Modedaweb Presents

The Futureof

FinancialTechnology

A broad look at thechanging landscape of

financial services due tothe rise of fintech

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The future of financial technology – part 1

The Future of Financial Technology – Part 2: Bigdata

The Future of Financial Technology – part 3: TheStrategic Future of Data

The risks and opportunities of reducedintermediation: The future of financialtechnology – part 4

The future of financial technology part 5: Age ofself service

The Future of Financial Technology 6: The rise ofthe niche application

FinTech Marketing – it’s a specialist job

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Table of Contents

The future of financial technology - part 1According to the WEF, the future of financial technology will significantlydisrupt the status quo for the traditional financial services industry. But forevery new development, there must be a corresponding shift in how theincumbents do business too.

The future of financialtechnology – part 1by Modedaweb

Streamlined infrastructure

This short series of articles looks at six of these required changes that havebeen identified by the World Economic Forum (WEF) and the sort ofoutcomes to expect. Over the course of six articles we will look at theseindustry changes, covering:

1. Streamlining infrastructure.2. Increased automation of activities to lower costs and raise customer

satisfaction.3. The strategic role of data.4. The risks and opportunities of reduced intermediation.5. Empowering customers in the self-service market.6. The rise of niche specialised products.

The drive for greater efficiency is common to every industry; maximumprofits are best realised by limiting operational costs. But streamlinedinfrastructure is not just a cost-cutting exercise.

Flexibility is king

It would be a serious mistake to assume that the finance industry isundergoing a once-in-a-generation change. The current disruption of theexisting marketplace is merely a harbinger of things to come, the firstwarnings that the industry is to be affected by a steady stream of newinnovations and challenges.

So although regulatory and compliance frameworks will continue to governday-to-day operations, market players will need an infrastructure capableof adjusting quickly to these changes. And by building adaptable platformsnow, the ongoing administrative burden, costs and inconvenience can beminimised.

Where will this flexibility be focused?

According to the WEF there are two key areas where the payment industrywill need to focus resources and effort – building new market platforms,and adapting to cope with the new emerging payment rails.

New market platforms

Data is key to the modern economy, and finance organisations will need to

develop systems that can handle increasing volumes quickly and efficiently.Big Data techniques must be fine-tuned to help businesses betterunderstand current market trends, and accurately predict future patternsthat can be capitalised on.

These datasets will also have to be accompanied by automated managementroutines and intelligent algorithms that not only analyse the data, butwhich are enabled to take autonomous action. Similar systems already existfor working with the investment and FX markets, but will be applied toother sectors in future too. We will investigate the issue of automationagain later in this series of articles.

Emerging payment rails

With backend systems in place, banks will be better placed to engage withthe disruptors of the payments industry. Businesses like Currency Cloudfacilitate peer to peer foreign exchange for instance, allowing consumers toavoid the commission charges levied by traditional banks.

But although Currency Cloud may handle the actual exchange of currenciesbetween subscribers, traditional banks still have a role to play. Fromproviding the payment cards that customers use to 'load' their accounts,through to the back-end financial processing of the business, behind thescenes Currency Cloud and similar disruptors are still reliant on incumbentbanking infrastructure and processes.

Similarly, crypto currencies are becoming increasingly popular for onlinetrade as individuals attempt to circumvent the traditional banking system.But when that money needs to be spent offline, or with a vendor who doesnot accept crypto currency, the owner will need a reliable conversionpipeline to assist.

Increasingly back end financial technology will need to include interfacesthat can hook into virtual economies or other emerging payment rails toprovide cross-over and conversions. As part of the streamlining process,back end systems will also need to be prepared for as-yet-unknown inputand output.

Laying the foundation for further change

Streamlined infrastructure is the first step towards remaining competitivein the future finance and payments industry. Without a suitable platform

on which to build, organisations will struggle to remain relevant as theindustry continues to change. Streamlining is not simply a case of makingprocesses more efficient, but also of preparing infrastructure to meet thechallenges and changes of the future.

