Finance

BNPL 2023 predictions

Buy Now Pay Later (BNPL) deferred service has been growing rapidly for over 3 years. However, despite this rapid growth, market experts believe that in the face of rising interest rates and expensive money, consumers' potential for excessive indebtedness will decrease. This, in turn, means that the current BNPL model will have to change. In which direction can the service evolve? We have analyzed several probable directions.

 What is BNPL?

BNPL is a service that allows customers to make purchases and then defer payment for 30 or even 45 days. It is a type of installment loan that typically allows you to purchase something immediately with little or no initial payment and pay off the balance over four or fewer payments. BNPL also promotes better budget planning.

The increasing popularity of BNPL in e-commerce

E-commerce is currently one of the fastest-growing sectors of the economy worldwide. In such a dynamic industry, BNPL is a powerful sales booster - it doesn’t only increase the number of customers and revenues, but also promotes customer loyalty. Additionally, BNPL is increasingly used in e-commerce for follow-up abandoned carts to encourage customers to complete their purchases. Most of the European sellers and marketplace platforms are considering (or have already introduced) their own BNPL solutions. Such a service is already offered e.g. by the leader of the Polish e-commerce platform Allegro, as well as by Amazon, which offers a BNPL service for selected products and suppliers.

Expansion of product range

Buy now, pay later (BNPL) services have seen significant success in the past few years, especially in the areas of apparel, electronics, and appliances. It is predicted that in 2023, this trend will continue, but new product categories will be covered by this form of funding. We can expect BNPL to be offered in the furniture, automotive, and real estate sectors. There will probably show up "rent to own" options allowing customers to rent the product for a specific time, after which they can purchase it. BNPL is also likely to appear in the travel industry. A couple of months ago, Afterpay - an Australian BNPL operator, announced a partnership with Expedia, which specializes in online travel purchases for individual customers and small businesses. As part of the collaboration, customers received the option to pay for trips worth up to 2000 dollars in installments. According to the company's representatives, in the next few years, travel will become one of the most frequently financed expenditures through BNPL by consumers.

According to Afterpay, in the next few years, travel will become one of the most frequently financed expenditures through BNPL by consumers.

 

BNPL as a credit card alternative

The BNPL service is becoming increasingly seen as an alternative to credit cards, especially now - as consumers feel the effects of inflation and many are in a worse financial situation than a year or two ago. More and more consumers are choosing BNPL, as it is more flexible and allows for greater control over expenses. In a survey conducted by The Ascent, 62% of respondents expressed the belief that "BNPL is a solution that will completely replace the credit card in the future." Similar conclusions can be drawn from analyzing the results of a survey conducted by the Insider Intelligence service. On the question of reasons for using deferred payments, 39.4% (the dominant percentage) of respondents indicated they "wanted to avoid paying with a credit card." In addition, one - sixth of the survey participants chose BNPL because "they don't like using credit cards."

Mergers and Acquisitions in the BNPL Industry

The rapid development of BNPL has attracted many new players offering the service to the market, including banks that are introducing their own "Buy Now Pay Later" versions and start-ups trying to offer deferred payments in various niche sectors. However, the main international market players, such as Klarna, Affirm and ZIP, are still striving for profitability. As part of these efforts, they are making acquisitions and transitions, including the acquisition of Square Inc. by ZestFinance and the acquisition of Behalf by Klarna. Any analysis of the development of the BNPL industry indicates that this trend will also continue in the current year.

The increased governement's control over BNPL services may help sellers avoid potential allegations of unfair practices.

 

Regulatory Oversight of BNPL

As BNPL is seen as a close substitute for credit cards, regulators are paying more and more attention to deferred payment services. According to a report published by PwC, many countries are now considering regulations on BNPL to protect consumers from excessive debt. Governments around the world are particularly concerned that, since BNPL payments are largely used mainly by young users, they may not be prepared for later repayment of their debts. As the BNPL sector continues to rapidly develop, it is more likely than ever that regulations and controls will increase. However, this may be good news for sellers, as increased control over services may help sellers avoid potential allegations of unfair practices.

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If you are looking for tools to create your own BNPL solution, please contact us.

by Grzegorz Haładus

8 most popular programming languages used in banking/finance

If you were to ask groups of programmers what technology is best for creating software for banking, the answer would undoubtedly be "It depends." And it's hard to disagree, as the choice of technology depends on the goal that it is supposed to achieve. However, taking into account the specificity of the banking industry, stringent security standards and the need for compliance with legislation, we have chosen 8 technologies that are most commonly used in banking and finance sector.

COBOL
COBOL is a legacy language that has been used for many years as the foundation of banking systems. Anyone who has had at least a moment of contact with this subject associates it as the long-standing basis of all banking systems. Although today programmers sometimes joke about this language, it turns out that it is not deserved. According to Reuters data, as much as 43% of today's global banking IT systems are created using COBOL, so as you can see, it still has quite a good reputation. The name COBOL is an acronym for Common Business-Oriented Language, and the fact that it is excellent at achieving business and commercial goals is what largely explains its use in banking. In addition, COBOL is also characterized by simple and understandable syntax, which makes it easy even for a non-technical person to understand while reading the code.

According to Reuters, 43% of today's global banking IT systems are created using COBOL.

