Due to the ease of use and low transaction fees, fintech solutions are increasingly being used by consumers. We will be looking at the issues that fintech trends face and how they are shaping fintech technology trends for 2021.
The Global COVID-19 Financial Tech Market Rapid Assessment Study shows that the number of digital transactions has increased by 17%, 21%, and 21%, respectively, in both the UK and Europe. Fintech companies have a bright future.
The main factors that will shape the fintech trends in 2021
Let’s look at the biggest challenges facing the fintech sector in 2021.
Recovery and COVID-19. The financial sector has been under a lot of pressure since the pandemic, especially banks, which were not as prepared for digital operations as agile fintech. Due to the economic uncertainty caused by COVID, institutions had to lower their interest rates and implement remote work. This resulted in higher cybersecurity standards.
This revolution has a silver lining. Banks will likely emerge from the crisis with digital-first, more efficient operating models. Equity markets are thriving. We can expect to see more fintech growth with the implementation of large-scale recovery programs. The creation of new micro- or small businesses is expected to stimulate the growth of payment and banking solution providers in these areas.
Customer experience. COVID forced millions to move to digital banking after they were deemed tech laggards. These clients were mainly senior clients who had been used to face-to-face interactions. This allows for more attention to digital solutions being more accessible and inclusive. Although the WCAG design guidelines have been around for a while now, it is important to understand the customer perspective in order to create a great customer experience. In this instance, the focus should be shifted to senior digital users.
Cybersecurity and compliance. In a connected world, increased digitalization poses more challenges. Market players must adapt to the expectations of regulators. This puts more pressure on Know Your Customer and Anti-Money Laundering policies. Digital currency exchange is also under the control of the EU’s 5th anti-money laundering directive. Long term, digital currencies will help drive for better AI and smart automation.
Open banking. Fintech industry report according to this topic was already hot prior to the pandemic. With the EU’s PSD2 regulations at 2019’s end, we expected innovation to take place. Although 2020 has been relegated to other areas, it still means that technology and business can work in created API sandboxes. Experiments are the engine of progress. Soon we will see more open banking solutions and more lively discussions about the next set of regulations ( PSD3) or in a larger context.
Operational efficiency. Operational efficiency. Ran Cohen, CEO of BridgerPay stated that “in 2021, every successful transaction will result in revenue and you cannot afford to lose it.” McKinsey’s Global Banking Annual Review outlines several steps financial institutions need to take in order to restore stability. These include instilling agility and eliminating underperforming workflows. They also recommend reinventing business models to support the institution through many possible zero-interest months.
These are the top 7 fintech trends you should be aware of in 2021, keeping in mind all the challenges.
1. The rise of mobile-only banks
These banks, which are not physically located and can only be accessed by phone, are becoming more popular. Revolut and HelloBank are some of the most popular brands. Many of these institutions offer contactless credit cards, global payments, and P2P transfers with no transaction fees. This is a great option for consumers who want to manage their finances from the convenience of their own homes. A mobile app can manage all their finances.
Between 2017 and 2026, visits will drop by 36% to brick-and-mortar banks. The number of digital transactions is on the rise and will continue to increase, especially with the pandemic. According to Global Market Intelligences, digital banking is predicted to grow at a more than 6% CAGR between 2020-2026.
This is a significant change for the fintech sector. It requires a new approach in the tech stack, product strategy, and design. However, it creates great opportunities for fintech that are already focused on simple app-based solutions.
2. Blockchain as an industry disruptor
Blockchain is disrupting payments and it is expected to be more prominent in the financial sector, particularly fintech. Blockchain technology allows for ultra-secure transactions and payments while eliminating intermediaries. This significantly lowers costs. According to the World Economic Forum, blockchain technology will store 10% of global GDP by 2025.
Professor Ahmed Banafa stated that, unlike other traditional industries, banks and finance don’t have to undergo radical changes in order to adopt blockchain technology.
It was successful in obtaining the cryptocurrency. Financial institutions have begun to seriously consider adopting blockchain for traditional banking functions.
The following are some of the benefits that blockchain can bring to the financial sector:
- Fraud reduction,
- Trading processes automation,
- Independent client verification,
- Smart payments,
- Secure payment processing.
The most well-known fintech that uses blockchain technology includes We. Trade, Stellar, and Ripple (all widely discussed in the wake of the Game Stop scandal).