In the next article we will look at the Increased automation of activities tolower costs and raise customer satisfaction.

The power of big dataIn the first article in this series we looked at how financial technology isalready changing the financial services industry, and how incumbents willneed to streamline their infrastructure if they hope to remain competitivein a shifting marketplace.

This time we look at the importance of automation, and how it is vital to thenew Big Data-led business model.

Data scientists can only do so much

The Future of FinancialTechnology – Part 2: Bigdataby Modedaweb

The true value of Big Data lies in the ability to draw actionable insightsfrom disparate data sets. But, as the name implies, Big Data relies on datacollection routines that harvest and store anything that may prove to be ofanalytical value.

Data scientists are key to Big Data strategy, and are more than capable ofextracting the necessary insights that inform business decision making.The problem is that the market continues to grow, as does the speed atwhich transactions and decisions are made. The only way to cope, will be toempower the new streamlined platforms to take autonomous action basedon pre-configured observations and rules.

Increasing automation

The continued reliance on human decision making in the era of Big Datapresents some problems:

Humans are unable to process many thousands of variablessimultaneously to make decisions.Humans introduce latency into the process, slowing operations downand reducing potential profit margins.Humans are more costly than computing resources and properly writtenalgorithms.Humans will simply be unable to 'handle' the Big Data requirements ofthe future.

Instead businesses looking to the future will need to utilise artificialintelligence, machine learning and autonomy to remain relevant.

Already in place?

Some aspects of the financial services are already operated by autonomousmachines; foreign currency exchange and stocks trading are being tradedby software with minimal human intervention. The difference is that theseexisting systems are limited in scope, they are not tuned to processunstructured data from across the entire enterprise.

The automated platforms of the near future will need to be robust andtrustworthy, as they will be expected to manage high value activitiessuccessfully. Among the applications we can expect to see emerging are:

New market platforms

In order to assist with the new data-driven economy, FinTech businessesare already building market information platforms, complemented byautomated data collection and analysis tools. This platforms, like in-houseBig Data stores themselves, contain actionable insights that can beunlocked for profit.

However, if incumbent financial services providers are to stay in the game,they will need to build systems that are not only able to take advantage ofthe services and data, but to do so automatically, without humanintervention.

Externalised processes

Where appropriate, external resources can be used to 'share the load',providing capacity and performance boosts on demand. UsingCloudbursting technology for instance, businesses can build fully flexibleBig Data systems that offload processing to the Cloud once onsite capacitypeaks.

But to avoid latency and delays as data is shifted around, autonomoussystems will be able to provision capacity as and when required, againwithout manual intervention. This kind of intelligent provisioningminimises the risk of downtime or delays as information is processedoffsite.

Investor empowerment programs

The new generation of investors and customers have been brought up inthe era of self-service services, and therefore expect to be involved inmanaging many more aspects of their portfolio or financial dealings. Asidefrom giving them the tools to manage their own affairs, businesses will alsoneed to create new ways of delivering timely, credible advice.

Using Big Data and autonomous analysis, this information does notnecessarily have to be delivered by a human however. Rather thanproviding general market trends via an accounts manager, businesses canharness autonomous systems to comment in real time, helping customersto begin maximising their profits immediately. In return, these platformscan also gather valuable social tracking and retail arithmetic data to be fedback into their analysis, helping to further clarify and improve services, andto identify new revenue channels.

Big is going to get bigger

Even if Big Data techniques were outlawed, or fell into disrepute, the use ofautonomous systems and artificial intelligence still makes sense. Humansare not only slow and costly, they are also prone to making mistakes thataffect customers and businesses alike.

Instead automated algorithms are capable of both avoiding these problemsand leveraging streamlined systems to ensure that clients and companiesmake the very best of every identified opportunity. Without a way toproactively respond to market trends and forces, businesses risk getting leftbehind in the new data-driven economy.

