FinTech or financial technology is one of the most vibrant sectors of a modern economy. The number of innovations implemented in the field exceeds the expectations of many analysts and users alike. FinTech is so successful because it combines healthy business interests on the side of applications’ owners and the daily needs of customers. A spectacular proof is the rise of insurance technology but the whole FinTech is full of novelties. Let’s discover them all.
Insurance technology to the rescue
Have you ever tried to fix something important in a public department or even in a commercial firm? In a timely manner, that is? Stupid question, of course you have. Time, stress, tone of the paper, unfriendly clerk, bureaucratic procedures. How’s that compared to an application that is available on-demand? With transparent processes, customer onboarding, and automated claim services, traditional ways of doing business fall flat.
FinTech technologies support the modern insurance sector
Technology in FinTech is based on two pillars: behavioral analytics and implementation of solutions based on these analyses. These lead to breakthroughs in customer care.
- Digitization. According to McKinsey 9 out of 10 insurance companies struggle to enter the 21st century. Legacy software and the state of IT infrastructure collapse traditional ways of securing life and physical possessions. On this level, technology in FinTech companies wins the market for them simply by existing.
- Optical character recognition (OCR). Signing any kind of legally binding document can cause a headache. It’s time-consuming, can require additional money (for ink, scanning, etc.). By digitizing text, InsurTech companies can acquire new customers, enhance customer service, reduce process lags, improve profitability margins, precisions of market predictions, and automation. Human involvement in controlling loads of manually signed documents that have to be sorted out anyways is inefficient, prone to error, and costly. It’s quicker and cheaper to replace manual labor with automated processes that handle the heavy load for users and companies alike.
- Artificial intelligence (AI). One of the most effective trends and technological innovations in FinTech is AI for insurance companies. AI is responsible for user identification, fraud prevention, anti-money laundering, and more. Even for pricing optimization, since analyzing customer behavior and customer churn is a great way to scale the company.
One of the most interesting companies that offer insurance technology for application makers is called Shift. This firm has AI-based software that supports fraud detection.
Another comes from Alpaca. It’s a price-forecasting solution. Developed by Bloomberg, it enables the processing of millions of financial records, defines patterns, and predicts price changes.
TrueAccord is another great example. This application is a powerful debt collection tool. It motivates people to pay off their debts. A company can reach virtually anyone. With tailored messaging and optimized outreach, TrueAccord claims its solution can drive engagement, commitment, and follow-through.
- Machine learning. FinTech technology can be portrayed and perceived as intrusive. Machine learning is definitely on the radar but it’s saved millions of dollars for many companies. It also solved problems for many users. Machine learning is a field in a vast pool of AI. By exposing algorithms to data, applications can think of many average, not technical savvy users. An application can inform them about investment risks, automatically process claims, analyze historical loans and make recommendations for future policies (in the interest of app’s owners, of course).
- Personalized insurance pricing. Saying that we are all different would be trivial. That statement is not true for insurance companies. Each personality, job characteristic, personal choices and lifestyle, household income, and many other factors contribute to what is called customer mapping. It’s not about the customer journey, though. It’s about figuring out how much will it cost to acquire and keep the customer. How much money will it take to pay off his claims? This Accenture study shows that users are willing to share personal data to have highly personalized services instead. Companies get stable revenue, better risk assessment, and a high level of customer satisfaction. Companies like RGAX help to establish models for pricing while companies like Code & Pepper make projects happen.
- Telematics. “It wasn’t me, it was this other person”. Probably the most popular phrase in the transportation insurance sector. I wasn’t driving recklessly, I had priority on the road, my style of driving is not a synonym for “risky”. The list of clichés can go on and on. Telematics solves these problems. Generally, there are three different models of settling accounts: user-based insurance (UBI), pay-as-you-drive (PAYD), pay-how-you-drive (PHYD). In essence – the amount of monthly fee for insurance depends on how people are driving their vehicles, how long distances they cross, and who they are as a person. Factors like being prone to risk, advanced age, or history of illnesses are important here. In fact, a British company O2 has launched an interesting car insurance product. In essence: users pay less if they drive safe.
