How Emerging Technologies are Helping Fintech Grow in Boston
From its humble beginnings as a port city, ‘Beantown’ has come a long way to poise itself as one of the world’s leading fintech hubs. Although, Boston did not emerge as a fintech stronghold overnight. The city’s emphasis on strengthening its financial and educational institutions over centuries has led to it attaining this status. Not to forget the top-notch software development companies in the city.
Thanks to emerging technologies automating financial services for a wider user base, the global adoption of fintech increased from 16% in 2015 to 64% in 2019. The growth of this industry and Boston’s solidification as one of the prime locations for upcoming fintech startups happened almost simultaneously. The city now sits right at top along with other popular industry hubs such as New York, San Francisco, and Los Angeles.
In this article, we’ll take an in-depth look at the relation between the role of emerging tech in the growth of the industry, and how it helped the fintech ecosystem in Boston prosper. Let’s get right into it:
Fintech refers to the class of businesses that provide financial services by leveraging technology. These businesses may provide their services using custom software, apps, and core tech like blockchain. With ‘tech’ being a keyword for this sector, it’s evident that the continuously evolving technological landscape is shaping its future.
Speak of technological advancements, and AI is bound to come up in the conversation. Despite its overwhelming popularity, however, the use cases for AI aren’t very extensive or common.. Thankfully, that’s not the case with the fintech sector. There are abundant examples of such businesses leveraging AI to offer their services.
The applications of AI in fintech range from providing expert customer services to preventing fraud. PayPal is an excellent example of a finance business employing AI. They use algorithms that study a customer’s previous spending and buying patterns to point out any anomaly. It helps them keep fraudulent transactions at bay and operate without hiccups.
There are plenty of data points for fintech businesses to analyze these days. It can review stock patterns to predict their success, explore customer’s history to provide them insurance at reasonable rates, and even scope out new areas of investment. The success of AI stems from its ability to ingest large volumes of data and process them efficiently using machine-learning algorithms.
It might be a difficult task to point out a fintech business that isn’t or couldn’t benefit from wonderful offerings of AI in one way or another. And in case you’re contemplating AI for your business, there are plenty of talented app developers in Boston already creating AI-based apps, so you could have it rather easily.
One can argue that smart chatbots are mere extensions of AI, and that’s true. However, chatbots alone have had such a vital role in the success of fintech businesses that they deserve a separate mention.
Most fintech businesses are disruptive in that they provide better banking services to customers without the usual hassle of traditional banking systems. Not that long ago, a customer had to visit the bank to carry out retail-banking activities. But that’s not the case anymore. Fintech startups provide most of those services to customers at their fingertips thanks to AI-powered chatbots and virtual assistants.
These chatbots can quickly address customer grievances, provide them with information, manage their budget, and even advise them on where to invest next. Many fintech service providers deploy these chatbots over popular messaging apps such as Whatsapp and Messenger, which takes care of the app fatigue. As customers are already used to texting over these apps, this leads to a seamless integration of these smart chatbots into their lives.
While chatbots have made banking tasks easier for customers, virtual assistants have also transformed the way customers approach financial transactions these days. Virtual assistants are capable of everything we mentioned for chatbots, but they do it in a conversational manner. Natural Language Processing (NLP) has made significant strides in the past couple of years, and advanced algorithms can now easily mimic a humane conversation.
Fintech customers rely on these virtual assistants for reminders to keep from overspending, inform them of new offers and better discounts, and automate payments wherever necessary. Going by the current trends, it’s safe to say that chatbots and virtual assistants will assume a constant position in the lives of fintech customers.
It can be tough to determine which is a more hyped buzzword — fintech or blockchain. Most folks can associate blockchain with only one of its successful applications, i.e., cryptocurrency. But there’s a lot more to this technology than meets the eye.
Blockchain refers to a distributed and decentralized ledger system that generates permanent and immutable records. And by that token, blockchain finds various useful applications in the finance industry.
One powerful application of blockchain is smart contracts. These digital contracts lay down the terms of the agreement and enforce it only when participants carry out their side of the bargain. Smart contracts bring trust and reliability into partnerships and make it easier for businesses to explore new ventures and partners.
Another prevalent way in which fintech leverages blockchain is for digital payment. Transactions through traditional institutions such as banks can be a drag in a lot of cases. They can be time consuming, and the additional charges don’t make things any pleasant either. With blockchain, customers don’t need to worry about all those additional charges while sending payments to any part of the world. Various fintech startups facilitate such blockchain transactions for their customers.