Come back next time and we'll look at the strategic role of data and how it isdriving change in the financial sector.

image from www.venturethree.com

The Strategic Future of DataIn the first article in this series we looked at how financial technology isalready changing the financial services industry before moving on to lookat how automation will be essential to managing data analysis andoperational efficiency.

In this third installment we will cover the shift from data as a basicresource, to a strategic benefit.

The Future of FinancialTechnology – part 3: TheStrategic Future of Databy Modedaweb

Smarter, faster machines

Last week we touched on the need for autonomous software capable ofmaking and executing decisions based on the analysis. Initial efforts willinvolve hard-coded events and thresholds that trigger automated action,but as data volumes continue to grow, and market conditions change,systems will need to be capable of maintaining themselves. Naturallyartificial intelligence systems will develop rapidly to further improveautonomous rule creation and decision making.

Artificial intelligence and machine learning is extremely processorintensive, and the financial technology sector will need to develop newsolutions that can cope. The Cloud is one approach to on-demandprocessing power, but each platform will need to carefully consider thestrict compliancy issues associated with the financial sector beforeadoption. It may be that on-site equivalents will need to be developed anddeployed in the longer term, often with custom configurations to providethe required power and efficiency.

Ushering in the cashless world

Contactless payment cards and digital wallets create a paradox; paymentcard systems and providers become more important, whilst simultaneouslystruggling to maintain relevance in a more crowded marketplace. Financialproviders will need to use every advantage available to ensure that theybecome the default card of choice for their customers.

Fortunately the switch to virtual payments provides many moreopportunities for data collection and mining, feeding back to the need forstreamlined infrastructure. This data will also help to better tailor servicesto customers' needs.

Aside from the currency side of cashless transactions, there will need to bea refinement of the associated meta information. Billing needs to beintegrated into the checkout and transaction process, executed in real timeto keep pace with customers' expectations of instant completion. At thispoint existing data needs to be applied to the challenges of streamliningcustomer facing operations.

Tapping into alternative lending schemes

At the same time as alternative payment methods are breaking into themainstream, so too are alternative lending schemes. P2P lending, likeratesetter.com and Zopa allow individuals to lend and borrow small sums atreasonable rates and bypass traditional banks. Alongside the platformsrequired to facilitate transactions, the data gathered needs to be put to gooduse.

P2P transactions provide additional insight into economic conditions,providing context that can be applied in other operations. Again, Big Dataanalysis will be an essential part of identifying valuable, actionableintelligence, and autonomic systems will help to capitalise on them.

The modern enterprise

The success of every financial business is governed by the data it hasavailable. The quality, accuracy and freshness of data is inextricably linkedto its value, but applied correctly and it will not only inform businessstrategy, but also drive it forwards.

With infrastructure, autonomy and artificial intelligence in place, financeorganisations now have the technical basis they need to further increaseefficiency and profitability. They are also well placed to move onto the nextstep, reduced inter mediation.

image from dhhl.hawaii.gov

The risks and opportunities of reducedintermediationOver the course of the last few weeks we have looked at how financialtechnology is evolving to change the wider payments industry. Streamlinedinfrastructure, improved Big Data analysis and adjusting operations basedon strategic use of data are all rapidly changing the finance sector – and

The risks andopportunities of reducedintermediation: The futureof financial technology –part 4by Modedaweb

incumbent banks and lenders will need to adjust quickly, or risk becomingredundant.

Merchants are using financial technology to help streamline their paymentoperations, and in many cases, to cut out the middle-man, the traditionalprocessing channels.

Emerging payment rails

Increasingly vendors and merchants are encouraging customers to linkbank accounts to their online accounts, so that payments can be debiteddirectly without having to go through the credit/debit card framework. Bylinking banks accounts directly in this way, FinTech developers can createcompletely new payment rails that disrupt the existing industry.

Crypto currency is stealing all the headlines at the moment, with Bitcoincontinuing to force business and governments to consider the future ofsovereign currencies. Whether Bitcoin becomes a serious contender in thecurrency markets remains debateable, but the technology in which it isbuilt will become more mainstream. Distributed blockchain databases seemto have solved the problem of circulating transaction data and protectingagainst tampering and fraud for instance.