- Peer-to-peer (P2P) insurance. It’s like crowdfunding, except it’s crowd covering. It’s so new that text editors underlying “crowd covering” as a spelling issue. This model requires people of similar risk levels and lifestyles to put money into a shared pool. If something unfortunate happens, the insurance claim is pulled out of money within the pool. Some companies cover serious damage (like a broken leg or prolonged illness) but there are also those that focus on small damage. Like Friendsurance, covering spray paint on your house doors.
- Blockchain. It’s the second-largest distributed ledger use case in FinTech after payments. It enables tracking of claims and solves the problem of handling tons of complex documentation.
- Smart contracts. A deal, especially in the InsurTech sector, requires confirmation. A smart electronic signature is perfect in the world of FinTech. This is not strictly an insurance technology but it helps. Companies and customers can go together by using an in-app or 3rd party solution for signing a contract.
- Predictive analytics. Identification of cancellation risk by customers, identifying risk of fraud, triaging claims, or anticipating trends (helpful in pricing). These are the trends that conquer the InsurTech world.
- Analytics. Reports, like this one from Deloitte, indicate that the problem of many FinTech companies lies in scattered data. Anyone can gather information. The problem begins when automated software has to make conclusions. The more the data is fragmented, the less value it has for the company that owns it. Solutions like a “single source of truth” (data warehouse) or ETL (extract, transform, load) systems help a lot.
Insurance technology is critical for many companies. Mostly because of the nature and volume of claims. Even if claims are not valuable but high in numbers, insurance firms can suffer significantly. Implementing proper insurance technology solutions can save them headaches and pull them back from the financial edge. Insurance software development can help as well.
FinTech technologies for other sectors
InsurTech is a demanding part of the FinTech world but there is a lot going around. Significantly more, so let’s dive even deeper.
Advanced technology; FinTech as a state of mind
- Chatbots. Things like cognitive friction can ruin the user experience, even for the best-designed applications. Chatbots or other forms of voice and text assistants have matured over the years. They help with customer onboarding, act as the first line of customer service, etc. Chatbots can answer questions, make simple conversations, point towards a knowledge base on the website. They also reduce operational costs.
- API development. Open banking and implementation of API platforms have enabled cooperation between FinTech app owners and other institutions. It boosts revenue growth, reduces costs, and enhances user experience.
- 5G. This will be beneficial for the entire world of technology, FinTech especially. Real-time application updates without user intervention, no-usage disruptions, multi-modal biometric security measures, enhanced identity checks. All of this already is or will be possible shortly. Thanks to 5G companies will handle huge amounts of loan applications, without struggle. Something that traditional banks are figuring out. All due to the COVID-19 pandemic.
- VR/AR. Implementation of virtual reality and augmented reality in the FinTech world will revolutionize an entire industry. From data visualization to virtual trading. From financial education to virtual reality payments. Operating with customer service. Opening virtual branches. Attractive client onboarding. These are buzzwords but also real possibilities. A good example of how much virtual reality can help FinTech comes in the form of a Swiss company. In 2017, Swissquote introduced a VR trading application. By using eye-tracking technology, the app can bring up information about stocks. It can also execute trades to a preconfigured value. All a user has to do is to focus sight on a specific symbol displayed right before the eye’s retina.
- Algorithmic trading. According to Techfunnel, nearly 73% of trading is done by machines. That’s the data from four years ago. Technology is constantly improving. Meaning, that today, about 80% of trading is automated, at least according to the latest estimates. Applications like MetaTrader4 or eOption provide processes that are free of human emotions. They have pre-defined rules, don’t require constant market monitoring, and considerably reduce slippage.
