The fintech sector’s biggest challenge lies in its data

27 Jan 2022

Michael Hom. Image: InterSystems

InterSystems’ Michael Hom examines the challenges the fintech sector still faces when it comes to data and how they can be addressed.

For many sectors, the Covid-19 pandemic has caused widespread disruption and challenges. For fintechs, however, it has been the catalyst of major growth as significant changes to consumer banking, spending habits and increased digitisation among traditional banks led to increased uptake of their products and services.

The result? Record levels of investment in fintech globally, reaching a total of $98bn in the first half of 2021. Yet, despite the success the fintech sector has seen over the last year and the fact that they tend to be digital-first, these organisations aren’t immune to the challenges experienced by other, more traditional financial services institutions – particularly when it comes to data and technology.

As the fintech sector looks to build on the momentum of the last year, it must therefore look at the root of those challenges and how to address them before they are able to stall progress and impede growth.

The desire to do more with data

An overwhelming 81pc of fintechs globally have said data issues are their biggest technical challenge, according to research from InterSystems. These struggles are split between leveraging data for analytics, machine learning and artificial intelligence (41pc), and connecting to customers’ applications and data systems (40pc).

This suggests that not only are fintechs struggling with data silos and integration, but they are also finding it difficult to make effective use of their data, particularly in terms of using it to derive valuable insights.

This has a number of implications for fintechs, including hindering their ability to make informed decisions about issues such as the types of products and services their customers require and to continue to innovate.

Furthermore, these data challenges could impact fintechs’ ability to comply with regulations, which could deal a heavy blow to the 93pc who hope to unlock the opportunities of partnering with incumbent banks, for whom security and compliance are key considerations.

Consequently, overcoming data challenges would put fintechs in a better position to be able to embark on lucrative relationships with incumbent banks and sustain the growth they have encountered over the last year.

Bridging data silos

To overcome the challenges they are facing, fintechs must look at their current data management strategy with a view to bridge their data silos and gain a consistent, accurate, real-time view of their enterprise data assets.

Data fabrics, a new architectural approach that accesses, transforms and harmonises data from multiple sources on demand, are gaining significant traction among more traditional firms such as JPMorgan, Citi and Goldman Sachs, and could provide a much-needed solution.

By weaving together different datasets and providing easy and uniform access to data, a smart data fabric can help fintechs generate insights that can be used to get to know the customer better and gain complete visibility to accelerate business innovation.

Going one step further, fintechs may wish to adopt a smart or enterprise data fabric, which embeds a wide range of analytics capabilities, including data exploration, business intelligence, natural language processing and machine learning directly within the fabric.

This makes it faster and easier for organisations to gain new insights and power intelligent, predictive and prescriptive services and applications.

Additionally, budget constraints needn’t be a concern. A smart data fabric allows existing legacy applications and data to remain in place, as such removing the need to ‘rip and replace’ any existing technology and enabling fintechs to maximise their previous technology investments.

This approach will therefore allow fintechs to extract more value and insights from their data, empower them to better meet the needs of their customers and collaborate with traditional financial institutions as they continue their digitalisation journey.

Ultimately, it could set fintechs up for future success and better place them to sustain the growth they have seen through the pandemic.

By Michael Hom

Michael Hom is the head of financial services solutions at InterSystems.

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