Ten years ago, paying for something often meant swiping a credit card, withdrawing cash meant stopping at an ATM, and borrowing money meant a visit to a bank’s loan officer.
Today, all those transactions can be handled in a single place: the screen of a smartphone.
In 2022, $1.3 trillion in payments were made worldwide using smartphones and other mobile devices, according to the Global System for Mobile Communications Association, a mobile carrier consortium.
Mobile payments are just one aspect of what’s known as fintech, which is short for financial technology. Fintech is disrupting the world of financial services and opening up new opportunities and markets for businesses and consumers. At the same time, it’s created new challenges, such as the need for fintech cybersecurity. Trillions of dollars stored digitally and changing hands over the internet provide massive new targets for cybercriminals.
The future of fintech promises further change. For cybersecurity professionals, keeping up with trends and technologies such as decentralized finance, blockchain security, and artificial intelligence will be crucial to protecting depositors, investors, and the fintech industry itself. Pursuing an advanced education is one way for cybersecurity professionals to stay ahead of the curve in this crucial sector.
How Fintech Is Shaping the Future of Banking Today
The fintech industry is growing rapidly. According to the Boston Consulting Group, fintech will account for 25% of global banking revenue by 2030. A look at fintech today reveals several trends driving its growth and its increasing number of forms.
Drivers of Fintech Growth
Over the past two decades, more and more activities have moved from physical spaces to digital ones, from shopping to watching movies. It’s no surprise that finance is following a similar path, but a convergence of trends has been accelerating the process.
- Sixty-eight percent of the world’s population owned smartphones in 2022, according to Statista.
- The COVID-19 pandemic required new ways to do business without interacting with others face-to-face.
- Technological innovations such as big data analytics, cloud computing, and blockchain have lowered costs for companies seeking to offer innovative financial services.
Forms of Fintech
An examination of how fintech is shaping the future of banking shows that it has already proliferated into a broad array of different forms. They offer alternatives to traditional financial services, from bank accounts and borrowing to raising and investing capital.
Apps like PayPal and Venmo facilitate e-commerce by letting individual buyers and sellers exchange money without mailing checks or incurring credit card fees. In stores, digital wallets like Apple Pay and Google Pay allow customers to pay for purchases by tapping their phones on a terminal.
Neobanks are online-only banks that offer limited services, like checking and savings accounts. Because they don’t have physical branches, they often charge lower fees than traditional banks. The largest U.S. neobank, Chime, had 22 million account holders in 2023.
At online lenders like SoFi and Prosper, consumers and businesses can apply for loans, upload documentation, and get approvals without visiting a bank or loan office — and often with faster turnarounds than at in-person lenders. Allied Market Research projects that online lending will grow to $4.9 trillion globally by 2030.
Entrepreneurs have traditionally raised money from friends and family, angel investors, and venture capitalists. Crowdfunding gives them other options.
- Sites like Kickstarter and Indiegogo let entrepreneurs pitch new product ideas directly to the public, collecting cash from large numbers of small funders.
- Equity crowdfunding platforms, such as AngelList and SeedInvest, play matchmaker between startups and groups of investors.
Digital assets are items of value stored in digital form — most often in blockchains, which are public ledgers verified and stored in multiple locations across online networks. Digital assets include cryptocurrencies like bitcoin and ethereum, which can be spent for goods and services or traded for other currencies.
They also include non-fungible tokens (NFTs): unique digital objects such as artwork, music, and manuscripts that are kept on blockchains and can’t be duplicated. The most expensive NFT, a digital artwork titled “Everydays: The First 5000 Days,” was auctioned for $69 million.
Advantages and Disadvantages of Fintech
Like any emerging technology, fintech offers both new opportunities and new challenges. Understanding both sides of the equation is crucial to navigating the future of fintech, helping users take advantage of its strengths while avoiding its pitfalls.
In any industry, new products evolve to fill needs. Fintech meets a variety of needs for consumers, businesses, and investors, offering significant benefits compared to traditional financial services.
Because neobanks don’t have the overhead of brick-and-mortar locations, they can charge lower fees and offer higher interest rates than traditional banks. A 2023 survey by Bankrate found some online banks were charging 3% lower interest rates on loans, while offering up to 3% higher rates on savings accounts.