Cloud technologies for FinTech
Security is one of the most important aspects of any FinTech product. It lets an app exist on the market, gains trust between the company and customers, and drives revenue through the level of certainty. Some high-level technologies take care of it.
Since at Code & Pepper we use Amazon Cloud as a means to support our customers, most examples will relate to market propositions from this giant. We use them in our projects daily.
- Amazon Quantum Ledger Database (QLDB). It’s a base that allows tracking of changes. Let’s say there is some data. Throughout the project, you overwrite it. With QLDB you still have access to the original code. This database has a repository that shows you who and when modified the data. You can also generate an audit file for everyone to see. This level of transparency helps with code, file, and overall project management.
With QLDB, you can easily check for unintended modifications to your application data. The transactional log keeps records for changes and maintains a completely verifiable history. That way progress on the project is secure and transparent at the same time.
- Amazon Web Services (AWS) Well-Architected Framework (WAF). This is perfect for FinTech technology for all the right reasons. Utilizing the power of the cloud, helps software architects to create secure and high-performing products. Security, reliability, performance efficiency, and cost optimization are the reasons why this framework has been created.
It’s all about the proper run and maintenance of workloads being performed in the cloud. Architects of this framework were focused on providing reliable technology that allows continuous business performance. Issues like a rapid response to potential security breaches, irregularities in data integrity, systems protection, and performance monitoring have been addressed. Many applications can struggle with these threats, WAF takes care of them.
There is also an enhancement of WEF, called Financial Services Industry Lens. Dedicated specifically for financial applications, it can be considered a valuable asset. It’s an insurance technology that provides an additional level of relief. Lens specifies best practices for security, data privacy, and resiliency. Thanks to that, it’s easier to meet the advanced compliance standards of many regulatory bodies.
Lens provides guidelines for software development teams on the implementation of AWS. Because of that building, deployment and further development are easier and more secure. It’s used daily by chief technology officers (CTOs), architects, developers, engineers, compliance officers, audit specialists, and other professionals. Naturally, it’s used by us as well.
For quality assurance
Processes related to quality assurance (QA) go beyond manual or automated testing. QA is a state of mind. Meaning that not only testers but all developers should be working on code and overall application performance. In the broader and modern approach, the whole company should establish a set of processes supporting quality development and control. Some tools support the approach.
- ESLint. It’s a tool for analyzing code quality. Frequently used at Code & Pepper, it supports developers in daily increments. In some projects, even two developers make code audits, to assure everything goes smoothly. They also use ESLint to make sure nothing slips our minds.
- Prettier. Great for code formatting. You can edit only a few things; the rest is up to the program. It’s fantastic for code clarity and can be used as a great FinTech technology. If you think about it, FinTech should be about trust. Trust is gained through reliability. That comes from the quality of the code. And that’s why we use it.
- Sonarcloud. It’s a tool for static analysis of a code. With it, you can scan for quality, implementation of best practices, and more.
- Lighthouse. Lighthouse from Google is a powerful tool that combines many useful functionalities. It lets you monitor web application performance, SEO, accessibility, and more. The company made it available for free, so its value for many startups out there is even bigger. We have an article on our blog if you want to know more.
- Cypress. Another great way for end-to-end testing of anything that runs in a browser. It can be a web-native application, it can be a version of a mobile app.
Compliance is no joke. Every FinTech application out there must be governed by legal, and in some aspects, technical boundaries created by regulatory bodies. Usually, it means crossing all the t’s and dotting the i’s to make sure everything is up to date, correct, and secure. AWS offers few things that ease the process of making sure that the software product is compliant with local regulations.
- AWS Artifact. A powerful tool that gives you on-demand access to AWS’ security compliance reports and selected online agreements. Reports like Service Organization Control (SOC) or Payment Card Industry (PCI) are crucial to the overall application’s market standing. One slip-up can derail the business. Either from under secured user data or some other security failure. Artifact enables your organization to review, accept and manage agreements. Per application or per your entire company; for many products that are at stake.