C#
C# is a high-level object-oriented language created by Microsoft. It is known for its ability to create complex systems and large projects. Despite the passage of time, it still occupies high positions in popularity rankings of programming languages. It works great for creating advanced systems and large projects, which partly explains its place in this article. What sets C# apart is primarily the fact that it is a technology from the Microsoft stable, which has at least two major advantages. The first is, of course, the fact that this language is behind one of the technological giants, with a huge budget for development and a lot of support. The second is undoubtedly a high level of backward compatibility (a feature of software that allows the new version to work with the entire environment of the previous version and all its components). In the context of such desirable predictability, Microsoft openly defines the direction of development of its technology, so it can be quite clearly and clearly predicted what changes we will have to face in the next few years.

C/C++
Although C/C++ was created in the 1980s, its wide range of applications means that many large systems and applications still rely on it. C++ stands out for its ability to create complex, multi-level systems due to its specific compiler. The C++ compiler strongly enforces type compliance, making it harder to make errors in the code written in C++, leading to greater security of applications written in this language. C++ is also used in the fintech industry, known for its efficiency, tight data structures and template metaprogramming, making it one of the fastest programming languages

JAVA/ SPRING
Java is the undisputed king of banking technologies that needs no introduction. It works great in projects that require a very high level of security and high performance. It is also characterized by high stability and is often used in large implementations. What sets Java apart is its independence from the architecture, meaning it can run on any system. The created code is independent of the operating system and processor, and is executed by the so-called Java Virtual Machine, which (among other things) translates universal code into code adapted to the specifics of a particular operating system and processor. Such universality means that everywhere where it is possible to install a virtual machine, it is also possible to use Java. BOS core banking system has been written in the JAVA language, and it has been implemented on Kubernetes container.

JAVASCRIPT/ ANGULAR.JS
JavaScript, or rather the framework of this language, Angular.js, is the most commonly chosen technology when creating the front-end layer of banking applications. JavaScript allows building web applications in SPA (Single Page Application) technology, which greatly facilitates intuitive use of the application. Like other languages, JavaScript is a very stable language, supported for many years. Given that front-end technologies are changing almost daily and there is a large gap among them, in terms of stability and predictability, JavaScript seems to be the most optimal choice.

PYTHON
Python is a technology that is most commonly used in the field of artificial intelligence and machine learning, as well as in data analysis and data science. It is a language of very wide application, and given that banks are increasingly using AI algorithms, it is not surprising that Python's popularity in this industry is growing. Python is friendly to mathematics, and therefore well "understands" financial algorithms. Interestingly, many fintech and core banking organizations often use Python for data analysis, and given the growing need for technological cooperation between the banking industry and other quasi-financial institutions, one can expect its popularity in this area to increase. Popular banks such as Credit Suisse and Barclays are particularly interested in Java and Python skills.

GO

Go is a relatively new programming language that is gaining popularity in the banking industry due to its ability to handle large amounts of data and its ease of use. It is often used for developing applications that require high performance and scalability.

RUST

Rust is a systems programming language that is gaining traction in the banking industry for its focus on security and memory safety. It is used for developing low-level systems and applications that require high performance and security.

What is very significant in the case of banking technologies is the fact that for creating software and individual components, languages that have been long supported and relatively predictable are usually chosen. Since banking systems are complex and extensive, banks rarely decide to rewrite them from one technology to another. Therefore, stability and the guarantee that the language will be supported for as long as possible, often at the expense of technological development in the industry, are crucial. What will certainly be one of the challenges for banking in the coming years is to find a compromise between using proven solutions, security and stability, and the ability to develop and use the latest technologies.

by Grzegorz Haładus

7 tech trends in 2023

No-code and low-code, AI and machine learning, 5G, or the development of cybersecurity solutions. According to BOS analysts, it is these trends that will shape the reality of many tech companies in the coming months of 2023.

While it is quite difficult to predict precisely what new technologies will emerge in the coming year in these uncertain and at the same time highly dynamic years, there are several key technological developments that are likely to continue and potentially accelerate in 2023.
So what turn of events should we expect?

Digitization first

The main conclusion from the analysis prepared by our team is that IT leaders must focus primarily on further accelerating digital transformation and consider the possible use of both technologies that can be used immediately and those that are on the horizon.

With this as a background, the top 7 strategic tech trends for 2023 are as follows:

Artificial Intelligence (AI) and machine learning have already begun to revolutionize many industries and will likely continue to do so in the coming year. AI technologies, such as machine learning and natural language processing, have the ability to analyze and interpret large amounts of data, allowing them to perform tasks that would be difficult or impossible for humans to do. In 2023, we can expect to see the development and deployment of even more advanced and sophisticated AI systems in a variety of settings, including self-driving cars, intelligent personal assistants, and advanced analytics. The potential applications for AI are vast and varied, and it is likely that we will continue to see significant progress in this area in the coming year.

In the coming year, we may witness the development and implementation of even more advanced and sophisticated AI systems in a variety of settings.

 

The Internet of Things (IoT) is expected to be a significant tech trend in 2023, as it continues to expand and become more integrated into our daily lives. The IoT refers to the network of connected devices that are able to communicate with one another and transmit data over the internet. These devices can include everything from smart home devices and wearable technology to industrial equipment and infrastructure. In 2023, we can expect to see even more devices becoming connected and able to share data, leading to greater efficiency and convenience in a variety of settings. The potential applications for the IoT are vast and varied, and it is likely that we will continue to see significant progress in this area in the coming year.

