Technologies that have a significant impact on FinTech sector development

As a result, processes have become more transparent, payments safer, accuracy  and customer-oriented approaches have increased. In future, the impact of technology will lead to even more significant changes in the financial sector, customer behaviour, product mix. This will in turn create new business models, new services, market niches, approaches and value for the final consumer.

Cognitive technologies and artificial intelligence

Artificial intelligence covers various aspects of the financial service business: consumer and small and medium-sized business lending, customer behaviour analysis, financial habits projections and decision-making. Artificial intelligence is endowed with high computing and cognitive capabilities that help to manage financial and business risks, detect fraud, monitor compliance. By applying big data and models, decisions could be made with minimal human intervention.

The use of artificial intelligence will enable financial technology companies to adapt services to the consumers by personalising them as much as possible.

For instance, based on income and expenditure analysis, artificial intelligence systems may generate not only a more appropriate personalised service, but also provide valuable investment advice. The financial technology companies in Europe already apply elements of artificial intelligence in their rating systems, assessing borrower creditworthiness and profit potential of customer segment.

According to a survey conducted by the Cambridge Centre for Alternative Finance and OpenText, artificial intelligence technology has been introduced in banks in the areas such as risk management (56%) and revenue generated through new products and processes (52%). Most of the largest banks in the world (80%) are well aware of the potential benefits of artificial intelligence and machine learning and argue that they are currently implementing artificial intelligence strategies, and certain artificial intelligence practices have already played a significant role in banking activities, in particular chatterbots, as well as detecting fraud in transaction area.

According to a survey conducted by the Financial and Capital Market Commission (FCMC) in 2022, artificial intelligence technologies are currently used by nine market participants of 144 respondents surveyed (credit institutions, private pension funds, an insurance company). As for financial technology companies, artificial intelligence solutions are actively used by SunFinance – a “unicorn” in consumer lending.

As artificial intelligence technologies evolve, chatbots are increasingly being used, and according to Gartner’s forecasts, in the future they will handle about 85% of the total interaction between the public authorities and customers. Financial service providers may use conversational language artificial intelligence solutions to provide customers with “humanised” experience. Artificial intelligence-driven chatbots learn and develop on the basis of existing database and ongoing interaction in order to reply to customer questions and give appropriate advice individually.

Cognitive technologies with elements of artificial intelligence create a variety of options enabling a user to perform tasks as a human would. There are significant prospects both in the financial and public sectors for cognitive technologies such as Natural Language Processing – Ontology-Based Information Extraction and Speech Recognition, Natural Language Generation, Machine Learning – Neural Networks/Deep Learning, computer vision – image recognition.

In parallel with the development and increased use of artificial intelligence, it is also associated with problems related to supervision and decision-making tracking, such as determining the responsibility for the decision taken by artificial intelligence, which had significant consequences.

DLT, blockchain

The digitisation of financial sector in the global context has also reached the monetary system. The emergence of virtual assets showed substantial benefits that may bring these digital assets based on distributed ledger technology (DLT). The use of DLT can improve the security of sensitive financial transaction data, settlement processing and automate many business processes through smart contracts. DLT technology will be used in a pilot regime in the issuance of central bank’s digital currency (CBDC). In summer 2021, the European Central Bank launched a pilot project for the possible development of the digital euro. It is estimated that the development of the digital euro would take about five years. The initiatives of the European Central Bank show that in the future the DLT will be an essential digitisation pillar of the monetary system, in particular in financial system digitisation. Thus, central banks may act as catalysts for building the new financial structure.

Blockchain will undoubtedly be a central element of the digital economy.

A decentralised database, a constantly growing list of ordered records, applicable to virtual currencies and payments. This is one of the most significant technologies for strengthening transaction security, and ensuring transparency and confidence in the supply of products and services. Transactions are carefully checked and monitored by the technology based on verification in a decentralised manner.

Blockchain technology also contributes to the development and improvement of cybersecurity by addressing security gaps in organisational networks, thereby providing unprecedented data security for corporate and individual users, protecting essential digital information. Blockchain technology allows effectively encrypt the data, and as a result, unwanted users cannot modify it. Through blockchain the financial sector companies can effectively protect important business and customer data from fraudsters and other cyber criminals. For example, technology allows to save in the blockchain a crypto-graphic signature of a particular file owner or a document. The blockchain’s split architecture intensifies the resilience of the entire network and provides participants with enhanced transparency, making it more difficult to damage blockchain by using malicious software or manipulation. In addition, blockchain may contain multiple levels of security installing both at the network level and at the level of each individual participant.

