Financial technology, or fintech, has experienced dramatic growth in 2020 both despite and because of the global pandemic. The implementation of COVID-19 shelter-in-place orders around the globe meant more people than ever began using digital tools for shopping, sending money, and banking.
While we are sensitive to the very real struggles of individuals and businesses during this time, we also believe that fintech is uniquely positioned to help people navigate the world during the pandemic as well as in the world that will follow.
Financial technologies, if you’re new to the field, are online or mobile tools that help people move money without the exchange of physical items like cash or checks. Credit cards are examples of early fintech that we live with every day, while newer examples include contactless payments, blockchain, and transaction apps like PayPal or Stripe.
In a very real way, fintech has kept global economies alive by helping businesses large and small provide online sales of their products, whether for delivery or curbside pickup. At the same time, we all feel the strong desire to get back to a world where we can go to restaurants, bars, and retail stores and shop for things in person.
So, as we look ahead to a new year with vaccinations that will eventually allow our economy to stabilize and rebuild, we want to think about what the future holds for fintech.
The Big News in FinTech in 2020
Before we look forward, it can help to look back.
Obviously, the pandemic caused global disruptions in national economies and has had the biggest impact on the financial technologies industry, but the industry saw lots of growth. Stripe, for instance, a digital payments company, was going gangbusters this spring, and MarketsAndMarkets.com projects the global digital payments market will be worth $154 billion by 2025!
As the experts at Andreesen Horowitz argue, every company is becoming a fintech company. The development of “infrastructure as a service” companies that offer regulatory, fraud, data, and other services means you no longer have to be a bank to offer financial services. Apple can offer a credit card. Google can serve as a digital wallet. Facebook can send money (or create their own?).
We saw several acquisitions in 2020, such as Intuit taking on Credit Karma and Morgan Stanley purchasing ETrade. This tells us that legacy corporations can see the growth potential of fintech and want to share in it.
We also saw credit card companies beginning to embrace open banking (the use of APIs to allow third-party apps to integrate with your own) and consumer-permissioned data (direct access of digital financial records with the applicant’s permission). These moves can decrease friction for consumers as well as open the door for more consumer choice.
B2B Fintech in 2021
As Patricia Kemp argues on Forbes.com, the 2020s are seeing a new age of fintech that is expanding not only its core offerings but in horizontally and vertically adjacent industries.
That is, we’re seeing finance-adjacent verticals like real estate and insurance and horizontals like compliance, security, and even HR and administration services coming online and finding creative partnerships with more traditional fintech companies as well as banks.
Much of the biggest opportunity will be in consolidating and automating their back-office processes. This is where you’ll hear talk of robotic process automation, or RPA. Data Science Central reports that RPA will play a growing role in lower-level banking processes, including:
- Customer on-boarding
- Data-entry and transcribing reports
- Data-management for quarterly and yearly closing
- Loan processing
- Running background checks
- Processing insurance claims
- Customer support and complaint management
Thinking About Blockchain in 2021
Blockchain is one of our favorite topics (isn’t it everyone’s?). 2020 saw a lot of experimental blockchain projects shelved or significantly hamstrung, but it also saw movement in projects with more immediately pragmatic or real-world applications.
There’s every reason to think that 2021 will see many more of these practical projects coming online.
Reporting in Forbes, Forrester expects the majority of new networks to run on “enterprise blockchain platforms.” They also see users becoming less risk tolerant; thus, the more secure permissioned blockchains remain the best way to go.
Interestingly, they expect China to lead the way due to a national initiative that relies on blockchain. What that means for other nations and for the blockchain industry remains to be seen.
B2C Fintech in 2021
2020 saw huge increases in consumer adoption of fintech products as well as changes in attitudes. Consumers over 50 have completely reversed their attitudes about using their phones for online transactions (whereas about 67% were wary in 2019, some 77% had made an online transaction as early as April 2020).
Meanwhile, nearly half of young adults (18–34) enrolled in online and mobile banking for the first time during shelter-in-place. These people are unlikely to drop out again once they experience the convenience of online banking.
In other words, the users are out there!
As for what companies will be offering, the forecasting trend among experts is that growth will be product led. That is, companies will offer more product and better products rather than competing over interest rates and yields.
Expect to add more mobile payment options for consumers as more payments companies come online. These newer companies often have creative features and innovative incentives that draw people away from some of the more established payments players.
And expect the most popular products to have a social dimension. That could be as simple as making it easier for users to send and receive money or to split a bill. Or it could be more complicated, like creating shared-ownership scenarios. What if consumers could share a car in common, or a work of art? Apps like Yotta encourage saving by offering lotteries, with more chances to win when you join up with friends.
Because of the massive disruptions to everybody’s financial pictures, some of the metrics financial institutions use to assess someone’s creditworthiness may not give us as clear a picture as we’d like. Fintech companies can help by providing real-time data about a borrower’s finances to help both consumers and small businesses access capital.
For companies already offering financial services, their growth may be in an fintech-adjacent category such as insurtech—that is, insurance technologies. Imagine if you could connect a new car or home buyer with an insurance company. It’s a value add for you and saves the consumer extra steps.
Some fintech matters can be considered evergreen since they don’t ever go away even as some of the situation on the ground changes. These are data privacy and data security.
Data security we all understand: If you’re collecting people’s personal and financial data, you must do all you can to ensure your customers are protected from cyber attacks. Security-as-a-service companies are a growth industry in this area.
By data privacy we mean what, when, and how you collect data. Consumers are growing accustomed to having data collected all the time, but they still want transparency about it—especially when it comes to their finances. Fintech AIs will only become more valuable over time, but that comes with the responsibility of letting your consumers know what info you’re collecting and what you’re doing with it.
That said, autonomous finance, in which AIs make financial decisions on behalf of consumers, appears to have a bright future. Consumers trust AIs over their own knowledge sets and decision-making skills, and they value the convenience of AI.
Another sector to watch is biometric security systems. Phones and laptops are already making use of facial recognition and fingerprint scanners, and consumers enjoy the convenience of not needing to enter a password and the security of needing to have their actual face or finger there to unlock a device or make a purchase.
(Okay, there was that one episode of The Punisher where Frank Castle used a dead guy’s thumb to unlock his phone, but the majority of consumers so far seem not to have this problem, and anyway, most of the newer readers won’t work that way. Apologies for the morbid geek-out.)
The key to the future of biometrics appears to be simplicity (in addition to security, which should be a given). Consumers don’t necessarily want extra things to carry or do, much less something that takes a lot of time.
Who to Watch
French financial app company Lydia has been making waves in its home country with its self-styled financial super app. One of the app’s key features is its clean, fun interface, which users say feels more like a messaging app than a financial app.
Take a look at all these other features:
- Pay a friend with just a phone number or a QR code
- Request refunds directly
- Share bills
- Create money pots to collect money from many people
- Integrations with Apple Pay and Google Pay for contactless payments
- Track receipts
- Keep track of multiple bank accounts and credit cards from inside a single app
- Instant transfers
- Receive a French IBAN checking account and a Visa Debit card
- Create subaccounts within the app
- Enjoy commission-free card transactions around the world and in foreign currencies
- Access quick, small loans
- Play Lydia Roulette, a game in which Lydia refunds a purchase made with its Visa card
It’s like PayPal was also Chase and Zelle and Google Pay and Mint in one app that feels more like Facebook Messenger.
You know a company like that is going to become an international player. But until then, there are huge opportunities to break into this space and establish a presence.
-Dom & Tom