5G technology is the next generation of wireless communication standards, and it is expected to significantly increase the speed and capacity of mobile networks. In 2023, we can expect to see more widespread deployment of 5G technology, which could potentially enable new applications and services that require high-bandwidth connectivity. This could include everything from streaming high-definition video and virtual reality experiences to advanced analytics and the Internet of Things. As 5G technology becomes more widespread, it is likely to have a significant impact on a variety of industries and applications.

Virtual and augmented reality (VR and AR) technologies have the potential to change the way we interact with the world around us, allowing us to experience immersive, digital environments and overlaying digital information on top of the physical world. In 2023, we may see more widespread adoption of VR and AR technologies in a variety of settings, including gaming, education, and training. As these technologies continue to advance and become more sophisticated, they are likely to have a significant impact on a variety of industries and applications.

Blockchain technology which powers cryptocurrencies is a distributed ledger technology that allows for secure and transparent record-keeping without the need for a central authority. In 2023, we may see more widespread adoption of blockchain technology in a variety of industries, including finance, supply chain management, and healthcare. As technology continues to mature and be adopted by more organizations, it is likely to have a significant impact on the way we transact and exchange value.

No-code and low-code platforms are expected to be significant tech trends in 2023, as they continue to gain popularity and become more widely adopted. No-code and low-code platforms allow users to build software and applications without writing traditional code, using visual programming interfaces and pre-built modules. This can significantly reduce the time and resources required to develop and deploy software, making it possible for a wider range of individuals and organizations to create custom solutions. In 2023, we can expect to see more widespread adoption of no-code and low-code platforms, particularly as more organizations look to rapidly develop and deploy custom digital solutions. As these platforms continue to evolve and become more sophisticated, they are likely to have a significant impact on the way software is developed and deployed.

Cybersecurity. The development of solutions dedicated to cyber security is perceived as one of the biggest challenges for IT department managers in 2023, as the threat of cyber-attacks continues to grow and evolve. With the increasing reliance on digital technologies and the proliferation of connected devices, it is more important than ever to ensure the security of online systems and data. In 2023, we can expect to see continued development and deployment of cybersecurity technologies and practices, including advanced security analytics, artificial intelligence-based threat detection, and secure software development practices. As cyber-attacks become more sophisticated and targeted, it is crucial that organizations and individuals remain vigilant and take steps to protect themselves from these threats.

Cybersecurity became crucial at the beginning of the Covid-19 pandemic when most companies switched to remote work and began to widely use cloud solutions. With the dynamic development of these services, as well as the introduction of the 5G network, IT security in 2023 will certainly not be forgotten.

Great certainty or great unknown?

In conclusion, 2023 is shaping up to be an exciting year for technology and innovation. From artificial intelligence and the Internet of Things to 5G, virtual and augmented reality, blockchain, cybersecurity, and no-code and low-code platforms, there are many trends that are likely to shape the development and adoption of new technologies in the coming year. It is difficult to predict exactly what new technologies will emerge in 2023, but it is clear that these and other trends will continue to shape the future of technology and have a significant impact on a variety of industries and applications. As we move into the new year, it will be interesting to see how these trends continue to evolve and what new technologies emerge on the horizon.

by Grzegorz Haładus

Core banking software for fintech start-ups. How to choose it the right way?

Fintech is currently one of the fastest-growing sectors in the world. According to the statistics, by 2026, the global financial technology market value is expected to reach 324 billion U.S. dollars. Additionally, fintech organizations are currently responsible for 30% of technology investments globally. All this means that new fintech solutions related to payments or lending, and more recently other areas of finance such as cryptocurrencies or insurance, are entering the market in large numbers.

As a financial start-up, choosing the right software is crucial for your business. The right software can help you manage your operations efficiently, improve your customer service, and stay compliant with industry regulations. One of the key pieces of software you'll need is a core banking system.

Core banking system - what is it?

This is a comprehensive, integrated software system that enables you to manage your core banking functions, such as processing transactions, opening new accounts, managing cards’ transactions, processing payments, maintaining customer records, and providing access to banking services. Many core banking systems are now cloud-based, which means you can access them from any device with an internet connection.

These systems offer multiple advantages, including streamlining financial processes, keeping pace with fast-evolving markets, providing convenience to customers, and extending digital reach to remote locations. Essentially, the core banking system is designed to support existing and potential customers with greater freedom in disposing their funds and support their plans of goods purchasing.
The most modern core banking systems are those referred to as “cloud-native”. What does it exactly mean and what kind of benefits does it give the user?

Born in the cloud

The cloud-native core banking model is essentially a suite of digital and processing financial solutions all stored on the cloud. The biggest benefits of cloud-native software are:

Resilience
Being supported by microservices architecture provides a significant advantage to those who use cloud solutions. That’s because it permits the load to be smoothly distributed on services, a geo-distributed architecture to be developed, and the distribution of service resources to be tightly controlled.

Reduced Costs
When the switch is made to a cloud solution, it negates the need for expensive on-site infrastructure, as well as costly maintenance, storage and security updates.

Increased Speed of Operation
A number of elements, such as storage, data capture and interpretation processes, can be centralized using cloud technology. It’s also able to bring down the costs associated with these vital processes and result in much more precise, richer and more rapid data-led insights that can be used to boost performance by financial institutions.