Internet of Things
IoT is still at its nascent stage in the field of fintech. Its successful applications in our day to day lives have motivated startups owners as well as legacy institutions to deploy it in the area of finances. Banks are now partnering up with fintech IoT service providers to automate processes and simplify transactions.
Auto insurers, for one, are increasingly deploying IoT based solutions to provide usage-based insurance and to settle claims more efficiently. They take the help of electronic logging devices that record a bunch of vehicle data once installed. The data helps insurance companies assess driver behavior and vehicle maintenance. Customers exhibiting safe driving patterns benefit from such systems since they qualify for cheaper insurance policies.
One other application of IoT in fintech is for supply chains. Parties can verify fulfillment and other factors with the help of sensors. This system improves a supply chain’s efficiency by eliminating inspection time and automating transactions based on information collected via sensors.
IoT has also found its way in traditional banking systems. Banks now allow access to cash machines in the off hours based on information collected from the user’s smartphone. They have also started placing various sensors within their premises to help customers navigate around. Dover Microsystems, a startup based in Boston, is a great example of a business creating such IoT solutions.
Most state and federal laws were laid down when there was no internet or other technologies that we use today on a daily basis. While the authorities are trying to update these laws as fast as possible, there is often a fogginess associated with compliances. Sometimes, there are so many regulations to take care of that it is humanly impossible to check on each one of them. Regulatory Technology or RegTech is the technological intervention that helps businesses better deal with such compliances.
RegTech is quite like fintech in terms of its widespread impact on existing systems. And this impact has also penetrated the fintech ecosystem. Regtech allows fintech businesses to offer their services with the bonus of compliance with local and federal regulations, fuelling the sector’s growth.
Quantum computing is still in infancy compared to the rest of the technologies mentioned above. However, it’s so promising that financial institutions are already scrambling to get their hands on it. Barclays and JP Morgan Chase have already joined the IBM quantum computing network in their bid to bring the efficiency of quantum computers in their operations.
With this technology, financial institutions will be able to carry out many complex computations in much less time. It means they can get better at risk mitigation, stock predictions, asset pricing, and so much more. As the technology becomes more mainstream, we will see more fintech businesses bringing it into the mix and providing far superior services to their customers.
Emerging technologies are just one part of the equation when it comes to a thriving fintech sector. The next thing it needs is an environment conducive to growth with enough venture capitalists to invest and abundant talent to propel the industry forward.
How is Boston Set to Become a Leading Fintech Hub
History with financial institutions
Boston is home to Massachusetts Bank, the second bank in the US to start operations way back in 1784. Its banking and finance sector is still among the key contributors to the economy of the city and the state.
The city also has a decent number of people working in this sector. And it’s banking and finance-oriented ecosystems like this where the next big fintech startup is likely to come about. So it’s no surprise that with its successful financial institutions, Boston has emerged a thriving fintech hub.
Rich pool of investors
Backing from investors is one of the key pillars of a successful fintech startup. Boston already boasts many such startups delivering their services to various vertices, most of which secured sound backing from investors within the city.
Kensho’s valuation at more than $500 million is a prime example of VCs’ enthusiasm in this sector. Once again, we have the city’s financial background to thank for the successful funding of fintech startups across the city. A better understanding of the sector along with a keenness to invest is one of the virtues that set Boston’s investors apart from the rest.
Has some of the best minds
So far, we discussed how there is no dearth of ideas and funding for fintech startups in Boston. And while these elements are necessary to conceptualize a business, you need a competent and dedicated workforce to sustain it.
Boston houses some of the most premier educational institutions, including MIT and Harvard. Both frequently rank among the top institutes in the world for higher education. Apart from these, there are almost 60 universities and colleges in the city and an entire force of talented and motivated young individuals waiting for that promising opportunity.
And thanks to the city’s large student population, fintech startups in Boston have a rich and vast talent pool at their disposal. The universities also provide launchpads to students interested in fintech in the form of student groups and programs such as MIT’s delta v.
Boston provides all the resources you need to build a successful fintech business. However, you’re also most likely to deploy your fintech solution using software, and for that, you’d need some talented app developers in Boston.
Simform is an app development company in Boston with more than a decade of experience designing and developing custom-software solutions for its clients, including Fortune companies. Our team of skilled developers use the most advanced development methodologies and produce a state of the art software primed for your business needs.
Feel free to reach out to us, and we will accompany you on the journey of building the next big thing in fintech.