- AWS CloudTrail. This service enables you to track changes in your AWS infrastructure. All actions taken through the AWS Management Console, SDKs, and other components are stored and tracked. Command-line tools and other AWS services and monitored for changes. You can easily spot differences between what should be there in the code or infrastructure and what is happening. CloudTrail simplifies operational analysis and provides serious support for troubleshooting.
- Amazon Fraud Detection. FinTech technologies come in many ways and forms. This specific tool is a detector that can find fraud when it comes to accounting setup and verification, guest checkout, online payments. It also detects abuse of online services and loyalty programs. It’s especially important for these FinTech companies that want to create a community around their applications and services. It’s a common theme among a new wave of companies, so every advantage you can have when fighting cybercrime is useful.
- Last but not least – audits. It’s one thing to be compliant, it’s another to pass an audit from an independent body that helps to regulate the sector. Companies often fall victim to internal mistakes and underdeveloped processes. Either from falling behind when it comes to digital transformation or from not meeting regulatory and market standards. With documentation and processes under control, you increase your chances of staying on top of things.
AWS programs for FinTech startups
FinTech technologies are done right. That’s in a nutshell what AWS has been doing with its programs directed to FinTech companies. There are four major initiatives and all of them benefit business owners in some major ways.
- AWS Activate. Here you get technical support and training for optimizing performance keeping costs under control.
- AWS Marketplace. Here you can browse for software listings from many vendors. With it, it’s easier to develop the software. The problem is that these listings can’t replace services that seasoned software development vendors provide daily. Either it’s end-to-end development or insurance technology application code refinement, none of these listings offer any real help. It’s merely a start point. A sample, a window shopping, if you like.
- AWS Data Exchange. Here you can find, subscribe and use third-party data in the cloud.
- AWS Partner Network. An option for startups that want to go with AWS to grow their business through a cloud and other technical means.
AWS analytics and configuration technology
Business nowadays runs on analysis. It’s a default way for making decisions for just about everything. There are many services and companies that offer web and application analytics but we found Amazon to be a great provider for our needs. At Code & Pepper, we believe in an integrated approach and cross-functional usage of tools. That’s why we went with AWS but that’s not a reason to exclude other fantastic tools. We recommend:
- Amazon Athena. A serverless service with no infrastructure to manage. It’s an interactive query solution with an integrated Data Catalog. You can unify metadata repositories across various services, and search data sources for patterns. You can have even greater value if you use it simultaneously with previously mentioned Fraud Detection.
- Amazon Audit Manager. A powerful solution to handle data, risk, and compliance. It constantly monitors the usage of AWS services to detect any breach in regulations and industry standards. It can also assess risk. Easy mapping, automated selection of evidence, and other features make it very useful for FinTech developers and quality assurance specialists.
- Amazon Macie. An interesting and powerful solution for data analysis and protection. It combines machine learning (ML) and pattern matching to protect sensitive data. Like user personal data and information about their credit cards, for example. Macie scans data inventory for unencrypted and publicly available buckets and alerts you about these problems. Shielding personally identifiable information (PII) is crucial to any FinTech project so we recommend using that tool. We do it daily.
- AWS Config. With this, you can assess, audit, and evaluate AWS resources. It’s great for further configuration of software infrastructure and monitoring of data flow and security.
- Amazon QuickSight. It’s a machine learning-powered service created for cloud solutions. It’s easily scalable, serverless, and fairly easy to embed. Because of that, developers can receive information about any portion of data they want, furtherly optimizing the entire FinTech product.
Follow the breadcrumbs
FinTech is about trust. Users must know that their data is safe, the application is secured, and scalable enough to add or modify features. Everything that can assure that is worth the money. The entire sector was founded on a notion that main-street banks can’t walk the walk in a new economy.
Software developers have certain tools at their disposal. They can assure quality and widely understood optimization. Now it’s about you. Who do you trust? Who do you think can handle the work?