Which is the best core banking system?

When choosing software for your financial start-up, there are a few key factors to consider.

Easy integration
First, you'll want to choose software that is easy to use and integrate with your existing systems. This will help you get up and running quickly and minimize disruption to your business.

Flexibility and scalability

Second, you'll want to choose software that is scalable, so that it can grow with your business. This is particularly important for financial start-ups, which often experience rapid growth in the early stages of their development.

Compliant with industry regulations

Third, you'll want to choose software that is secure and compliant with industry regulations. This is essential to protect your customers' data and ensure that your business stays on the right side of the law. for your business. The right software can help you manage your operations efficiently, improve your customer service, and stay compliant with industry regulations.

"The right software can help you manage your operations efficiently, improve your customer service, and stay compliant with industry regulations."

What is the Core Banking example?

Core Banking products are designed to process and manage different functions of different types of financial institutions. Examples of core banking products include e.g. Thought Machine, Transact by Temenos, Mambu or BOS by INCAT.

Transact by Temenos is well known as software for licensed and traditional banks, and Mambu and Thought Machine provide their software that is mostly focused on large-scale fintech projects and digital banks, whereas BOS serves mostly small and medium-sized companies with limited budgets.

For small and medium-sized fintech projects

BOS – the Banking Operation System is a fully scalable, cloud native & agnostic, modern transaction system that relies on microservices. BOS enables fast execution and integration of the system with external systems. The in-built components of integration (APIs) allow you to implement BOS easily and effectively and incorporate it with your financial organization. That lets you deploy the mature product and launch it onto the market soon. Furthermore, BOS supports the company by providing instant responses to the fluctuating market and customer expectations.

The system structure will enable smooth modification of its separate components to promise effective working of your product. In addition to this, the data supplied from the systems integrated into your business and other processes would be easier to manage for your organization.

The top and stand-out features of BOS that promise business growth are:

Microservices architecture
Event manager
Cloud-native & cloud-agnostic
Data base agnostic
Open API
Multi-branding/ muti-institution
Unique business functionalities
Integrated general ledger

Overall, choosing the right software is crucial for the success of your financial start-up. By carefully considering your needs and doing your research, you can find the right tools to support your business and help it grow.
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If you want to transform your business idea into a financial masterpiece and need help in implementing a basic system for your activity, contact us.

by Grzegorz Haładus

Funding for start-ups. Where to look for financial support for the next unicorns?

In recent years, we have seen an impressive increase in new fintech projects. It is estimated that the value of the entire fintech market will reach an astronomical sum of USD 266.9 billion by 2027. The solutions created by fintechs are revolutionizing the way of looking at finance, creating needs in line with the direction of technology development. However, building a financial startup requires a lot of cash. Fortunately, the market currently offers a fairly wide range of funding options for newly established fintechs. On the one hand, external investors are increasingly looking for investments in financial innovations, and on the other hand, project development can be based on the form of the so-called 'mixed funding'. There are quite a few options, depending on the business model, business goals, and type of product or service offered. We have collected the most interesting funding opportunities for fintech start-ups.

I. External investors

Finding an investor from outside the company is the first way to fund a fintech. In addition to a cash contribution, the investors often also help a given company enter the business world, and gain contacts and experience. Of course, someone who invests his money in fintech is not a passive observer, but a partner with partial control and influence over the company's operations. Good cooperation with an external investor is the key to success. There are many ways to attract an external investor, including:

1) Venture capital - a type of external investment for companies from the small and medium-sized enterprise sector, in which the investor (usually a large enterprise) makes a cash contribution to the company by buying its shares. Such an entity becomes a co-owner of the fintech, supports the project financially, but also manages the work and interferes in the decisions made. Thanks to the contract concluded for a strictly defined period, the originator is not afraid that they will lose money overnight.

Among European VCs interested in investing in fintech projects, the following organizations should be considered:

Global Founders Capital based in Berlin,
F10 based in Zurich,
Speed Invest based in Vienna,
GSR based in London,
SoftBank Vision Fund based in London,
Picus Capital based in Munich,
Anthemis Group based in London,
and Eurazeo based in Paris.

2) Business angels - in the case of this method of investing, we are dealing only with investments from our own funds. Business Angels are private investors who are willing to look for innovative companies where they hope to get profits from shares for help in the form of a cash contribution.
The 10 most active fintech investment angels from 2021 include:

- Chris Adelsbach (UK)
Adelsbach's multiple pre-seed and seed fintech investments last year were spread across Europe and included Berlin's re:cap, London's Pixie, twig and BondAval, Madrid's Getlife and Riga's Zelf.

- Charlie Delingpole (UK)
Among his fintech investments in 2021 were Hungary’s Seon, Warsaw’s Ramp, London’s BondAval and Plum, and Amsterdam’s Sprinque.

- Perry Blacher (UK)
In 2021, his thirteen European fintech investments included Onfido cofounder Eamon Jubbawy’s new SaaS fintech Sequence, Bulgarian b2b expense management fintech Payhawk, Berlin’s revenue-based financing startup re:cap, and Warsaw’s crypto payments startup Ramp.

- Michael Pennington
His 2021 fintech investments included creator economy financing startup Peblo, revenue-based financing startup Vitt, credit card startup Yonder and Carmoola car insurance.

