and fail hard. Focusing on the market fit decreases your chances of building a neat, but low-demand application. One thing I always remind my colleagues about is that although we work with computers, code, and data, we do it for people. This shifts the focus of engineers from writing code to answering people’s needs. As a result, fewer companies end up as the subjects of news reports on failed startups.

This article about why fintech startups fail is originally published on Django Stars blog.

Reasons Why Fintech Startups Fail and How Not to Fail in One Year was originally published in DataDrivenInvestor on Medium, where people are continuing the conversation by highlighting and responding to this story.

This article about AI in fintech services is originally written for Django Stars blog.

Just as many other technological advancements, Artificial Intelligence came to our lives from the pages of fairy tales and fiction books (think of the Tinman from The Wizard of Oz or Maria from Metropolis). People dreamt about machines able to solve problems and release some of the fast-compounding pressure of the 21st century.

Less than 70 years from the day when the very term Artificial Intelligence came into existence, it’s become an integral part of the most demanding and fast-paced industries. Forward-thinking executive managers and business owners actively explore new AI use in finance and other areas to get a competitive edge on the market.

More often than not, we don’t realize how much Artificial Intelligence is involved in our day-to-day life.

AI Today: Where it Works and What For

For example, in the traveling industry, Artificial Intelligence helps to optimize sales and price, as well as prevent fraudulent transactions. Also, AI makes it possible to provide personalized suggestions for desired dates, routes, and costs, when we are surfing airplane or hotel booking sites planning our next summer vacation.

Machine Learning and Data Analytics in the Travel Industry

In the transportation industry, AI is actively employed in the development of self-parking and advanced cruise control features, called to make driving easier and safer. Experts believe that the biggest breakthrough here is around the corner — autonomous vehicles, or self-driving cars, are already appearing on the roads.

Another bright example of using AI is education where open online courses (MOOC) such as Coursera or Lynda become more and more popular each year. Those have become possible with the rise of Artificial Intelligence in education. Automatic grading made self-taught online courses available for anyone with Internet access — a pivotal point for so many lives and careers.

Artificial Intelligence saves lives, and this is not a figure of speech. From robotic surgeries to virtual nursing assistants and patient monitoring, doctors employ AI to provide their patients with the best care. Image analysis and various administrative tasks, such as filing, and charting are helping to reduce the cost of expensive human labor and allows medical personnel to spend more time with the patients.

The rise of AI in the financial industry proves how quickly it’s changing the business landscape even in traditionally conservative areas. Here are just some of the most popular examples of AI in finance.

1. AI and Credit Decisions

Artificial Intelligence provides a faster, more accurate assessment of a potential borrower, at less cost, and accounts for a wider variety of factors, which leads to a better-informed, data-backed decision. Credit scoring provided by AI is based on more complex and sophisticated rules compared to those used in traditional credit scoring systems. It helps lenders distinguish between high default risk applicants and those who are credit-worthy but lack an extensive credit history.

Objectivity is another benefit of the AI-powered mechanism. Unlike a human being, a machine is not likely to be biased.

Digital banks and loan-issuing apps use machine learning algorithms to use alternative data (e.g., smartphone data) to evaluate loan eligibility and provide personalized options.

Automobile lending companies in the U.S. have reported success with AI for their needs as well. For example, this report shows that bringing AI on board cut losses by 23% annually.

2. AI and Risk Management

It’s difficult to overestimate the impact of AI in financial services when it comes to risk management. Enormous processing power allows vast amounts of data to be handled in a short time, and cognitive computing helps to manage both structured and unstructured data, a task that would take far too much time for a human to do. Algorithms analyze the history of risk cases and identify early signs of potential future issues.

Artificial intelligence in finance is a powerful ally when it comes to analyzing real-time activities in any given market or environment; the accurate predictions and detailed forecasts it provides are based on multiple variables and vital to business planning.

A US leasing company, Crest Financial, employed artificial intelligence on the Amazon Web Services platform and immediately saw a significant improvement in risk analysis, without the deployment delays associated with traditional data science methods.

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What You Need To Consider Before Building a Fintech Product - Django Stars Blog

3. AI and Fraud Prevention

For a number of years now, artificial intelligence has been very successful in battling financial fraud — and the future is looking brighter every year, as machine learning is catching up with the criminals.

AI is especially effective at preventing credit card fraud, which has been growing exponentially in recent years due to the increase of e-commerce and online transactions. Fraud detection systems analyze clients’ behavior, location, and buying habits and trigger a security mechanism when something seems out of order and contradicts the established spending pattern.

