FinTech is no longer a passing trend but a profitable venue for startups and financial incumbents. Banks and financial institutions embrace the shift towards digital to capture the value of the growing segment of digitally active customers and reduce capital and operational expenses.
While SupTech and RegTech companies ensure the global economy does not see the repeat of the financial crisis of 2007-2008 and strive to protect sensitive data, FinTechs' goal is to develop a mobile banking application full of customer-facing features. The apps gain popularity across the globe, despite security concerns, help companies add value throughout the customer journey, expand their ecosystems, and enter promising new markets. Let's delve deeper into each crucial facet of banking app development and their business impact.
Demand for Banking Apps Is on the Rise
Worldpay Global Payments Report 2018 shows that while cash payments are decreasing globally, credit and debit card transactions are slowly gaining popularity. However, mobile payments are expected to see the steepest rise from 16% in 2018 to 28% in 2022. The highest demand for mobile payments is seen in China and Mongolia (over 60%) with Brazil, Kenya, and Chile rounding up the top-5. Allied Market Research analysts expect mobile transactions market to exceed $4.5 trillion by 2023 with a compound annual growth rate of 33.8%. However, banking application popularity varies across the globe:
While the USA has one of the highest smartphone adoption rates in the world, 89% of the users prefer to avoid mobile payment due to the lack of confidence and security concerns. This results in a significantly lower adoption rate compared to the global average. Worldpay predicts American mobile payment adoption to creep from 3% to 7% within three years.
China and Singapore are leading the charge for banking app adoption in South-Eastern Asia, but only 27% of the population in the region have a bank account, which is a major barrier for mobile payments adoption on par with low smartphone penetration.
Sweden, the UK, and France are the most cashless European economies. With 77% of EU citizens already using mobile banking and 68% using digital wallet technology, privacy and security remain among their top concerns.
Retail Banker International rates Bank PKO, Chase, Capital One, Bank of America, and UBS as the top-5 mobile banking apps for both Android and iOS. Emirates NBD, Sberbank, Barclays, Lloyds Banking Group, and Garanti round out the top-10 with overall ratings of 4.6 and above. However, WeChat remains the most popular among mobile banking platforms worldwide. Throughout the Chinese New Year 2019, a record number of over 823 million people used the app to send monetary gifts or payments. Surprisingly, the most popular mobile payment system among Americans is Starbucks. Over 23 million people rely on the multi-platform app, while Apply Pay is closing in with 22 million users.
Mobile payment market is growing and evolving, with IT giants seeking to capture the largest market shares. Still, there are plenty of opportunities for FinTech startups to claim their segments and niches considering the growing number of smartphones and mobile payment platforms.
2. Banking Apps Must Balance Innovation with Security
With the increasing adoption of mobile devices, financial institutions get a chance for an innovative approach to customer-centric services. However, unmitigated risks caused by device, network, and server vulnerabilities can cause loss of sensitive personal or proprietary data, including financial information.
According to a report by Accenture and NowSecure, 43% of smartphone users do not rely on device locking features, while 35% of device communications are unencrypted. Moreover, at least 25% of mobile banking apps include one or more high-risk security flaws. While banks have put time and effort into reducing vulnerabilities in banking hardware and desktop software, most financial institutions do not treat their mobile offers with the same "security first" mindset. Writable executive and world-writable files, broken SSL, SecureRandom implementation are among the most troubling issues plaguing the best FinTech apps that remain unaddressed. Network insecurities are the most prevalent and comprise up to 40% of security issues identified within financial applications.
The personal and financial data leaks caused by security issues can result in catastrophic losses, both financial and reputational. To establish security best practices across the institution and uphold regulatory compliance, banks and their FinTech app development teams should follow industry frameworks, such as offered by Federal Financial Institutions Examination Council (FFIEC), ISO 27000, and National Institute of Standards and Technology (NIST).
FinTech developers should continue to focus on security throughout the app life cycle.
Regular source code reviews, penetration tests, vulnerability assessments are necessary to ensure the application remains secure despite the continuous efforts of attackers to exploit the smallest of weaknesses. Lists of known and newly discovered security vulnerabilities can help financial institutions keep track of the effectiveness of the existing safety protocols and practices.