- Matt Robinson
In 2021, he invested in ten European fintechs, which also included Yonder, compliance fintech Argus, German insurtech Feather and Georgian payments startup Payze.

3) Investment funds - a form of funding that consists in the collective investment of funds paid in by fund participants. Then, these funds are invested in the company's securities, and the profits come mainly from the change in their value.

The largest investment funds in the world, focused on investments in fintech projects, include:

Tiger Global (with 70 deals in the first half of 2022),
Y Combinator (62 deals)
Coinbase Ventures (51 deals)
Sequoia (50 deals)
Accel (41 deals)

3) Issuance of bonds – is an alternative solution to seeking sources of funding from external investors. This method mainly applies to entities that are looking for significant cash. It consists in the issuance of securities (bonds) of a certain value. To put it simply, it is a kind of loan in which you undertake to provide the bond owner (investor) with a specific benefit, which may be monetary or non-monetary. In the case of the first variant, the investor has the right to get back the borrowed amount with interest. On the other hand, the non-monetary dimension is the possibility of obtaining certain rights, e.g. to a share in the company's future profits.

As a company that has been actively supporting the activities of fintechs for years,
we notice that their biggest challenge is finding a solid source of funding for the project created.
Piotr Hanusiak- CEO INCAT

 III. Foundations and hubs for fintechs

Currently, the foundations and hubs that create an ecosystem supporting the development of fintech are becoming more and more popular. As part of cooperation with such an entity, fintech can count not only on project funding, but also on technological and business support. The main goal of such foundations is to connect people and organizations across the entire financial sector ecosystem, giving fintechs access to knowledge, experience, talents and investors. It is not uncommon to find economists, lawyers or IT specialists among the partners of such foundations. Business support at the initial stage of fintech development is also a significant advantage in terms of savings, because you do not need to invest in accounting or legal support, and it is known that the early phase of the project usually requires caution in spending money.
There are foundations supporting fintechs in almost every European market and it is worth knowing about their availability. For example, in one of the most dynamic fintech markets in Europe - i.e. in Poland, such foundations include among others Fintech Poland Foundation and Start-up Poland.

IV. Crowdfunding

The crowdfunding is a fairly new way to raise funds, which is currently gaining more and more popularity. In the context of financial solutions, this may not be an obvious idea, but it all depends on the type of the service offered. If the fintech offer is addressed to the B2C market and at the same time meets the conditions of an innovative and attractive solution, this form of at least partial funding can certainly be considered. The crowdfunding consists in presenting the project to a wider community through an online platform. The people interested in the project can make small, one-off payments for its implementation through thsi platform. In return for their financial contribution, numerous "investors" receive remuneration in the form of shares in future profits from the project, or they become co-owners of the project. This type of benefit exchange is a form of investment. It also happens that the remuneration for the investor is offered in the form of a finished product (pre-sale) for the implementation of which a collection is conducted.

Funding the project in this way opens up the possibility of reaching a wide audience thanks to the popularity of such platforms. On the other hand, a person looking for funds receives a quick message from the target group about whether the project is interesting and innovative enough to enter the market.

The largest crowdfunding services in Europe are:

WhyDonate
Funding Circle
Crowdcube
Boomerang
Ulule
Companisto
Seedrs
Betterplace.org

V. Support from EU programs

The European Union offers financial assistance to start-ups under innovation funding programes. To a large extent, this is non-repayable funding, of course, after meeting a number of conditions set out in the funding regulations.

VI. Cooperation with banks

This is not about reaching for a loan - not at all. Especially since it is easier to obtain a loan for entities that are already operating in the market and have the creditworthiness. An alternative form of support is simply starting cooperation with one of the banks that offer innovation programs for fintechs. As part of such an exchange, fintechs can count on financial and legislative support, and banks implement their assumptions related to the development of innovation in the banking sector.
The most interesting projects in this area include:
Start path created by Mastercard operator, 
Accelpoint co-created by Santander Cosumer Bank SA.,
Let's Fintech, originated by Bank PKO BP - the largest bank in the region of Central and Eastern Europe (CEE).

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And if you are considering launching your financial project and need a core system that will be the main engine of your business, let us know. We have a solution for you.

by Grzegorz Haładus

Dynamic growth of BNPL services: challenges and opportunities for banks

For several years, the deferred payments service called BNPL (Buy Now Pay Later) has been gaining popularity among payment solutions on the market. And although fintech projects continue to be leaders in offering deferred payments, more and more traditional banking institutions are also considering including this solution in their business strategy. Can they win on this? And who can help in the implementation of the service?

The deferred payment solution gained particular recognition during the COVID-19 pandemic, which influenced the dynamic growth of the e-commerce market, which in turn generated the need for new, more-affordable options for financing online purchases. In addition, COVID-19 caused a drastic increase in the group of financially insecure consumers who simply needed more flexibility in their purchases. The solution, which allows the deferral of payments for 30 or 45 days, and even spreading them into installments, was a perfect match for these expectations. It’s estimated that in the pandemic year 2020, Americans alone made purchases under deferred payments in the amount of 20- 25 billion dollars.

How does it work?