Banks also employ artificial intelligence to reveal and prevent another infamous type of financial crime: money laundering. Machines recognize suspicious activity and help to cut the costs of investigating the alleged money-laundering schemes. One Case study reported a 20% reduction in the investigative workload.

Aggregators like Plaid (which works with financial giants like CITI, Goldman Sachs and American Express) take pride in their fraud-detection capabilities. Its complex algorithms can analyze interactions under different conditions and variables and build multiple unique patterns that are updated in real time. Plaid works as a widget that connects a bank with the client’s app to ensure secure financial transactions.

4. AI and Trading

Data-driven investments have been rising steadily over the last 5 years and closed in on a trillion dollars in 2018. It’s also called algorithmic, quantitative or high-frequency trading.

This kind of trading has been expanding rapidly across the world’s stock markets, and for good reason: artificial intelligence offers multiple significant benefits.

Intelligent Trading Systems monitor both structured (databases, spreadsheets, etc.) and unstructured (social media, news, etc.) data in a fraction of the time it would take for people to process it. And nowhere is the saying “time is money” truer than in trading: faster processing means faster decisions, which in turn mean faster transactions.

The predictions for stock performance are more accurate, due to the fact that algorithms can test trading systems based on past data and bring the validation process to a whole new level before pushing it live.

AI puts together recommendations for the strongest portfolios depending on a specific investor’s short- and long-term goals; multiple financial institutions also trust AI to manage their entire portfolios.

The business news outlet, Bloomberg, recently launched Alpaca Forecast AI Prediction Matrix, a price-forecasting application for investors powered by AI. It combines real-time market data provided by Bloomberg with an advanced learning engine to identify patterns in price movements for high-accuracy market predictions.

5. AI and Personalized Banking

Artificial intelligence truly shines when it comes to exploring new ways to provide additional benefits and comfort to individual users.

In the banking sector, AI powers the smart chatbots that provide clients with comprehensive self-help solutions while reducing the call-centers’ workload. Voice-controlled virtual assistants powered by smart tech like Amazon’s Alexa are also gaining traction fast, which is no surprise: boasting a self-education feature, they get smarter every day, so you should expect tremendous improvements here. Both tools can check balances, schedule payments, look up account activity and more.

A number of apps offer personalized financial advice and help individuals achieve their financial goals. These intelligent systems track income, essential recurring expenses, and spending habits and come up with an optimized plan and financial tips.

The biggest US banks, such as Wells Fargo, Bank of America and Chase, have launched mobile banking apps that provide clients with reminders to pay bills, plan their expenses and interact with their bank in an easier and more streamlined way, from getting information to completing transactions.

6. AI and Process Automation

Forward-thinking industry leaders look to robotic process automation when they want to cut operational costs and boost productivity.

Intelligent character recognition makes it possible to automate a variety of mundane, time-consuming tasks that used to take thousands of work hours and inflate payrolls. Artificial intelligence-enabled software verifies data and generates reports according to the given parameters, reviews documents, and extracts information from forms (applications, agreements, etc.).

Employing robotic process automation for high-frequency repetitive tasks eliminates the room for human error and allows a financial institution to refocus workforce efforts on processes that require human involvement. Ernst & Young has reported a 50%-70% cost reduction for these kinds of tasks, and Forbes calls it a “Gateway Drug To Digital Transformation”.

A leading financial firm, JP Morgan Chase, has been successfully leveraging Robotic Process Automation (RPA) for a while now to perform tasks such as extracting data, comply with Know Your Customer regulations, and capture documents. RPA is one of ‘five emerging technologies‘ JP Morgan Chase uses to enhance the cash management process.

What to Expect in The Future From AI in the Financial Industry

Predictions for the soon-to-come AI applications in financial services is a hot topic these days but one thing is for sure: AI is rapidly reshaping the business landscape of the financial industry.

There are high hopes for increased transactional and account security, especially as the adoption of blockchains and cryptocurrency expands. In turn, this might drastically reduce or eliminate transaction fees due to the lack of an intermediary.

All kinds of digital assistants and apps will continue to perfect themselves thanks to cognitive computing. This will make managing personal finances exponentially easier, since the smart machines will be able to plan and execute short- and long-term tasks, from paying bills to preparing tax filings.

We can also expect to see better customer care that uses sophisticated self-help VR systems, as natural-language processing advances and learns more from the expanding data pool of past experience.

A new level of transparency will stem from more comprehensive and accurate know-your-client reporting and more thorough due-diligence checks, which now would be taking too many human work hours.

