Self-Driving Money is Racing Into the Future of Consumer Fintech

Fintech is in a bit of a strange place in its development. Fintech brands are making headlines but not for the most positive reasons. At the same time, funding for fintech companies has been decreasing recently.

While fintech is undoubtedly the future of the financial industry, it finds itself at a juncture where the technologies that will truly push the industry forward, like AI, are not yet available to consumers in any truly meaningful way.

Indeed, while fintech has integrated itself into much of our daily lives, many analysts criticize it for merely offering more convenient versions of widely available products. For example, online banking doesn’t really offer anything new, but it just puts a nicer and more convenient wrapper on an age-old service. In that regard, many fintechs can essentially be viewed as UI improvements.

But this view misses the point: fintech is still a technology that has yet to blossom. As of now, fintech is still building the infrastructure for a future in which AI integration will lead to “self-driving finance,” so to speak.

Laying the Groundwork

While fintech has yet to bear its sweetest fruits, the groundwork it has laid now serves as a sort of primordial soup just waiting for a strike of lightning to kickstart the process of technological evolution.

It seems that the catalysts may be arriving sooner than expected. Fintech adoption has seen a 72% increase since COVID-19 was formally announced as a pandemic. It shouldn’t be hard to see why. With the virus locking down much of the world and social distancing becoming the norm, consumers are hesitant to leave their homes when they don’t need to, and that includes going to the bank.

In fact, despite the risk of transmission of COVID being quite low compared to other coronaviruses, many consumers and businesses view handling cash as an unnecessary risk, which may be accelerating the world’s transition to a cashless society.

Of course, a transition away from cash means there must be a viable alternative. As a result, it seems reasonable that we will see a greater and faster push towards fintech products than we’ve seen in the past as companies work to meet increasing demand. Already, companies that offer upwards of four payment options beyond cash see on average a 29% increase in revenue, which means that cash likely will progressively become even more irrelevant in the years to come.

Looking Towards the Future

While the self-driving finance space is still in its infancy, there are already people and companies that are sold on the idea that the future of money is automated. Startups like Wealthfront and Betterment not only automate specific tasks like putting some extra money into savings when you make a purchase, but they can allocate the entirety of your paycheck to different accounts and investments to help you reach your financial goals.

This is the true future of fintech: self-driving apps that can be given a destination, and then steer your finances toward it. And like most revolutionary ideas, it is not so much a sudden revelation, but rather a repackaging of existing ideas into a new context — with a few new tricks, of course.

In this case, these self-driving fintechs are an evolution of the AI-based algorithms that dominate the financial markets. Since the dawn of the digital era, traders have been using computer programs to take the human element out of trading. Indeed, it’s common wisdom that the hardest part of trading isn’t finding an edge, but rather mastering your mind and beating the psychological biases that tell you to risk it all for a big winner or win back your losses.

Now, these ideas are merely making a transition from the business space to the consumer space. Instead of using these same types of algorithms to beat human psychology to conquer the markets, they are now being used to beat the part of us that says it’s not so bad to go over budget to eat out a few extra times this month or to order that new TV you’ve been eyeing.

The biggest innovation that self-driving fintech startups are bringing to the table is, once again, an intuitive user interface that’s accessible to consumers instead of the thousands of lines of code that financial algorithms use. It’s for this reason that many fintech startup companies have been investing in programs for their web designers to learn about critical UX skills such as user interface designs, formatting and localization, user research, and data visualization.

Privacy Roadblocks

However, before these new platforms can truly see widespread adoption, there needs to be new developments as far as privacy and data security is concerned.

As it stands, even online banking can be a dangerous task if proper security measures are not upheld. This is because as more and more of our finances become digitized, the issues regarding data protection in trading and banking have become more apparent.

In fact, most desktop apps used to access financial data online do not use any form of encryption, which means that data is essentially left out in the open for cybercriminals to access. At the bare minimum, financial companies need to make it company policy to always employ virtual private networks that use critical encryption measures such as 256-bit AES encryption and IPv6 protocols. Additional measures such as DNS protection, DHE-RSA, key exchange, and SHA412 authentication should also be utilized.

While this may be somewhat forgivable for trading alone, when consumers are entrusting the entirety of their income to algorithmic wealth advisors, this sort of lax data privacy simply cannot stand.

We are in the midst of a revolutionary time. As COVID pushes us towards online banking and algorithmic approaches to consumer finance become more prominent, self-driving money seems to be an inevitable reality.

While the future isn’t here just yet, as data security improves in the face of major threats and trust in AI technologies increases, we can be sure that we will see the true fruits of fintech in the coming years.