In this blog, we dive into the rise of TechFin companies and how TechFin differs from FinTech. We also explore how the potential collaboration of TechFin and FinTech firms could benefit the Finance and Banking industry.
- What is TechFin?
- What Sets TechFin Apart from FinTech?
- TechFin and FinTech in Finance and Banking’s Future
- Innovation through the Partnership of TechFin and FinTech
- Leveraging Emerging Technologies in the TechFin and FinTech Ecosystems
Consumers increasingly expect financial products and services to be seamlessly integrated into their daily activities, such as paying for parking as they drive into a parking lot or obtaining financing in real-time at the point of purchase. Fundamentally, these integrated experiences go beyond “digital financial services,” moving toward the next financial revolution. FinTech startups have disrupted the financial industry in recent years, but times are changing again with the rise of Big Tech expanding into the financial sector. A new domain, TechFin, is set to play a significant role in the financial sector. Let’s first understand how we define TechFin:
2. What is TechFin?
There are multiple definitions out there to define ‘TechFin’ and the one we came closest to is how Deep Varma, Chief Technology Officer at Alkami describes them, “A TechFin is a technology company – first and foremost that builds financial solutions. TechFins use cutting-edge technology to deliver next-generation financial solutions that help financial institutions stay ahead of their competitors and deliver best-in-class solutions to their end users. TechFins shine in their ability to operate with a growth mindset and proactively invest in modern tools and technology practices so FIs (Financial Institutions) can confidently and gracefully embrace digital innovation amidst technology disruption.”
TechFins come in all shapes and sizes, from start-ups to large technology providers. One of TechFin’s core differentiators is its MACH (Microservices-based, API-first, Cloud-native, and Headless) compliant architecture, which enables high scalability and delivers contextual and composable solutions. Individuals’ credit histories, banking histories, demographic information, and other factors are considered while developing contextual solutions. Composable solutions integrate several loan categories and customer journeys to provide customers with a unified experience.
- Synovus, a financial services company, worked with Q2 to develop a modern, mobile-first digital commercial banking platform with faster integrations and valuable advisory services. Improved data analytics helps strengthen relationships with its account holders.
- Heritage Family Credit Union collaborated with Lumin Digital to implement an enhanced online banking platform. Following its launch, they saw an exponential spike in remote deposits and bill payments simply from promoting how the system worked.
3. What Sets TechFin Apart from FinTech?
- TechFins generate solutions using captive client data, but Fintech companies need a captive consumer base, data, or brand loyalty. For example, tech giants such as Google, Amazon or Facebook conversely got off to a terrific start as TechFins with a dedicated customer base and massive amount of data already at their fingertips.
- The critical objective of FinTech companies is to improve the customer experience by leveraging digital technologies that minimize customer inconvenience and cost while providing additional features and benefits. TechFin’s primary goal is to diversify into a relevant financial services industry sector to enhance its core services.
- Fintech’s core industry is financial services; margins determine profitability. TechFin, on the other hand, provides more services than financial services. Unlike Fintech, its income is based on more than just margins.
- The FinTech industry deploys emerging technologies to disrupt the ‘old world’ practices of financial services. Blockchain is a perfect example of this. TechFins attempt to improve existing experiences or skills in the financial services sector.
- TechFin companies can develop their products using innovation and data by utilizing its advanced backend solutions to reduce operation costs and monetize from its business models. This is how TechFin companies can develop solutions to help FinTech companies, banks, and other financial institutions.
4. TechFin and FinTech in Finance and Banking’s Future
Both Fintech and TechFin have transformed the practice of delivering superior financial services. The fusion of capital and technology has accelerated the evolution and restructuring of the banking and financial sectors. Here’s how Fintech and TechFin as an ecosystem can influence the future of finance and banking:
4.1 Digitalization of Financial Products and Asset Classes
All financial derivatives and asset classes will be digitalized, whether utilized by ordinary customers, SMEs, or large institutions. FinTech applications will make it easier to integrate digitalization efforts across all corporate sectors.
86% of finance professionals believe that traditional payment providers will engage with fintech and technology companies as one of their primary sources of innovation.
4.2 Merging Financial Services with Software and Market Solutions
Platform companies can add financial services to their primary product and service offerings to expand their potential market across various industry sectors. Many enterprises, especially non-platform focused, will continue to adopt embedded financial services. The following are the critical company categories in which financial services are embedded:
4.3 Marketplace Ecosystems
As part of a marketing ecosystem, every strategy involves client acquisition, reactivation, and retention. This category includes B2C markets, e-commerce support systems, and B2B marketplaces with a vertical specialization. Companies in this category include Amazon, Shopify, and others.
4.4 Vertical Software Providers
These firms embed payments into more extensive software packages streamlining corporate operations and consumer interactions, such as content management, point-of-sale, and hospital administration systems.