Alternative Credit Standards
For applicants who have no credit history or credit scores, many fintech lenders will look at other potential measures of creditworthiness and likelihood of repaying a loan, such as:
- History of paying rent and utilities
- Income records
- Assets in bank accounts
By offering new kinds of low-cost accounts, fintech can expand public access to financial services. The World Bank reports the following trends:
- The share of adults making digital payments rose from 35% in 2014 to 57% in 2021.
- The share of adults with financial accounts rose from 41% in 2011 to 71% in 2021, due partly to advances in fintech.
Fintech can help create greater access to financial services for underserved populations, including:
- Low-income individuals without bank accounts, credit cards, or credit scores
- Rural residents without geographic access to banking
- People of color: A 2021 survey by fintech app developer Plaid found 37% of Black respondents and 31% of Hispanic respondents used online banks with no-fee or low-fee accounts.
Easier Money Transfers
Instead of using cash or checks, individuals can send and receive money through apps like Venmo for everything from buying a used car to paying for lawn care. Internationally, the World Bank reports that mobile money apps charge 2% less than wire services to remit money across borders.
Fintech carries risks as well as rewards. That’s especially true for an industry that’s experimenting with new technologies, new products, and new rules.
In a traditional bank, the Federal Deposit Insurance Corp. (FDIC) insures up to $250,000 of an individual’s deposit. If the bank fails, the FDIC compensates depositors. Most online-only banks aren’t directly protected by the FDIC.
Some neobanks do partner with traditional banks to insure their deposits. However, customers may experience delays in getting their money if such a neobank fails.
Vulnerability to Fraud
Compared to traditional financial services institutions, fintech institutions may have fewer systems for detecting and preventing fraud.
- The fraud prevention firm Sift reported a 70% increase in cases of digital payment fraud in 2021.
- A 2023 Journal of Finance study of a pandemic business lending program found that fintech loans had three times as many indicators of potential fraud as loans from traditional banks.
Over time, digital assets tend to fluctuate in value more than stocks and bonds, making them riskier for the average investor.
- The combined market capitalization of all cryptocurrencies peaked at $2.8 trillion in November 2021 and crashed to $873 billion eight months later, according to CoinMarketCap.
- An analysis by the online bank Swissquote found that, in 2020, the cryptocurrency bitcoin was 2.4 times more volatile than the S&P 500 and 5.5 times more volatile than the U.S. dollar.
Because many fintech institutions don’t fit existing financial regulation frameworks, they may be subject to unexpected penalties by regulators. For example, in 2023, the Securities and Exchange Commission sued two of the largest cryptocurrency exchanges, Binance and Coinbase, on charges ranging from mishandling of deposits to selling unregistered securities.
Poorly secured fintech systems can be vulnerable to theft of depositors’ assets. In 2023, hackers stole a record $3.8 billion from cryptocurrency businesses, according to the blockchain security firm Chainalysis.
The Future of Fintech: Blockchain Security and Other New Technologies
Existing financial technologies have already revolutionized the financial world. Exploring the future of fintech reveals a wide array of emerging trends and technologies — many of them blurring the lines between fintech services and traditional financial services. Fintech cybersecurity professionals will need to understand these new technologies to ensure their reliability and safety.
Although blockchain technology was originally developed for cryptocurrencies, financial entities are experimenting with several other uses.
- Digital national currencies. Digital versions of currencies like the U.S. dollar are being considered by 60% of central banks, according to a 2021 survey by the Bank for International Settlements.
- Smart contracts. Computer-coded agreements stored on blockchains can automatically execute themselves once conditions are met, speeding up processes like paying claims and determining loan eligibility.
- Authentication. Keeping customer data on blockchains can help verify identities and information without having to upload documents.
Decentralized finance, also known as DeFi, is an emerging use of blockchain that cuts out banks from transactions between businesses. Users can lend, borrow, trade, and invest using digital currencies, paying lower fees than those charged by traditional financial institutions. Zion Market Research projects the DeFi market will generate $232 billion in revenue by 2030.
Increasingly, the convenience of fintech tools is making it possible for nonfinancial companies like retailers to embed financial services in their online stores. One popular form is buy now, pay later (BNPL), a digital payment plan in which buyers agree to pay for purchases through a series of automatic payments over time.
A 2022 survey by investment research firm The Ascent found that 50% of adults had used BNPL in the past year. It was especially popular among consumers 44 and under, with 60% having used it.
Stringent credit requirements can make it difficult for startups to borrow money. Fintech lenders offer alternatives to traditional loans.