3. Developing Economies Account for an Untapped FinTech Market
While FinTech startups have matured over the last decade and introduced hundreds of innovative solutions that reinvent the traditional banking propositions throughout the mature economies, most financial services and products are still unavailable in developing countries. With a population of over two billion, these economies make up a significant untapped market for aspiring FinTechs.
According to Jake Kendall, the director of the Digital Financial Services Lab, companies willing to take on the challenge and reap the benefits of entering the developing markets face three critical challenges:
Chaotic cash-based financial lives make most loan instruments unsustainable for the local population. Flexible short-term loans, leases, and other contracts are the only viable solutions for the developing economies that do not guarantee a regular paycheck. Uber's Xchange is one example of flexible leases that requires little upfront payment.
The lack of a digital footprint makes it impossible to harness and analyze digital behavior necessary to calculate risk scores and develop personalized offers. SERV'D and CreditFix are the FinTech examples that rely on informal employment data to enable people in India and Pakistan to get loans based on their wages.
Inadequate infrastructure and cloud infrastructure hinders the development of mobile banking apps in developing economies. Companies like Flutterwave and Trulioo help bridge the technological gap and enable FinTechs to create new products through seamless compatibility and integration.
FinTech startups willing to work with the lack of infrastructure, minimal digital footprint, and cash-based economy can bring over two billion people into the digital world and be the first to capitalize on customers new to flexible financial products.
4. Banking App Development Enables Expansion into Relevant Ecosystems
Digitization of financial services through web and mobile apps for banks facilitates the expansion of the product portfolio. This avenue is crucial for financial institutions that possess a significant market share in one or more of their core products segments. Considering the difficulty of increasing the share in existing fields, banks can benefit from creating banking and non-banking ecosystems that provide customers with comfortable and affordable alternatives for their daily financial needs.
The banking ecosystem services include accounting, tax management, loyalty discounts, financial education, budgeting, cash-flow analysis, and more. ING and Ideabank have successfully incorporated many of these services into their ecosystems.
The non-banking ecosystem possibilities are significantly broader and may include home and security services, stock management, healthcare and insurance, subscription management, and more. Following this strategy, Post Bank has turned into the largest Italian mobile phone service provider.
While extending banking services into ecosystems seems daunting, this approach can protect incumbent financial institutions from digital natives that are trying to conquer the traditional market and put incumbents out of business. Banking app development incorporating new financial services and non-banking features remains a fast and efficient way for companies to stay competitive and strive in the ever-changing market.
5. Apps Extend Value Throughout the Customer Journey
Banks treat customer interactions as independent moments instead of supporting their clients throughout their decision-making journeys. This approach leaves significant untapped value that could be monetized and turned into additional revenue streams through increased engagement at all stages of the customer journey from offer awareness to closing the deal and beyond.
Instead of building a single app for banking, Garanti Bank (Turkey) developed a socially integrated set of microservices iGaranti that provides customers with a personalized experience and customized offers based on live data. Aside from traditional features of mobile banking services, the app enables users to send payments via Facebook, withdraw money from ATMs without a physical card, and redeem location-based special offers. These services ensure the holistic banking experience woven throughout the customers' daily experiences, adding value to every transaction.
Extending their financial interactions with customers throughout their buying process can benefit banks that possess significant market shares in banking products integral for customer journeys on a bigger scale, such as credit cards, car leases, mortgages, and more. The addition of new personalized services can improve customer relationship and bring in additional revenue.
Potential Rewards of FinTech Adoption Outweigh the Risks
FinTech apps enable banks and financial incumbents to compete with digital natives, increase revenue, and enter new markets.
According to McKinsey analysts, late adoption of digital innovations will cause retail banks to risk losing up to 35% of net profit due to increased operational risk, margin compression, and competitors' innovative offers. Moreover, financial institutions unwilling to embrace the shift towards digitization may miss an opportunity to increase their net profit by up to 45% through lower operational costs, increased revenue from new digital business models and offers.
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