Conclusion

As we can see, the benefits of AI in financial services are multiple and hard to ignore. According to Forbes, 65% of senior financial management expects positive changes from the use of AI in financial services.

This said, as of late 2018, only a third of companies have taken steps to implement artificial intelligence into their company processes. Many still err on the side of caution, fearing the time and expense such an undertaking will require –, and there will be challenges to implementing AI in financial services.

However, one can’t shy away forever from technological progress and not facing it now may cost more in the long run.

The Growing Impact of AI in Financial Services: Six Examples was originally published in TDS Archive on Medium, where people are continuing the conversation by highlighting and responding to this story.

Is Regtech the Future of Financial Services? A Guide to the Latest FinTech Trend

It all started decades ago when the technology started to live and prosper and the governments had to impose certain regulations to keep everything under the law. Each tech enterprise, be it a small web agency or a large software production, operates under the laws of their state.

Continue reading this article about regtech services on Django Stars blog.

Government regulations pass and change more frequently than companies can cope with them — there’s just not enough time to shape a product or process to comply with some act. But noncompliance usually results in huge fines and sanctions.

When it started to happen regularly, it was decided that companies needed a separate compliance department. Basically, it was a back office full of lawyers and managers whose job was to monitor and identify the changes in existing regulation and prevent and resolve the issues related to following the regulations.

This marked the invasion of bureaucracy into the tech world. So the bold inventors would first go check if their ‘breaking’ idea conformed to all applicable regulation and only then they would build it. The expenses are still shocking: FinTech companies spent around $100B on regulatory compliance in 2016 and this cost is rising each year, Forbes reports.

What does it have to do with me? Well, when our team was developing Clear Minds — an investment platform — the GDPR came out. Another regulation, but it was a biggie. This act forces tech companies to protect their customers’ data, namely — they cannot disclose it to third parties, cannot use it anyhow but as a user identifier and must be able to delete user personal data if customers ask the company to do it after quitting using the product. GDPR addressed not only the tech companies but end-users as well. If you remember, in May 2018 all services you were using sent you an updated Privacy Policy and Terms and Conditions. This is what really happens when a new regulation comes out.

Read Clear Minds Case Study:

Like all tech companies operating in Europe, we faced a problem with storing personal data. First, we would study the regulation itself, and then understand how it would affect the product. We had little idea of what we had to do to comply with GDPR. That’s when Regulatory Technology aka RegTech comes to our rescue.

RegTech Universe — What it is, its categories and solutions

On the one hand, we have a bunch of regulations to comply with. On the other, not all companies have a budget for a compliance officer. RegTech is the happy medium. It’s a technology that works to standardize regulatory processes, create unambiguous interpretations of the regulations, and most important — automate the compliance process.

Lots of companies still choose to ignore regulations — but hey, GDPR fines can be up to €20m and 4% of a company’s annual revenue. Tell me it’s something you’re willing to risk. This image from CBInsights’s research clearly illustrates the issue:

To put it short, RegTech aims to prevent being fined for not complying to a certain law. Deloitte has analyzed 150 RegTech companies and identified 5 categories of Regulatory Technology.

Compliance. This is the biggest area of RegTech. AI and machine learning can search for new or reviewed regulations, report, and share the impact of changes with the stakeholders. The algorithms are programmed to automatically perform these tasks, with appropriate reviews at key decision points made by the compliance officers. Installing compliance software would help to avoid all those fines imposed by GDPR, as not a single act would be unnoticed.

Risk management. Some RegTech solutions continuously monitor risks. It means they learn to detect potentially insecure situations based on predefined data. In the FinTech industry, risk management software uses advanced analytical approach and big data analysis to predict market changes and mitigate similar risks. After all, machines are far better with numbers than people, right?

Identity management and control. The Know Your Customer (KYC) process deals with client identity authentication and screening processes. Mostly a routine manual work, it’s subject to a human error which may lead to identity fraud or money laundering. RegTech developers rely on advanced data aggregation and analytics tools to expand the scope of the identification process by gathering information from multiple sources.

Regulatory reporting. Do you enjoy drawing up reports? Machine do, though. And they are way better at this than people. We make errors and this results in unclear or incorrect data. Robotic Process Automation (RPA) makes data management work without additional employees being involved, so there’s timely and accurate data at the end.

Transaction monitoring. The process of monitoring financial transactions is normally carried out by a distinct department. They have certain standards regarding what should be considered suspicious. Again, RPA can analyze and monitor transactions faster and more accurately than a person.