The new peer to peer funding model is also allowing FinTech companies toact as data/currency brokers and reduce their reliance on incumbentfinancial firms. The new P2P foreign exchange model is helping customerstrade currency direct, avoiding the usual conversion fees levied by banks.Instead the FinTech platform takes a small cut from each transaction inreturn for facilitating the swap.

Crowdfunding

The continuing fall out from the global financial crisis of 2008 led to a hugeshortfall in finances for loans, providing space for the FinTech industry todevelop solutions. Crowdfunding platforms have helped connectentrepreneurs and micro-businesses with small investors, offering a way tosecure finances direct from the people most likely to benefit from theproduct or service being developed.

Again, much of the focus of crowdfunding technology has been tocircumvent traditional banking structures, and the associatedintermediary services that either complicate transactions, or add to the cost

of doing business.

The flipside of these moves is the need to develop new ways to carry out duediligence on the companies represented. At present much of the burdeninvolved in understanding viable business models and product offering lieswith the end user themselves, even if the crowdfunding platform providessome small measure of protection. FinTech providers will need to tackle thischallenge, using automation of otherwise, to take crowdfunding to the nextlevel.

Alternative lending

Sitting between crowdfunding and p2p foreign exchange, alternativelending schemes connect investors and borrowers direct. Lenders receivean above-inflation interest rate for the money they pay into the system,whilst borrowers benefit from competitive rates and greater flexibility intheir loans than could be afforded to them by a traditional bank.

Again, financial technology is crucial in identifying and connectingindividuals to meet each other's needs. By reducing the layers ofbureaucracy involved in lending, the process is made cheaper, easier andquicker. Over time Big Data analysis will further refine operations, byautomating the application, approval and adjudication process, usinghistorical data and trends to accurately assess future outcomes.

Into the future

Ultimately FinTech solutions are, as stated above, designed to strip outunnecessary layers in the payment process, reducing intermediation. Inmany respects, it appears that an alternative economy is on the rise, onecreated and fulfilled by individuals that exists outside the constraints oftraditional banking. And as is clear from the rest of this series, FinTech isthe major facilitator for change, as you'll see in the next instalment –Empowering customers.

Empowering customers in the age of self service

The Internet has not only opened the global marketplace to business, but ithas also increased choice for consumers. With the whole world just a mouseclick away, customers are no longer bound by the limited options availableon their high street.

And although many online self-service channels were originally created toallow brands to reduce their own workforce and operating costs, consumershave embraced the change. There is now an expectation that they will

The future of financialtechnology part 5: Age ofself serviceby Modedaweb

control more of the pre-purchase process, along with many basic accountmanagement functions.

Some estimates suggest that shoppers complete two-thirds (66%) of the pre-sales process unaided, before they ever reach out to a sales team. From pre-sales product research, to the final checkout after purchase, customersdemand greater control of the buying process – and financial technology isevolving to meet those needs.

Crowdfunding

Crowdfunding is a clear example of customers driving the agenda. Ratherthan allowing established brands to tell them which products to buy,customers are getting involved much earlier in the design process,investing their own money in products that best suit their interests orneeds.

Financial technology plays a large part in successful crowdfundingplatforms, allowing brands to secure pledges from customers, beforeproviding the method by which money is collected at the appropriate pointin time. Systems of the future could allow for variable funding options,from pledges held in escrow, to providing limited access to cash accordingto customer-defined milestones, the flexible principles of FinTech will helpthe crowdfunding industry mature and deliver the control demanded byusers.

Alternative lending

The global financial crisis of 2008 has had long-term consequences forconsumers. Record low interest rates means that investors are unable torealise any kind of above-inflation return on bank deposits. Similarly,borrowers have been unable to access loans at reasonable rates, spurringthe growth of the payday loan industry.

