Emerging technology innovations in Financial Services and Fintech

Financial technology (Fintech) is a fast paced and growing area of financial services. Over the last ten years, Fintech has attracted the attention of investors and regulators as well as affecting consumers. Businesses have used digital technology to drive both innovation and disruptive business models across financial services.

Fintech builds on a long history of innovation in financial services that ranges from the introduction of credit cards in the 1950s through to internet banking in the 1990s. Today, consumers are enjoying the benefits of contactless payments and businesses are exploring the applications of blockchain.

What is driving financial services companies adopt Fintech?

Customers

Consumers have become more demanding as they get used to and, even, expect seamless, omni-channel experiences in every aspect of their lives.  Financial services businesses are having to focus on the customer experience and this can only be done effectively by using digital technology. 

Regulation

Increased regulatory oversight is forcing financial services companies to innovate and use technology. For example, the introduction of Open Banking required the UK’s biggest banks to release their customers banking data in a secure, standardised form so that it could be easily shared between authorised third-party providers to create new products and applications for customers.

Technology

As new digital technologies and experiences become mainstream, financial services companies race to adopt and adapt them to keep up with consumer expectations. Emerging technologies also create opportunities for companies to transform their operations and processes; automating time-consuming manual processes, developing advanced analytic capabilities to provide better business insights and creating original and disruptive concepts like cryptocurrencies.

Risk

Technology-driven businesses models and digital transformation bring huge benefits but also create new risks. High-profile technical failures in the financial services sector have damaged consumer trust, market integrity and companies’ reputations. Most financial services businesses are investing heavily in cyber security – for their systems as well as their customers – and this is driving further innovation.  

Which technologies are driving Fintech innovation?

The financial services sector is very broad including: accountancy, banking (retail, business and investment), payment services, insurance, pensions and more. Companies are adopting technologies that are adopting and developing digital technologies that reflect the requirements of their subsector.

Several technologies are already shaping the future of the financial services sector:

Artificial Intelligence and Big Data Analytics

Artificial Intelligence is creating new opportunities across a range of areas. AI facilitates advanced predictive analytics and automated decision-making by processing and analysing of vast amounts of data. The challenge lies in accessing and processing the relevant datasets by using unified data structures to create automated data pipelines.

AI is being used to identify and address cybersecurity threats and cyber risk such as malicious files, suspicious IP addresses etc. AI also supports a variety of other applications such as fully automated fraud detection, stock price forecasting and loan applications processing.

Recently, UK financial regulators have expressed ethical concerns over accountability, transparency and programmed bias. For instance, banks considering AI-driven loan application decisions have been warned that they will need to prove that their algorithms are not discriminatory.

Blockchain and Distributed Ledger Technology (DLT)

DLT makes use of a decentralised peer-to-peer network to record, share, and synchronise data and transactions. It does this across multiple data stores in a secure and immutable manner, using cryptography and consensus algorithm methodology.

This technology has given rise to the emergence of cryptoassets, which mainstream financial services businesses, including Visa, Mastercard, and PayPal have started to adopt. Recent innovation has seen the emergence of digital wallets, digital assets, decentralized finance (DeFi), and non-fungible tokens (NFTs) and some countries are considering the introduction of ‘central bank digital currency (CBDC)’.

The potential future uses for blockchain and DLT within financial services include transforming how payments are processed and securing the online trading of bonds, stocks and other financial assets. Companies hoping to explore the adoption of blockchain and DLT will need to consider challenges such as scalability, security, privacy, network congestion and energy consumption.

Cloud and Distributed Computing

Cloud-based applications and data centre infrastructure provide the low-cost storage and processing capabilities that make AI-based applications feasible. Technology providers like Microsoft have built distributed computing capabilities to make AI and quantum computing more accessible.

Microsoft Azure Quantum, one of the most powerful supercomputers leveraging the power of the cloud, is an example of the potential of distributed computing. Improved access to on-demand supercomputer capabilities will accelerate the development and deployment of AI-based applications.

Internet of Things and 5G

The Internet of Things (IoT) refers to the billions of physical devices and sensors that can be virtually connected to share and exchange data with each other and with systems. The deployment of the 5G mobile network is key to connecting these devices and partly driven by the potential of IoT.

There are already several opportunities to use IoT in financial services. Many will already have heard about car insurers using black boxes to track data such as speed, time of day and driving style to determine premiums. A straightforward use of the IoT.

A more complex application may emerge as corporations use IoT to measure, and then reduce, the environmental impact of their commercial activities in response to growing pressure from investors, consumers and regulators.

Serverless and Microservices Architecture 

Serverless architecture enables the building of applications that run on servers fully managed by a third-party cloud provider instead of an on-premise server operated by the company. As the shift towards cloud computing increases, financial services companies will also have to consider implementing their application platforms based on a serverless and microservices architecture. 

The serverless architecture approach makes it more viable to implement event-driven microservices-based architectures where an application is split into several ‘micro-services’.

Cloud-based serverless services are on-demand, easily scalable and cost-efficient. They enable businesses to avoid the issues of provisioning and managing IT infrastructure. However, there may be concerns around security especially where critical banking applications are affected.

How can you fund fintech development and other innovation?

When your business invests in innovation or developing new intellectual property, including work to make existing processes faster and more efficient, it can claim tax relief from HMRC. This can come in the form of cash refunds or reduced tax liabilities.

Most of our R&D team are software developers, engineers, and technical specialists and we have significant experience of working with clients in the banking, fintech and financial services, hedge funds, quant and derivative trading businesses. We can help you identify what will qualify and how to build a successful R&D claim, as well as helping with patent box claims for the patentable technology you create.

R&D tax relief – Most projects that harness these types of technology are likely to constitute some level of Research and Development that would qualify for R&D tax relief.

Patent box tax relief – Software and technical innovations can be patented opening the way for the owning company to claim patent box relief on patent-dependent profits streams giving an effective 10% rate of corporation tax on those profits. 

Innovation grants 

If you want to introduce disruptive technology and commercially innovative services or product offerings, there are grant providers who can help support the journey.

Our grant team at BDO can support you through the whole journey, from identifying the right funding to preparing and submitting a high-quality application as well as providing financial coordination services during the project to accelerate the grant repayment.

Grant providers include:

• Innovate UK – Smart Grants
• Innovate UK – Innovation Loans Future Economy Competition
• Eureka – Eurostars

For help and advice on help with funding your innovative projects, please contact Carrie Rutland.

R&D Benchmarking Tool

There have been fundamental rules changes to R&D tax relief qualification and claim reporting requirements. BDO has an advanced mobile ready solution available to benchmark your R&D claim benefit against companies of a similar size and the industry sector. For more information visit our BDO store.