Conclusion: most RegTech software uses RPA, Big Data Analysis, AI and Machine Learning. Now let’s take a close look at some RegTech companies and the solutions they offer.

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RegTech solutions

Up till this moment, RegTech solutions might’ve seemed like a vague and unclear software, but in this part, I’m going to tell you about 5 working RegTech solutions that are already on the market and, most important, they work.

Continuity is a US company that provides regulatory compliance software. The program continually monitors the US Federal Register and, based on the client’s business area, it interprets changes to the regulations that apply to the client’s business. Instead of hiring additional staff, you can use Continuity. Moreover, it offers a Unified Compliance Management System Model, which is an automated compliance process that operates according to a specific schedule.

Provenir is a risk analytics software that integrates with any structured and instructed data source and creates risk analyses based on preset parameters. Such data sources include Twitter, Facebook, Salesforce and many other tech giants that work with high load databases. This multivariate application can be used in different industries, from e-commerce websites to banks. By the way, HSBC is their largest client.

IdentityMind is a platform to take care of your KYC process: it searches, maintains, and analyzes identities, which allows companies to know who a person is to detect and prevent identity fraud. For commercial businesses, it means better protection from money laundering.

Regis-TR is a RegTech development company that offers reporting software for all kinds of trade transactions for various assets in the EU. Their reporting system complies with three regulations: EMIR, FinfraG, and SFTR. The company aims to create a whole ecosystem where clients shall be able to report their data to one entity at a time and not break any regulations.

Feedzai is an AI-based platform to prevent financial violations. Simply put, it offers banks and commercial tech companies payment processes protection to detect fraud. It uses historical and behavioral data analysis to identify whether a transaction is potentially suspicious or not.

As you can see, RegTech is no magical thing, but a very area-specific B2B service. Those 5 software companies are only a tiny bit of the entire RegTech industry. Most of the solutions rely on the use of AI and machine learning to exclude human error from regular processes like reporting and risk management. The market is quite unstable, though. Lots of new players are entering the marketing, and I believe that it’s a matter of time that RegTech solutions will invade most FinTech companies worldwide.

This article about regtech services is originally posted on Django Stars blog.

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Is Regtech a future of financial services? A Guide to the Latest FinTech Trend was originally published in DataDrivenInvestor on Medium, where people are continuing the conversation by highlighting and responding to this story.

Read the original version of this article about building fintech products on Django Stars blog.

Finance is one of the oldest industries along with medicine and law, and one of the latest to have been influenced by technology. This influence simplified how people interact with traditional financial institutions. Financial technology (or simply fintech) is a popular area among young entrepreneurs who are trying to increase the usability of financial products by making them more user-friendly.

However, designing an intuitive and easy-to-use application doesn’t guarantee the success of a fintech product. In this article, I will reveal the pitfalls that await anyone who has decided to start a fintech product.

1. Consider the target country

The goal of fintech is to substitute for traditional financial institutions by delivering more effective methods of engaging the masses in financial activities. All institutions, bodies, and services (except cryptocurrencies) are regulated by governments. That’s why it’s difficult to introduce a new way to coordinate financial services.

Study the laws of your target country before you start your fintech business. It will help you minimize the losses by complying with the existing rules of a particular financial sector. Otherwise, you may be subject to resistance from the government, which may impose fines or forbid you to do fintech business. To make it less severe, 8 countries have launched a regulatory sandbox — a framework set up by financial center regulation that will provide testing of new fintech products under the government’s supervision.

It’s not only fintech that must comply with strict state policies. Healthcare business in the US is regulated by Health Insurance Portability and Accountability Act (HIPAA). It’s a law that requires all businesses that work with protected patient information to implement certain safeguards to ensure the safety of the data. So if you think about, fintech isn’t that bad.

Study the laws of the targeted financial sector or hire a professional. Otherwise, you may even not launch.

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2. Find a team with experience in developing the fintech products

Working in fintech can be a pain in the ass because the industry in full of jargon which most IT specialists are unfamiliar with. In each fintech business, there should be somebody finance-literate to make sure that the technical team understands everything right. It’s rather easy to confuse debits and credits, what else to say about area-specific terms. When the technical team is taught about, say loans, you will avoid possible misunderstandings.

Moreover, the more experience a team has with a particular financial sector, like investments, the less chance they have to make a mistake. So if you manage to find a professional fintech development company, you will (a) save money because your team will be knowledgeable about the project; and (b) accelerate the process because you won’t have to explain the jargon to the team. I’m not saying that each member of the technical team has to have a degree in finance, but it’s great if the tech lead of the senior engineer is familiar with the subject matter.