Like so many other aspects of the financial services industry, FinTechproviders have been developing platforms capable of disrupting thelending sector. Peer to peer (P2P) services like Zopa and Funding Circle helpto meet the needs of investors and borrowers alike, providing a return ondeposits and lowering interest rates on loans.

These hybrid savings mechanisms cut out the incumbent banks, and giveevery party involved in the lending-borrowing process greater control of

their finances and how they are used. Expect to see the options increaseagain as more granular options are built to cater to specific niches – a topicwe'll cover in the final article in this series.

Shifting customer preferences

The Internet has made it easier for customers to access a range of productsand services, but it has also been instrumental in reducing brand loyalty;customers can go wherever and whenever they want to get the rightproduct, at the right price, delivered in the most convenient way. As aresult, customers really are in the driving seat when it comes to purchasing.

The one constant in customer purchasing decisions – simplicity – offersFinTech businesses ample opportunities to further increase reach in theonline economy. Many online providers rely on smartphone apps to connectcustomers with local agents (think Uber or Airbnb). As well as thetechnology required to link customers with available resources, each appalso needs to be able to accept payments seamlessly to maintain theappearance of convenience for users.

Rather than developing dedicated solutions for each app, FinTech providerswill instead offer generic platforms and APIs. This will help serviceproviders integrate flexible, reliable and secure payment processing intoany app or platform and offer customer greater choice in how they pay forgoods and services. The use of simplified APIs will also help reduce the timeto market for these new services, further driving growth of the on-demandeconomy.

Further empowerment ahead

As brands fight for the attention of a finite pool of customers, it is thecustomers who will ultimately wield the power. Businesses will continue todevelop platforms that meet needs, and as technology evolves, increasepersonalisation to reach niche markets – the subject of the final article inthis series.

The rise of the niche applicationFinancial technology is not only improving the back office operations, andassisting with streamlined payment processing for disruptive start-ups, butit is also laying the groundwork for a new breed of niche applications – theultimate goal of all customer facing FinTech developments.

Web 3.0

Where web 1.0 was about basic connectivity, and 2.0 social, web 3.0 is allabout mobile. The reality is that we are already in the middle of a mobilerevolution that is crushing traditional desktop web traffic; mobile app

The Future of FinancialTechnology 6: The rise ofthe niche applicationby Modedaweb

traffic surpassed desktops for the first time last year, and has continued todo so ever since.

As a result, start-ups are increasingly focused on mobile-first delivery ofservices, relying on the Cloud and hosted frameworks to providefunctionality like payment processing. The ride sharing service Uber uses asmartphone app to link customers and drivers, apparently performing allthe necessary functions in-app. The reality is that Uber relies on a numberof web services to carry out the scheduling, billing and payment processingseamlessly in the background, showing users only what is strictly necessaryin the app.

Even as mobile devices to increase in computational power, the FinTechindustry will continue to develop solutions that offload processing to theCloud in order to maintain levels of security, reliability and availability.New solutions will take advantage of advances in technology – likewearables – to offer even more innovative services to customers.

Specialised lending

The lending industry is already undergoing transformation as start-upshave begun introducing workable peer-to-peer platforms that connectindividuals directly. The services are relatively generic (private lenderslend, private borrowers borrow), and will themselves be challenged in thefuture as more specialised offerings become available.

Personalisation and customisation make the rise of special interest lendinggroups inevitable. Ethical lending, cause-based lending and even lendingbased around shared hobbies and groups will all become more common asmore businesses seek to fill the many available niches.

It is also extremely likely that these niche offerings will use commonframeworks and platforms to facilitate inter-user money transfers. Theseplatforms will also help buyers and sellers discover each other more easilyto create even more new opportunities.

Retail algorithmic trading

Hedge funds and large investment banks have been using algorithmictrading for several years, trading currency and stocks automatically in realtime based on pre-configured algorithms. FinTech is allowing banks tounlock their Big Data stores to refine and create automated algorithms on

the fly, but as the market matures, these technologies will also becomecommoditised.