4.5 B2B Workflow Systems
Automated purchasing, travel and expense reporting, and treasury management will impact the future of finance and banking. Native payment solutions facilitate backend reconciliation and delivery, propelling the migration of the B2B market to digital payments.
According to PwC and Strategy & Research, global cashless payment volumes are expected to climb by over 80% from 2020 to 2025, from around 1 trillion transactions to almost 1.9 trillion, and nearly triple by 2030.
Asia-Pacific will expand the fastest, with cashless transaction volume increasing by 109% until 2025 and 76% from 2025 to 2030, followed by Africa (78%, 64%) and Europe (64%, 39%). Latin America is next (52%, 48%), with the US and Canada increasing slowly (43%, 35%).
5. Innovation through the Partnership of TechFin and FinTech
There is much opportunity for mutual benefit from the partnership of TechFin with financial technology firms. It’s more like TechFin and FinTech together rather than TechFin vs. FinTech. Here are a few examples of how:
- A FinTech startup can increase client success by collaborating with TechFin firms to develop a visually appealing and user-friendly platform.
- A TechFin partner can assist a FinTech firm by providing in-depth data analysis and comprehensive customer insights to make financial transactions a simple and pleasurable experience.
- The TechFin company could collaborate with a financial organization to support its technology-centric strategy.
- A tech-savvy FinTech firm can operate more effectively with a TechFin company when selecting a financial sector partner to offer its users payment services.
- A FinTech partner’s primary benefit to a TechFin company is their quick adaptation of payment models to meet the demands of TechFin users.
- A FinTech partner can assist a TechFin platform in providing its users with financial services that are cutting-edge and engaging. FinTech businesses are continuously looking for innovative ways to conduct financial transactions to counteract the ‘outdated’ advantages of the sector, such as the use of blockchain technology and cryptocurrency trading.
6. Leveraging Emerging Technologies in the TechFin and FinTech Ecosystems
TechFin companies are leveraging emerging technologies such as AI, ML, NLP, big data, banking automation, and predictive analytics to support FinTech, FIs in developing a customer-centric financial ecosystem. Let’s understand how:
- FinTechs can leverage TechFin’s massive amounts of data coupled with AI to create and launch products consumers crave by diving into their troves of customer behavior data to see how people are buying, what they’re buying, and when they’re buying it, and set an AI to extract trends in this behavior.
- Product teams can use trends and demonstrated behavior to determine when and where people need access to capital and how they move money around to create products that address those needs. An example could be in-app or on-site access to personal loans to facilitate product purchases. Or the launch of a real-time credit issuing system based on purchasing history.
- AI and advanced analytics may potentially help with conflict resolution. Customers can contact their bank anytime and receive immediate, real-time responses. On the backend, systems would analyze the dispute data nearly instantly, reviewing the customer’s history with the bank and utilizing prior dispute patterns to settle the issue.
- New-age lenders can use AI and ML to optimize their customer acquisition process, incorporate alternative data for credit underwriting, and implement sophisticated risk management solutions to vastly improve downstream lending activities such as collections management and loan resolution.
- Advanced analytics and AI/ML solutions can be used for complete portfolio monitoring, early warning signals, and collections. Big data and AI/ML models are increasingly being used for evaluating investment opportunities, optimizing portfolios, mitigating associated risks, and investment decision-making. Generative AI is becoming a promising tool to empower institutional investors to quickly find all the answers they need, even when working with massive amounts of portfolio data.
- AI-enabled robo-advisors can analyze online data, including social media data, to determine people’s real-time sentiments, delivering insights into appropriate asset allocation techniques. For example, live data from multiple social media channels is collected using big data analytics and AI. It is analyzed to assist traders in forecasting stock price movement for a company.
- Organizations have begun to develop AI-powered EWS systems to assist in predicting future delinquencies early and proactively managing credit risk exposures.
- AI-powered ‘smart collections’ tactics provide personalized steps to recovery agents to maximize defaulted amount recovery.
- Morgan Stanley uses GenAI to inform its financial advisors of their queries. The bank has been testing an OpenAI-powered chatbot with 300 advisors so far, intending to aid its roughly 16,000 advisors in using Morgan Stanley’s repository of research and data.
- Goldman Sachs’ is experimenting with generative AI tools internally to help its developers automatically generate and test code.
TechFins are transforming the user experience and how customers perceive and access financial services. They provide new channels and use cases for financial product consumption by embedding them in processes and making them more directly relevant to consumers and their interests. They are also driving demand for more financial product innovation (the mechanics of which may be offered by FinTechs and their incumbents).
TechFin’s access to cutting-edge solutions and a better grasp of emerging technologies can help FinTech and financial institutions streamline their end-to-end operations. Emtec Digital is proud to work with TechFins as a trusted partner to accelerate its product development.
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