Four trends in fintech you need to know now

From inflation and interest rates putting Canadians’ bank accounts under strain to the crypto industry’s recent rollercoaster, the finance industry is in the spotlight.

This month, top experts in the world of finance will descend on Toronto to discuss outlooks for the industry at Sibos. Organized by Swift, the annual event connects thousands of executives, decision makers and thought leaders from around the globe. There’s a lot to discuss. While many people and companies are still focused on the near-term issue of higher interest rates impacting their finances, in the background much more profound changes are happening.

Here are four important trends that will shape the future of finance.

The regulators are coming for crypto

The Wild West days of crypto currency may be coming to an end. Ongoing legal dramas surrounding Sam Bankman-Fried, who has pled not-guilty to fraud charges related to the collapse of crypto exchange FTX, have knocked confidence in the industry. Meanwhile, the U.S. Securities and Exchange Commission is suing CoinBase, one of the biggest crypto trading platforms still standing, alleging it broke securities laws (which CoinBase denies).

While the associations with alleged white-collar crime certainly don’t help with adoption of cryptocurrencies, David Newns, head of Zurich-based SDX, the world’s first fully regulated digital exchange and central securities depository, remains bullish on their long-term prospects. “It’s not the underlying technology that’s at fault here.”

Newns says the recent news has spurred interest in tightening up regulations, which would be a good thing. “Regulations provide clarity while ultimately ensuring that investors are protected,” he says, adding that in Switzerland and other parts of Europe, transparent and effective crypto regulations have been in place for some years. “The lack of regulation in the U.S. is a drag on the adoption of crypto on a global basis. Laws coming into effect will help mitigate some of the damage that’s been done.”

Go deeper: Tokenisation: The Future of Securities or Just a Digital Dream? Sept. 19, 2:30 p.m.

Identity documents are going digital (maybe)

These days, you can apply for a bank account from your sofa, but at some point in the process you’ll collide with the old-school problem of proving who you are. If you’re lucky, you’re looking at 10 minutes of trying to take a photo of your driver’s license that’s clear enough to pass muster with the bank’s website. If not, you’re headed to a branch to show a piece of plastic to a real human. In fintech speak, proving your identity is called a “friction point.” Most people would call it a hassle.

There is growing interest in methods of proving identity digitally. But it’s a fiendishly complex task that requires collaboration between numerous tech companies, governments, financial institutions and more. This fall, Apple will take the biggest step yet, when it starts enabling iPhone owners to store their IDs in their iPhone’s wallet feature. The company says participating businesses, such as bars or car rental agencies, will scan the user’s phone to confirm the user’s ID. Though it’s some way from being able to prove your identity seamlessly online, digital ID proponents are still excited as many of the underlying principles are the same.

Go deeper: Meet the experts: Why digital identity is key to product innovation in retail and transaction banking, by TD Bank. Sept. 21 at 12:30 p.m.

Fintech startups are helping Canadians upgrade their financial literacy

With one in three Canadians in either “bad” or “terrible” financial shape, and nearly half of homeowners finding their mortgage difficult to manage, it’s clear that the country is struggling with financial literacy. The rise of new investment platforms and crypto currencies has added more confusion. Education is important, but “it’s intimidating to walk into a bank and start asking a bunch of questions,” says Jennifer Reynolds, CEO of Women Corporate Directors Foundation and former head of Toronto Finance International.

That’s where fintech startups can help. Countless apps and websites have emerged in recent years that help consumers plan their budgets and research investment opportunities. Among them are Borrowell, one of the first companies in Canada to offer free credit scores, and KOHO Financial, which sells affordable plans and products to help people build their credit. KOHO also runs an educational blog filled with free finance tips. Many startups also leverage AI and algorithms to offer personalized insights and analyses around spending and saving, plus tailored recommendations for financial goals.

Startups can make financial services more accessible, too. Banks are heavily regulated and  follow strict lending criteria, which often means they require a lot of documentation, such as pay stubs or even tax returns, to take out a loan. But alternative lenders often use technology to assess credit worthiness in novel ways, such looking at applicants’ cash flows and monthly bank account transactions. Provided people do their research on these services, says Reynolds. “these are really important resources for Canadians.”

Go deeper: Closing the Financial Gap — The Role of Fintechs. Sept. 20, 4:30 p.m.

Everyone’s kicking the tires of digital currencies 

With 130 countries exploring creating digital versions of their currencies — including the Bank of Canada, which conducted a consultation on a digital loonie earlier this year — there are questions about the future of cash itself.

With online banking, mobile apps, e-transfers and touch-free payments, it may seem like our money exists mostly in virtual form already. “But the underlying infrastructure is still largely non-digital,” says Kelly Mathieson, chief client experience officer at financial technology provider Digital Asset. When you buy something with a card, the settlement of that payment actually takes days, not seconds. With digital currencies, which could be built on blockchain technology, it could happen instantly. In theory, that faster process could spur innovation in new services. But will we ditch our physical wallets any time soon? Don’t bet on it. The Bank of Canada’s own researchers recently concluded that Canadians already have so many ways to pay for things that they’re unlikely to see a need for a digital currency.

Go deeper: Is the Future of Money Digital and Instant? Sept. 18, 9:15 a.m.

 
Sibos runs Sept. 18–21 at the Metro Toronto Convention Centre. Register for in person or digital tickets.

 
Image source: iStock