In the same way that FinTech empowers customers in the payment market,the emergence of retail algorithmic trading will allow them to bettercontrol their own investments. And instead of manually monitoring stockmarket tickers, the use of algorithms will allow private investors to exploitmachine learning and AI technologies to allocate funds and manageportfolios according to their own preferences.

As automatic activities based on algorithms become more common place,FinTech providers may also be able to re-engineer the technology for use inother consumer-facing services. Because start-ups continue to disruptestablished industry using technology, this development will be more“when", than “if".

Disruption is the new norm

Predicting the future is notoriously difficult; for every visionary statementthat comes true, there are are hundreds that make the “prophet" lookfoolish. The near future of FinTech is fairly obvious, as we have pointed outin this series of articles, but further ahead it is harder to guess.

FinTech will undoubtedly change and change again, but the factors drivinginnovation will not. Businesses and individuals will still have the samedemands:

� Greater control over their data/finances/affairs.

� More efficiency in every transaction.

� Automation of operations to simplify tasks.

Technology will continue to evolve, making it easier to deliver according toclient needs, and to take advantage of new opportunities as they presentthemselves. And disruption will become the new norm as a result.

One of the problems with many advertising agencies is their willingness towork with any client from any industry. They may be experts in marketingdisciplines, but are they experts in marketing to your industry?

All too often large agencies trade on their reputation, rather than theirspecialist knowledge of the industries they are chosen to represent.

FinTech marketing really is a specialist job

In the same way you wouldn't let a mechanic manage an investment fund,you shouldn't let an agency with no experience of FinTech manage yourinbound marketing campaigns. Compliancy frameworks and legal

FinTech Marketing – it’s aspecialist jobby Beacon

requirements take years to master, but remain essential to keepingcampaigns credible.

Because without an in-depth understanding of financial and technologyissues, it is impossible to properly identify the pain points of customers.And being that inbound marketing campaigns are built on deliveringcontent that addresses those pains, non-specialist agencies (and theirclients) are at an immediate disadvantage.

An in-depth understanding of subject matter is also crucial to helpingtranslate complex concepts into easily digestible, compelling content.Because without a proper understanding of a subject, it is impossible tosimplify details accurately.

But as Albert Einstein once cautioned, “Everything should be made assimple as possible, but not simpler", which is where genuine, hands-onindustry experience helps to define the limits. Your marketers need tocarefully tread the line between helping and patronising potentialcustomers – get it wrong and your campaigns could do more harm thangood.

The only occasion when FinTech naivety helps

Generally a lack of specialism in FinTech issues is a massive barrier tosuccess. But when it comes to the creative aspects of advertising, a lack ofexperience allows ideas to flourish, often resulting in marketing materialsthat break convention and are truly memorable.

But is this justification alone for hiring a reputation-based agency to handleinbound marketing campaigns? Absolutely not.

A multi-skilled team is most important

When choosing an inbound marketing agency, you should obviouslyprioritise one that has at least some FinTech industry experience. Howeverit is equally important that your chosen agency has enough creativity tocome up with marketing collateral and campaigns that stand out from allthe other content out there.

Here at Modedaweb we are extremely proud of our experience. Ourconsultants have worked with some of the biggest names in the financialservices industry (J.P. Morgan, Credit Suisse, Deutsche Bank, UBS, Morgan

Stanley, Mizuho and Commerzbank to name but a few), so our clientsbenefit from our ability to quickly understand their product and serviceofferings.

But we also rely on consultants with traditional digital marketingexperience who have the ability to approach complex, dry subject matterand turn them into exciting and relevant inbound campaigns. As a result,Modedaweb can create and deliver original and inspiring campaigns thatfeed directly into the needs of your customers.

In-depth industry experience and genuine creativity – a match made inmarketing heaven.

Ready to learn more about what we can do for your FinTech business? Givethe Modedaweb team a call today on 0203 637 4425.

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