The idea behind the BNPL service is very simple. BNPL allows the customer to order a product in an online store and pay for it later, in most cases without additional costs, after 30 or even 45 days. The customer usually orders a product in an e-shop, the shop receives immediate payment, and the customer settles the liability within 30 or 45 days. Payments can also be made in installments. The simplicity of the solution and the prospect of its dynamic development have resulted in more and more traditional banks, which are trying to gain a fair share in this rapidly growing market, seeing this service favorably. And there is a lot to compete for, because according to the estimates of Insider Intelligence, "the value of the volume of financial transactions within BNPL by 2025 will grow to an astronomical amount of USD 680 billion."

Twilight of credit cards

The second factor that may affect the decisions of financial institutions is the ongoing change in consumer habits in the use of payment solutions. Increasingly, more users of e-commerce services began seeing deferred, often interest-free BNPL solutions as an attractive alternative to often very expensive credit cards.
In a study conducted by the analytical company The Ascent, as many as 62% of respondents expressed the belief that "BNPL is a solution that will completely replace a credit card in the future." Similar conclusions can be drawn after analyzing the results of research conducted by Insider Intelligence. When asked about the reasons for using deferred payments, 39.4% (the dominant percentage) of respondents indicated the desire to avoid paying with a credit card. Slightly less – 39% – answered that "the decision was dictated by the desire to buy products that they would not normally be able to afford." In addition, 16.3% of survey participants chose BNPL because they "didn't like using credit cards."
Everything indicates that along with the global expansion of BNPL, the volume of credit cards will systematically decrease. As the Payments Journal points out, in 2020 alone, the three largest banks in the United States recorded a more-than-20% decrease in the number of credit card purchases year-on-year. And this value decreases every year.

Advantages of BNPL

A factor that may be crucial for financial institutions when deciding to implement this solution is certainly the wide spectrum of users declaring their use of the deferred payment service. As indicated by the analytical company The Ascent, although the service is used more often by younger consumers (over 60% for all age groups under 45), over 40% of consumers in the 55+ age group have used the deferred payment service at least once.
Another decisive factor may be the multiple benefits for people moving between different geographic regions. For these consumers, BNPL solutions can serve as an alternative to ones that require building a credit history in the consumer's new location.

Support tools: who to choose

Thinking about financial institutions that are looking for a tool to handle the purchase limit, at INCAT we created a special BNPL module, which is part of the "Lending" business line. Our tool allows a financial institution to expand its financial services package and introduce a new product line without interfering with the current architecture. The basic functions of the BNPL module in the BOS system include:

managing payment terms within the agreed debt limit,
installment purchases,
spreading a group of purchases into installments,
management of debt limits in the revolving loan model with control of payment dates,
creating payment schedules and managing deferred payment dates,
management of commissions and interest,
support for repayment calendars (annuity, real calendar),
handling of repayments (directly or through dedicated accounts),
the possibility of linking with card accounts and cards,
handling of overdue payments,
accounting services for transactions and reclassification.

An important element of the module is also the management of limits in the revolving account credit model, for which specific parameters can be defined, e.g.:

loan repayment prediction based on current debt and transaction dates,
the ability to define the frequency of repayments,
possibility to postpone the due date of an installment by a predefined number of days,
the possibility of linking fees and commissions with installment repayment dates,
a full credit service in terms of handling late payments, reclassification, interest and commissions for irregular payments,
support for soft debt recovery.

BNPL is certainly a solution of the future, and it may become a tool for banks, allowing organizations to position themselves as a "responsible financial institution", which determines what the client can afford, educates its group of clients, and also helps its community to avoid overspending. The institutions that will be the first to understand this and adapt the solution to their business strategy will win on the market.

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If you are looking for tools to implement BNPL solutions, let us know.

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About BOS:
BOS is a microservices-based, modern, and fully scalable transactional system dedicated to fintech, neo/challenger banks, as well as traditional financial institutions, where it can be used as complementary support for basic solutions. The BOS system, thanks to such functionalities as open API, allows for quick implementation of software and its easy integration with external systems.

by Grzegorz Haładus

The rise of Islamic banking products

The Muslim population in Europe continues to grow in both absolute and relative numbers. Following this trend, a rise in demand for Sharia-compliant financial products – or Islamic banking – is expected. Even though Islamic banking is deeply rooted in history and religion, as its foundations are derived from Qur'an, it’s the modern technology that facilitates the deployment of Sharia-compliant products for today’s neobanks and fintech companies.

With an estimated CAGR of 17.9%, the volume of transactions processed by Islamic fintech companies will rise significantly faster by 2026 than the global fintech industry (13.5%), according to Global Islamic Fintech Report 2022. As surprising as it may sound at first, Europe is one of the most important regions, fueling its growth. One of the main factors here is Europe’s growing population of Muslims. According to the analysis by Pew Research Center, their number will grow rise from 25.8 million in 2016 to at least 35.8 million in 2050, and that’s assuming a – rather unrealistic – “zero-migration” scenario.
The “Medium-migration” scenario increases this figure to 57.9 million, and “high migration” to a number as high as 75.6 million.

The European Islamic banking market is then likely to see a twofold rise in the number of customers over just 35 years. Such an opportunity is not to be overlooked. This market, however, needs very specific financial products that are fundamentally different from – so to speak – traditional ones. Banks, neobanks and fintech entities that intend to offer them need a core banking system designed to embrace these differences.