- With revenue-based financing, the borrowing company repays the loan with a percentage of their revenue each month, instead of a set installment payment.
- Using invoice factoring, a company can raise immediate capital by selling some of its accounts receivable to a third party at a discounted rate.
Artificial intelligence (AI) has a notable role to play in the future of fintech by making financial operations more efficient while reducing human errors. McKinsey & Co. estimates AI could add $1 trillion a year in value to the banking industry.
In fintech, AI can appear in a variety of manifestations:
- Chatbots that interact with customers
- Automation of processes like the gathering of documents, verification, and loan approval
- Robo-advisors that offer investment advice
- Automated analytics that draw conclusions from big data and present them in graphic reports
With cloud computing, companies rent space on remote servers to store and manipulate their data. The practice can make fintech services less expensive by:
- Freeing companies from the costs of building their own information technology (IT) systems
- Making it easier for banks to send customer payments to third parties like Amazon, by using the same cloud-based systems
- Helping banks partner with retailers to offer services like BNPL
Because processing financial data is software-intensive, buying or building software can be a major expense for fintech firms. As cloud computing brings down hardware costs, innovative alternatives can bring down software costs.
- Software as a service (SaaS) lets companies pay as they go to use third-party software.
- Open-source software allows fintech firms to customize existing code for their needs rather than create apps from the ground up.
- No-code platforms make it easy for nonprogrammers to create apps by dragging and dropping elements on visual interfaces.
Internet of Things
Taking advantage of sensors built into everything from credit cards to heavy machinery, known as the Internet of Things, can make the process of transmitting and verifying data faster and more accurate for financial services.
- Digital payments can be made from wearable technologies like smartwatches.
- Insurance companies can use automobile sensors to determine a driver’s safety risk and set premiums more precisely.
- Energy traders can remotely monitor renewable energy outputs and carbon emissions.
The Future of Fintech Cybersecurity
As fintech evolves into new products and technologies, cybersecurity is evolving along with it. The analytics company GlobalData forecasts banking institutions will spend $10 billion on cybersecurity in 2024.
Fintech cybersecurity professionals use the same basic protections that cybersecurity professionals in other areas use: firewalls, employee security education, and incident response plans. But they take additional precautions more specific to fintech to prevent and detect financial fraud.
Rather than relying on a single technology to prevent fraud, effective fintech cybersecurity professionals use a layered approach, employing an overlapping array of best practices.
Fintech cybersecurity begins with a comprehensive risk assessment to identify a system’s vulnerabilities. AI can back up human expertise in uncovering weaknesses. Assessments should also take into account third-party risks, by examining the company’s vendors for security flaws.
Because fintech institutions store and process sensitive personal data, they should use multiple technologies to keep it secure.
- Encryption protects both stored data and transactions by making them difficult for hackers to decipher.
- Tokenization masks data like an account number by creating a dummy number, which a fintech system processes in place of the real one.
- Blockchain security can protect a piece of data from being altered by storing it in multiple locations on a network.
To limit password theft incidents, fintech cybersecurity processes employ extra measures to authenticate a user’s identity, such as texting a one-time code to a phone number after the user enters a password.
New biometric technology that offers more sophisticated forms of multifactor authentication is becoming available as well. Beyond identifying a face or a fingerprint, it can detect personal markers in a voice or track movements to ensure the user is a live person.
Another means of verifying identity is device fingerprinting, which determines whether a photograph was generated by the same device as the one that’s being used.
AI Threat and Fraud Detection
With AI’s ability to analyze huge amounts of data in real time, it can identify patterns that human observers might miss, including the following:
- Anomalies that could indicate a cyber attack, such as unusual patterns of activity or unusual times or locations for logging in
- Indicators of possible identity fraud, such as multiple transactions from one device, or purchases from an unusual location or for an unusually large or small amount
- Potentially fraudulent transactions that can be detected by looking at data like a user’s age, purchasing habits, and any prior fraud claims
Explore a Career Protecting Financial Security
To keep fintech companies and customers safe, cybersecurity experts need to stay up to date on the latest trends and technologies. Enrolling in a degree program like the online Master of Science in Cyber Security at The University of Tulsa can help equip individuals with the knowledge and practical experience they’ll need to meet the cybersecurity challenges of today and tomorrow.
TU’s program combines foundational concepts like network security, cryptography, and penetration testing with instruction from professors who are active in the field. Learn more about how the program can help you pursue your career goals in the field of cybersecurity.