Decentralised finances are available to any user in the world who has a smartphone and internet connection, thus changing the business models of savings, loans and insurance sector business. The DLT is undoubtedly the most important innovation, applicable to individual, corporate and even government levels. Smart contracts, which streamline complex processes that involve several parties, should be specifically identified in the context of reliable transactions without third party involvement. Smart contracts may lead to fundamental changes not only in the financial sector, but also in the real estate segment, trade supply chains or manufacturing, in the international trade rules due to their effectivity, speed, transaction security.

Big data and analysis

With the use of financial technologies and the development of digital transformation, the importance and access to big data in the financial sector will grow thereby building business value. Open data can contribute to economic growth, promote the development of financial technology start-ups by providing access to them, thus creating new jobs, increasing efficiency and attracting investment. The need for big data analysis and processing will expand in all sectors of the economy.

Structured and unstructured data will grow further in the financial sector that might help to make strategic decisions based on an in-depth analysis. Big data and ability to evaluate them enable participants to make smarter, more successful decisions, creating new services with a focus on individual customer needs.

Big data processing technology allows efficient strategies for anchoring customers, increasing profits and service sales.

The importance of big data is crucial in the personalisation of services through automated collection and analysis of internal and external data, cost management, detection and prevention of fraud, strengthening the internal control system and identifying risk factors.

This technology also helps financial companies review past practices, optimise tasks, processes and functions, forecast events and impacts on risks and activities.

Automation

Big data processing requires efficiency, speed and precision that can be achieved by technology such as robotic process automation. The robotic process automation may help financial companies reduce expenditures, basically human resources. This technology allows financial service providers to automate tasks (for example, data checks in the money laundering field) that repeat and require considerably large amount of data. The robotic process automation improves the accuracy in the performance of tasks by reducing dependence on manual work and raising finance productivity.

Cloud computing

Cloud computing technology facilitates data storing and applications as well as access to advanced software applications for financial companies through the internet. This creates better business unit integration by sharing data and making integrated decisions. In a sharing economy, the change in customer habits and behaviour requires uninterrupted access to financial services to ensure continuity in the provision of services. Cloud computing enhances new customer experience and optimises performance. Cloud computing facilitates mobility, saves and ensures immediate access to data and computer resources on demand without direct user management. which is particularly important when financial technology companies scale their cross-border business operations and activities.

At present, the use of cloud computing is more common among the new financial technology companies, reducing financial burden and freeing up human resources for the core business development, while banks cautiously transfer non-critical systems to cloud computing. The FCMC survey on the use of innovative technologies shows that out of 144 financial market respondents only 37 use cloud computing services, which is most likely related to security elements of cloud computing service provision.

Leading public cloud computing service providers offer a range of innovative products (SaaS – software as a service, BaaS – banking as a service) to introduce more efficient performance models and significantly reduce costs, focusing on customer base growth. The companies may respond more quickly to market changes or shifts in financial priorities, increasing or reducing computing capacity and easing accurate expenditure control. Cloud computing allows organizations to pay for already developed technology and avoid spending investment for the maintenance of internal systems.

Technology in the supervisory work

The FCMC introduces effective and modern technology-based solutions, – SupTech or a strategy for technologies used in supervisory work has been developed. It is expected that the introduction of new technologies, particularly in the processing of unstructured data, will save time and human resources in carrying out supervision tasks. Cloud computing services will be one of the technological solutions that are inevitable in the further supervisory work. As early as 2021, the FCMC has been carrying out activities and developed projects for the implementation and acquisition of cloud computing technologies. However, the introduction of such technologies is a long-term project, and the work is still ongoing.

We encourage every financial and capital market participant to assess how the new technologies may help them become more efficient, offer new products and services and grow. Experts from the FCMC are prepared to provide professional advice on the FCMC’s approach to the implementation of innovative solutions, provision of financial services, supervision, and other issues.

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