But even if your team isn’t acquainted with finance, you can always teach them. You could organize regular workshops to teach them the relevant information. It may include your vision of the domain and the issues that your start-up is going to solve. We had such workshops when we were developing MoneyPark, an online mortgage service. They set up a few recurring workshops for the development team and so everybody learned the terms and felt confident about the area.

3. Choose the technology

Unlike traditional financial institutions, fintech product can easily change, come up with additional services and adapt to various need of the users. To find the right market fit you need to deliver your service on time. As Don Norman pointed out in The Design of Everyday Things ‘Some products never reach the market because it’s not the right time for them’. To make it in the right time, you need to be sure about the technology you’re going to use. Whether you release the product on time highly depends on the flexibility of your fintech product.

Chances are that you’re unfamiliar with various technologies required to create a fintech service. I’d suggest you trust the professionals when making the choice. It will depend on various factors including your business goal, technical restrictions imposed by the technology, and the time required for the development. If you choose wisely, you will minimize the risks of ceasing the project if the government introduces a new law and you need to adhere to it.

Different programming languages are rumored to fit best for particular purposes. One of them is Python, and according to HackerRank, it’s the #1 language for fintech products. And according to the their 2018 Developer Skills Report, Python is among TOP-3 languages for financial services in general and other complex industries like healthcare, security, transportation, etc.

When using the Django framework, the engineers can build an MVP in a few months and so you will launch rather quickly. Remember the previous part? You need to be on time with your product. This industry tolerates no delays.

Python is highly flexible — it allows you to adapt and change the products as much as you need in the course of the development.

4. Consider possible integration with third parties

Creating a game-changing fintech product doesn’t exclude its dependency on established financial institutions and their regulation. Since fintech is aiming to improve the user experience with financial products, it needs many integrations with third-party services. By integration I mean various APIs, support channels, and tools required to implement the desired solution.

Molo, an online mortgage system, allows users to choose houses they like, contact the owners, and send a request to an authorized organization, like Experian in the UK, to verify property and the identity. All this is possible due to multiple services built into the application. Because of these integrations, Molo is a fully digital mortgage provider. It means that users don’t need to visit multiple institutions to get a mortgage unlike when doing it the traditional way.

To implement each integration requires facing the bureaucracy of financial institutions, thus delays. The most common issue is the 9 to 6 working day. The APIs and support are available only within this timeframe so plan your schedule carefully. The tricky thing about third-party integrations is to make the users think that everything works 24/7, with no breaks, independently.

5. Think about both roles

Assume applying for a loan. There are two participating roles: somebody gets a loan, another gives it. In insurance, there’s an insurer and an insured. Fintech is the same in terms of roles: products are built as platforms with different functionality for different roles — users and service providers.

Clear Minds, an online investment advisor service developed, allows access to their product for all financial advisors. In this way, the reach both B2B and B2C segments — working with end users (people who want to invest and need help) and service providers (financial advisors who suggest best options for investments). Platform-based products require different interface and functionality depending on the role a user chooses.

Consider the roles your fintech product provide and what functions each role will be able to perform.

6. Have a product owner and communicate

I’m proceeding with my ideas from Part 2.

Fintech is a combination of two major fields: finance and technology. To ensure the successful launch of a product that adheres to the state’s laws, is user-friendly and easy to use, you will need a product owner experienced in both fields. There are too many pitfalls a fintech start-up may fall into. A product owner will be responsible for following all regulations imposed by the state’s financial insinuations as well as managing the fintech software development process. Except for the product owner, proper communication also predicts success.

It doesn’t mean that you will 100% succeed but the more transparency between you and your technical team, you easier it’ll be for you to understand each other, and therefore follow the product requirements.

Bottom line

If you follow my advice prior to starting a fintech product, chances are that you will avoid lots of mistakes common to young financial entrepreneurs. First, find a product owner to connect you and your technical partners. Find one with experience in both finance and IT. After that, study your target sector and the state’s law regarding this sector. In this way, you will better understand the nuances of your future project.

Remember that fintech has to deliver the product at the right time, in the right place, to the right people. Choose Python over other programming languages to ensure a fast MVP that will bring you closer to your goal. It’s a fun journey that is waiting for you to stop reading and get your act together.

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What You Need To Consider Before Building a Fintech Product was originally published in Due.com on Medium, where people are continuing the conversation by highlighting and responding to this story.