Money makes money? Not in Sharia

One of the unique characteristics of Islamic banking – or Sharia law that governs it – is the prohibition of riba. The word riba is commonly translated as interests, though its meaning is wider. According to Qur’an, money has no inherent value in itself and can’t be used to generate wealth. A Muslim can make profits on a legitimate business or asset investment, but not on lending money. For example, a loan must in returned in full quantity only, with no financial or material benefit for the lender. This makes all interests-based products – be it a deposit or a loan – forbidden in Islamic banking.
To function fully in modern society, some Muslims reckon that the sheer absence of interests sts make the “traditional” banking product compliant with Sharia law. B. But whereas it’s relatively easy to find a current account or deposit with 0% interest rate, it’s far more difficult to find a similar loan. Besides, many Muslim scholars dismiss such an approach as not fully legitimate under the Sharia law.
Lack of interest doesn’t rule out earning money entrusted to a bank or incurring the costs of financing. However, these profits and costs cannot be interest-based. Take Mudarabah as an example of product that can be roughly characterized as an equivalent of deposit – or investment, as it resembles entering a joint-venture. Instead of interests, the customer receives a share in profits from a given business project, transaction etc., agreed upon in advance.
It may seem a strictly investment product at first, but the nature of the business entered may be something as routine as day-to-day operations of a trading company that generates a steady, highly predictable and nearly risk-free revenue stream.

Another crucial difference: third parties

Mudarabah is a prime example of another fundamental difference between the Western and Islamic banking: the latter relies heavily on third parties. They are in fact sine qua non to numerous Sharia-compliant financial products.
This in turns means that the core banking system to support Islamic Banking product must not only operate in an “interest-e” environment. It also must be able to seamlessly integrate third parties’ operations, as capital and information flow between them and the customer is a prerequisite.
It’s worth to note that even though Islamic banking products are deeply rooted in centuries-old, religion-based law, they still may – and inf fact, should – provide a modern-day experience for customers.

Islamic banking products in BOS

Driven by technology advancements and growing demand, the number of providers of core banking systems that enable Islamic banking is increasing every year. Poland-based tech company INCAT Ltd. is one of them. During a recent deployment of BOS for a Saudi-Arabia based digital bank, we were given an opportunity to learn and understand challenges that lay before core banking system providers for Islamic fintechs and neobanks.

Following this project, based on BOS core banking system, we were able to design and offer a proprietary solution that supports Islamic banking products. BOS’ microservices architecture played a crucial role in the process. It allowed us to easily introduce and integrate new products – in this case, Sharia-compliant – without redesigning the system as such. New products are implemented as new microservices; third-party integration also takes place on a microservice level.

BOS’ microservices architecture played a crucial role in the process of offering a proprietary solution that supports Islamic banking products. 

Such approach makes our flagship solution – a core banking system BOS- a bridge between Western and Islamic banking, as it is technically possible that Islamic and Western banking products co-exist even on a single BOS instance. More importantly, though, this approach allows Islamic fintechs and neobanks to take the full advantage of our core system’s reliability and flexibility. It also enables us to continually expand and modify our Islamic banking products range to meet our customers’ business needs. And as the market forecasts show – these needs are destined to grow.

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About BOS system

BOS is a microservices-based, modern and fully scalable, Sharia-compliant transaction system, addressed to fintechs, -neo and challenger banks, as well as traditional financial institutions for which it can be used as a complementary support for basic solutions.
BOS system, thanks to such functionalities as open API, allows for quick software implementation as well as its easy integration with external systems.
Contact us for more information.

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About the author 

Michał Mazur is the Chief Architect Officer at INCAT Ltd.
In his over 20-year career, he has been involved in many financial and IT sector projects. He has extensive experience in project management, analysis, business development, system architecture, and quality assurance.
Michał Mazur is a graduate of AGH University of Science and Technology (Warsaw, Poland).

Contact an author: michal.mazur@incat.com.pl

by Grzegorz Haładus

5 most popular applications of AI in banking

Almost 200 years ago, Charles Darwin said, "It is not the strongest or the most intelligent of the species that survive, but the one that adapts to change the fastest”. And although this thought originally referred to evolutionary processes, today it could well be a commentary on changes in the financial market.

AI and machine learning are technologies that have been increasingly used in banking in recent years. Banks are aware that in order to remain competitive, they must develop technologically, so they turn their focus to solutions that will ensure their growth. According to Accenture, by 2035, AI will double its annual economic growth rate, contributing to the evolution of working methods and building new relationships between humans and machines. In addition, forecasts indicate that artificial intelligence will increase the efficiency of enterprises by up to 40 percent, and enable employees to use their working time more efficiently. Undoubtedly, there are also a number of functionalities in the financial industry that can be optimized based on AI mechanisms, so we decided to take a closer look at them. We chose five key areas that we believe will soon be dominated by AI:
• customer service,
• customer experience,
• consulting (robo-consulting),
• data processing,
• cybersecurity and fraud detection.

Banks are aware that in order to remain competitive, they must develop technologically, so they turn their focus to solutions that will ensure their growth.

1. Customer Service

Although it’s difficult to imagine customer service utterly devoid of the human factor, AI modules can be effectively used mainly in ​​process automation and contact channel management. Automating repetitive banking processes that don't require excessive verification not only saves a lot of money in the long run, but also reduces the number of mistakes, which are an integral part of manual handling. Artificial intelligence implemented in customer service processes also means increased efficiency and transparency of activities.