3. Robotics facilitating operations & customer service
Robotics for customer service and internal process automation is another fintech trend that we expect to see widespread adoption in 2021. Robotic Process Automation (RPA), which leverages machine learning and AI, automates a wide range of tasks including:
- Identity verification,
- Fraud detection & AML,
- Regulatory compliance,
- Online loan processing.
We are seeing more robo-advisors being used to improve the customer service and efficiency of customer-facing departments. These assistants can be used online or at physical locations. German savings bank Stadtsparkasse Dusseldorf employs a robo-assistant for customers to invest in the right green’ investments, while Sparkasse KoelnBonn used Ivy Pepper to direct visitors to its stall at a Fitnetz-Wochen event.
4. Wider adoption of APIs
APIs, short for Application Programming Interfaces, is a shortcut to creating new apps and implementing new features or services to existing apps. According to McKinsey, 91% of bank-developed APIs were held back in 2018. However, we see a steady rise in open and partner APIs on the marketplace year after year. This is partly due to the many open-sourced APIs that comply with PSD2. This opens up new opportunities for banks, fintech, and other service providers to collaborate, “share technology” and grow their networks.
Initiatives like the Open Bank Project further confirm that APIs are going to be a key part of the future financial services technology trends. The initiative currently has more than 11,000 software developers and more than 350 APIs.
5. Customer intelligence as a revenue predictor
One trend worth noting in fintech is the use of customer intelligence to predict revenue. In the early days of fintech, customer-related data was collected using focus groups and surveys. The results were not clear and it was difficult to draw conclusions. Businesses have big amounts of data at their disposal. Machine Learning can be used to analyze the data and provide valuable insights into customers’ needs and values. This helps financial institutions offer more personalized services.
Capital One, for example, has created the Capital One second look program that can track spending patterns. It could reveal whether a customer has paid twice for the exact same product or service, and inform them about it.
Another example of how banks leverage customer intelligence is how ING banks and BGL Paribas banks assess the expected earnings and risk levels for online mortgage or loan applicants. They can calculate the borrower’s borrowing power and the maximum/minimum amount of time they will lend the loan.
6. Fintech-as-a-Service & Banking-as-a-Service platforms
Banks continue to explore the potential benefits of open APIs and partnerships. A natural consequence of this market demand is another fintech trend on the list – the rise of “fintech-as-a-service” platforms.
According to Forbes, Ron Shevlin predicts that in 2021, fintech will become more integrated with banks. Even startups like Synctera are dedicated to bridging the technology gap. Stephen Lemon, the co-founder of CurrencyCloud, believes that fintech could go further than traditional financial institutions and create partnerships beyond the traditional financial sector.
Fintech will help with the technology stacks for the future generation of companies. Apple, Google, and Uber are leading the way in this area, but we need more competition to make sure that this new paradigm delivers on its promise to deliver a better customer experience.
The Banking-as a Service model is also on the rise. More companies are offering financial products that can be customized for other brands. Solarisbank is one example. It functions as a bank ecosystem for fintech and banks, as well as digital-based businesses. It allows partner companies to make use of digital technology trends in banking, instant credit, lending, and digital banking technology trends.
Also read: 5 Tips To Stop Fraud In The Fintech Sector
7. Innovations in payments
Cashless transactions are growing. The value of the mobile payments market was $1.449 million in 2020 and is expected to rise to $5.399 million by 2026. Businesses must change with the changing lifestyles of people. We are constantly on the go, connected to our phones and less of us have cash.
Customers have the option to choose from a variety of payment options, and banks and financial institutions are no longer in control of the payments ecosystem.
Popular mobile payment apps such as PayPal and Apple Pay are growing in popularity, especially among younger generations. Mobile wallets are expected to replace physical wallets in the future. In 2019, there were approximately 2.1 million mobile wallet customers.
The technology trends dictate the rules of the fintech & banking game
2020 was a year that saw the financial sector experience both great turmoil and significant change. We’ve seen many new trends emerge due to the global pandemic and the economic uncertainty that it caused. Experts in Fintech emphasize the importance of operational efficiency. This means creating recession-proof business models, updating pre-COVID-19 tech, and finding ways of automating tedious work to save money.
In 2021 and beyond, other important trends to be aware of include bank-fintech partnerships, open APIs, and blockchain. These are new financial technology trends discussed in this article are our predictions for the future of fintech and banking.