The Trends in FinTech and their Development in Latvia

15 May 2017

Technological development affects all sectors of the economy with the financial sector being no exception.  The FinTech sector has introduced a novel direction in financial services, which not only involves dynamic development from day to day but also interconnects financial services with cutting-edge, technological solutions. In today`s fast-paced world, FinTech companies specialize in remote services and offer time-tested and useful financial tools that enable them to compete with traditional banking services according to “Transact Pro” experts.

The FinTech sector is based on two major product groups.  The first is safe and secure software programs for financial services, which has a proven track-record and uses the B2B (business-to-business) model. The second product group has recently been developing more rapidly and is focused on the end-user, meaning to serve the B2C (business-to consumer) segment. Its aim is to solve ambitious tasks and compete with traditional financial service providers in order to win market share in the segment containing the “mass”-consumer.

In an effort to overtake the non-banking financial sector players, which have been the leaders in new FinTech product introduction, the banks have vigorously begun to use different financial and payment mobile applications.  With the aim to improve the quality of client service and raise security standards, the banks have started making instruments that in large part, resemble the products initially developed by FinTech. As a result, the difference between the traditional bank mobile applications and the ones offered and developed by FinTech are becoming less dissimilar.

Banks have increasingly started to use biometrics in order to identify their clients. In fact, by the end of 2016, almost a third of all banks in the U.S. will be using voice, fingerprint and face-recognition technologies as client verification tools.

According to Transact Pro: when you use a credit or debit card, the client is verified by way of PIN number or signature, which ultimately loses out in terms of better security to fingerprint or face recognition measures when the client is physically identified.  Anyone can access your financial resources once they access your PIN number or card. In the case of visual verification or by using biometrics, the risk of unauthorized access is markedly reduced since the client must be physically present.  Whereas in other parts of the world there are projects currently running in which fingerprint verification for payment is commonplace, in Latvia, the trend towards biometric verification is only in its future plans.

Moreover, in Latvia, many FinTech solutions arrive to the market late. For example, while in many parts of the world contactless payment technology has been gaining the trust of clients for quite some time, Latvia has only recently started to spread this technology. Contactless payment via POS terminal can be observed in the public transportation e-ticket system. Swedbank, one of the largest banks on the Latvian market, has begun to offer contactless payment cards and POS terminals at appropriate shop locations. For reasons of security, these cards have had limits imposed. With the Swedbank contactless payment cards, it is possible to pay for small purchase of up to 10 EUR.

In making contactless payments, you do not have to necessarily use a contactless payment card. In fact, the card may be virtual or be on your smartphone. It is possible to use your mobile payment application and make payments without cards by using a mobile wallet. Many mobile wallet users in Latvia have already appreciated the convenience of using services such as Mobilly and Taxify.

It is interesting to note that the banking industry is not the only competitor to the FinTech product developers. Smartphone manufacturers such as Samsung and Apple also want their market share. This is why they have invested in their own mobile wallet design.  From 2014 in the US and in Asia the system Apple Pay, which deciphers the client’s bank card and has actively been developing and has shown success, allows the client to pay using their bank card by not using the magnetic strip of the card but rather the wireless connection with their Apple device. Last year, this system was introduced to Great Britain, Canada and Australia and this year Apple plans to enter the European market. Next year, Apple has plans to expand into India, China and other countries.

In the European Union, the supervisory authorities and regulators have an important role to play in technology development. By using the new laws and regulations, they are trying to reduce the risks associated with the introduction of new technologies to the market. At the same time, this also limits development.

Remote service competes not only in payment and transaction service sectors but also in mobile applications that are for currency exchange. These applications provide that one can exchange currency quickly and securely at a minimum of expense. In the financial sector, it is important to also stress that there are mobile applications that can track stock prices, set priorities, and obtain the latest analytical data and graphs. A different type of financial service is offered by the British start-up company TransferWise, which offers the possibility to make cross-border money transfers to anywhere in the world at a minimum of expense instead of overpaying for expensive bank transfer fees. Another type of financial service is the new card project – Revolut. This project allows the client to withdraw money from ATMs all over the world free of charge. In addition, it also offers the ability to transfer funds to anywhere in the world free of charge and more. 

Today, many are faced with the problem of too many cards in your wallet; from loyalty cards to bonus cards to other payment cards. In order to address this problem FinTech product developers have come up with pilot projects for a new generation of mapping that is able to combine an almost unlimited amount of payment cards into one. As an example, the MasterCard and British Start-up Company “Curve” has collaborated to come out with an innovative product. The card data, can be linked to different accounts, then the data is uploaded to the Curve map by using a specially designed program. This program makes it possible to see all the cards’ payment history and allows the client to add a new card simply by taking a picture of it. This unified map is linked to the mobile application Curve, which ensures transaction management from a single solution in real-time mode.

Remote service solutions are thoroughly thought out and used as convenient instruments to find FinTech solutions. The solutions, which are offered by FinTech start-up companies is only a shell to a larger task that involves a technologically complicated product, integration and interaction between different systems and processes while being compliant to all laws, rules and regulations. The aforementioned start-up companies can be helped and serviced by companies, which provide technological security, vast experience and knowledge of the laws in various jurisdictions such as the active support of financial services offered by the company Transact Pro.

Looking at the forecast for 2016, the Transact Pro professionals emphasize that virtual wallets and mobile payment systems will not completely replace payment cards in the near future; the reason being security issues and infrastructure development. Says one expert: "More and more interesting and novel FinTech products will both replace and work in tandem with current payment card technologies and products. Nevertheless, FinTech products are still a far cry from becoming “mainstream” methods of payment.”

It should be mentioned that a prevalence of smart-watches is also attracting many new FinTech start-up companies. They are developing and searching for new solutions for the management of financial products using hand-held gadgets.

On the whole, FinTech solutions help effectively manage financial resources at various levels especially at the small business level. Most people who do not have access to banking systems will now be able to engage in their own financial service development enabling them to partake in business activities by making money transactions more accessible. In 2016, innovation and technology are increasingly contributing to overall financial integration.