Due to changes in communication models, i.e., the transition from traditional channels to ones in which customers communicate with brands (social media, messaging, mobile applications), the number of channels that banks must use in order to contact their customers is growing every year. In this case, the solution doesn't have to be increasing the resources of customer service departments, but also, and perhaps above all, implementing an artificial intelligence module, for example, in chatbots or various types of virtual assistants. A well-configured chatbot is able to handle many more standard inquiries and problems faced by customers, and most importantly, it’s available almost immediately after the customer initiates contact.

2. Customer Experience

Artificial intelligence can also serve as a support in building the customer experience. Analysis and interpretation of data allow for even greater personalization, not only in terms of the offer, but also contact with the brand itself. User-specific content and high availability of services are just some of the elements of a good CX. Thanks to behavioral analyses and statistics generated in real time, banks can more accurately draw conclusions about customer needs. In addition, artificial intelligence helps in optimizing the customer journey – a touchpoint analysis helps identify problems that may affect the customer's "purchasing" decisions. According to an IDC report, artificial intelligence can optimize processes at almost every stage of the customer's contact with the bank, particularly in the following areas:

• Advertising, marketing and engaging processes at the stage of interaction between the brand and the customer. This allows a better understanding of the consumer, and tailors a unique and personalized service to them.
• Interaction with the consumer to provide additional information digitally and to support and help employees in cooperation with the customer.
• Direct and indirect customer and business support, getting the best value out of your transaction and resolving any problems or errors that may arise.
• Better understanding and supporting the relationship between the customer and the company, primarily through data analysis and interpretation.
• Focusing on customer characteristics through the use of artificial intelligence. Analysis of data collected on the customer to better understand their needs.

3. Consulting (robo-consulting)

An interesting area in the implementation of artificial intelligence is robo-consulting, i.e., automatic investment consulting for clients. It consists of artificial intelligence learning the client's needs on the basis of databases, and proposes investment strategies dedicated to the customer, then manages the assets until a specific profit is obtained. Robo-advisers also enable full automation of some asset management services and online financial planning tools. By analyzing a number of historical data, they’re able to make better predictions about the behavior of investment portfolios. At the same time, they help customers make better-informed spending and savings decisions based on behavioral analysis. However, the lack of appropriate legislation regulating the functioning of robo-advisory services may stand in the way of the development of these types of services. Nevertheless, in many countries, the situation is changing and, for example, in Poland – one of the largest fintech markets in Central and Eastern Europe – the Polish Financial Supervision Authority (the body supervising domestic financial institutions within the meaning of EU regulations) has prepared a draft establishing a formal position on robo-advisory services. The website of the organization stated: “The draft document is aimed at comprehensively referring to the most important issues related to the conduct of robo-advisory services, which should be included in the activities of the supervised entity. The project also applies to the entire process, from the service design phase to its practical implementation and monitoring of existing solutions. The position will be aimed at ensuring uniform implementation of robo-advisory services by interested financial institutions, while taking into account adequate protection of clients, especially non-professional investors.

4. Data processing

Due to their specific nature, banks process huge volumes of data on a daily basis. There are two challenges in this approach: how to do it quickly and how to extract the maximum amount of information from the data. AI addresses the problem of high performance and speed, and also allows for high-level inference based on highly advanced analyses resulting from machine learning. Robots based on cognitive technologies related to the development of artificial intelligence can analyze the content of correspondence with customers, verify the correctness of complex loan documentation, and make behavioral segmentation based on the actual financial behavior of customers or even provide consulting services.

5. Cybersecurity and fraud detection

In online banking, AI is primarily used for customer identification and fraud prevention. Credit card fraud has become one of the most widespread forms of cybercrime in recent years, driven by the massive increase in online and mobile payments. To identify illegal activity, artificial intelligence algorithms validate customers' credit card transactions in real time and compare new transactions with previous amounts and the locations from which they were performed. The system blocks transactions if it sees any potential risk. To combat fraud, organizations are also increasingly using biometrics, which makes it possible to recognize people based on their physical characteristics. This method assumes the verification of users before they log into the system, based on, inter alia, fingerprints, iris, or face shape (so-called facial recognition). Modules such as AML, Anti-fraud and KYC, supported by artificial intelligence, allow a significant reduction in the risk and losses related to financial fraud, which is reflected in the activities of organizations exposed to this risk.

Conclusion

The future of the banking industry in the context of the use of AI and machine learning is extremely intriguing. The progressive automation of the banking industry and greater openness to new technologies on the one hand realizes the huge potential of this service area, and on the other, opens the door to new threats and cybercriminals. That’s why it’s so important that the realization of tasks related to the implementation of artificial intelligence and machine learning takes place in accordance with good practices and with the participation of experienced technology and business partners.

ABOUT THE AUTHOR 

Michał Mazur is the Senior Business Development Manager at INCAT Sp. z o.o. In his over 20-year career, he has been involved in financial and IT sector projects. He has extensive experience in project management, analysis, business development, system architecture, and quality assurance.
Michał Mazur is a graduate of AGH University of Science and Technology.

Contact an author: michal.mazur@incat.com.pl

by Grzegorz Haładus

INCAT is a partner of the Fintech & Insurtech Digital Congress 2022

by Grzegorz Haładus

Your own fintech in a few weeks? With FaaS it's possible

by Piotr Hanusiak