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When Donald Trump tweets about a company in your stock portfolio, you get an instant notification. You can then buy, sell, or hold the stocks. This is the function of a new app called Trump Trigger launched by Trigger Finance—an American Fintech company. This is the rapidly changing landscape of Fintech 4.0, and it is not strictly confined to just financial service and products anymore.
All the three previous Fintech waves had a key driver accelerating the phase—the invention of the telegraph for Fintech 1.0, the advent of Internet for Fintech 2.0, and the birth of smartphones for 3.0. Unlike the first three waves, Fintech 4.0 will be shaped by macroeconomic factors. Shifting market conditions, new regulations, and rapidly changing consumer demands and preferences are the factors that will be driving the this Fintech 4.0 revolution. According to McKinsey, Fintech 4.0 will cover 6 major domains and 30 emerging areas. Here is an illustration of the key trends.
Source: McKinsey & Company
The key Players of Fintech 4.0
There are two sets of players in the Fintech 4.0 revolution. The first set is the traditional banks and financial institutions and the second set is the startups and non-banking companies such as FreeCharge and Lending Club.
For centuries, banks and traditional financial institutions have been the dominant force. That is the not the case anymore. Companies such Paypal and Google Wallet have already captured a fair share of the $3.2 trillion global digital payment market. With more and more startups and non-banking companies entering the Fintech domain, banks are forced to react. According to a 2016 analysis by Mckinsey, there could be as many as 12,000 startups in the Fintech domain.
The key challenge for the banks is that they are often the followers than pioneers when it comes to embracing technology. Whereas startups, on the other hand are built with technology as the base to make the financial markets and systems more efficient. We (HackerEarth) are seeing a surge in the number of banks turning toward the developer ecosystem for a variety of reasons. In 2016, 90% of the customers from the BFSI segment were banks and traditional financial institutions.
They come to HackerEarth with different objectives, ranging from crowdsourcing ideas and building prototypes and apps to conducting domain-specific and hiring challenges.
For instance, Societe Generale, the French multinational banking, and financial services company, approached HackerEarth with the objective of putting its huge data to better use and build predictive models out of it. It leveraged HackerEarth’s developer community to conduct a Machine Learning challenge. The 30-hour build challenge saw over 1800 data science enthusiasts participating and building predictive models. Societe Generale picked the best models and honored the winners with a $10,000 cash prize.
Traditionally, banks outsource their software, security, and technological work to a services company. However, banks are now starting to build in-house technical teams. But now they have to compete with the likes of Google and Facebook to attract tech talent. And to do that, banks are branding themselves as technology companies. In fact, traditional institutes such as the National Stock Exchange (NSE) are accessing our platform to hire developers. And a few banks such as the American Express and DBS have used our tools for branding and engaging with graduates of premier Indian institutions to build a talent pipeline.
The stance of banks is more reactive than proactive. They are often prevented from acting quickly because of red-tapism. For example, after demonetization, while non-banking companies such as FreeCharge were quick to grab the chance and capture the market with its mobile payment services. The same cannot be said about BUDDY, SBI’s e-wallet app.
This is yet another reason for the banks to leverage the developer community. While a typical product development cycle can take months to years, engaging with the developers through hackathons could give far better results in a matter of days. The last Fintech Mobility hackathon that HackerEarth conducted for Kotak Mahindra and Federal Bank got more than 30 working prototypes and apps built in just 48-hours. The best apps and prototypes were then taken forward for further development.
The way forward
While the challenges for the banks are imminent, the opportunity the fintech offers is huge. It is estimated that banks would be able to grow 80–90% by offering products and services digitally as opposed to offering services through its physical branches. And leveraging the developer community has proven to be effective for the banks to innovate, move faster, and mitigate the tech talent shortage, thereby allowing them to proactively ride the next wave of fintech by responding better to shifting market conditions, new regulations, and rapidly changing consumer demands and preferences.
Every single one of the 30 emerging areas of Fintech 4.0 is heavily dependent on technology. Banks and traditional financial institutions can no longer ignore the importance of the developer ecosystem and the value it has to offer.