The past couple of years have turned how everyone engages with finance on its head. From dismantling business across the UK and EU in the Brexit fallout, to skyrocketing e-Commerce while online shopping from home quarantine: the way we pay, lend and borrow money has changed for good.
While the banking industry’s slow progress with digitalization may have been sped up by the pandemic, the limelight is on Fintech. The Fintech industry has seen steady growth in recent years, and although its market value experienced a dip in 2020, it is expected to continue integrating with our everyday lives.
The shape the Fintech industry takes in a post-pandemic world depends largely on how it reacts to changing consumer behaviours, finance market regulations and competitors on the scene. Below are four trends that are emerging from these developments.
Innovation and risk are two sides of the same coin; one which is particularly prevalent with digital technology. Cyberattacks have always been synonymous with identity theft and institution hacking, but the threat has been especially rife during the pandemic. In just February to April 2020 alone, cyberattacks against the financial sector rose by 238%, according to a VMware’s “Modern Bank Heists 3.0” report. Another study reported an increase in cyberattacks in Switzerland threefold.
As businesses found themselves needing to accelerate their digital transformation overnight, and consumers drastically increased their digital shopping, cybersecurity has come to the forefront. From AI-based security management systems to blockchain systems to regulatory technology, Fintech companies offering cybersecurity solutions are firmly in the limelight.
One particular trend within cybersecurity Fintech is the move of large financial institutions curating existing tools on the market related to cybersecurity and integrating them into their own infrastructures. Where once banks and other financial institutions would build their own customized cybersecurity technologies, there is a growing tendency to collaborate with Fintech companies. We see this, for example, with open banking such as in the case of Visa planning to acquire open banking platform Tink.
Fintech companies merging
Where large financial players are making moves to acquire Fintech startups, another trend is the startups themselves looking to join powers. Mergers and acquisitions within the Fintech startup scene are on the rise, particularly within Europe.
Norway-based Axo Finans, for example, recently bought the Danish startup LendMe. Both companies are in the personal loans space, with Axo Finans enabling people to choose the best loan from banks with a single application. By leveraging existing brand affinity, Axo Finans now has a pan-Nordic customer base and positions itself well for contending on the international lending market.
By combining strengths and customer bases, Fintech companies are empowering themselves to penetrate the wider European markets and contend with larger players. This is particularly the case where large financial institutions haven’t traditionally been consumer-led in the products and services they offer. Comparatively, Fintech startups are born out of a customer’s pain point in their relationship with finance. As we see rise to eCommerce, transnational transactions and the call for personalized financing, so too will we see Fintech startups leveraging each other’s strengths to compete on the international finance market.
Hyper-personalized services and products
With the explosion of big data and machine learning comes the myriad of options for personalized services and products. In the finance market, hyper-personalization is transforming how offerings are created for customers.
On the data side, we’ll see more and more Fintech solutions built on a wealth of knowledge about existing and potential customers. Design features and problems addressed will be increasingly orientated around what big data and machine learning reveals about customer behaviour and desires. For example, open banking can provide financial institutions with a clear overview of a customer’s total financial portfolio and digitally-connected behaviour. In turn, the institution can then nudge a customer towards a particular Fintech lending solution, from the portfolio of Fintech solutions that the bank has curated, that suits that customer’s profile.
On the more human side, we’re seeing a return to a stronger bank to customer relationship and focus on individual customers, enabled by Fintech solutions. Accessibility and inclusivity is particularly prevalent where those who prefer traditional communication, such as elderly customers, have been forced into digital banking during the pandemic. In fact, Deloitte has concluded that hyper-personalization is “imperative” to the future of banking.
Digital payment innovations have been accelerated by, and adopted in the mainstream because of, recent global issues such as the pandemic and Brexit. Points of friction in existing transactional chains have been exacerbated and have necessitated problem-solving from the likes of Fintech.
For example, Brexit has created a financial disconnect for companies, including digital banks, operating within and between the UK and EU. Cross-border payment Fintech companies, such as Wise and iBanFirst, not only step in to fill the gap of those who left under the Brexit fallout, but also enable international payments without a need for a UK bank account in the first place.
The range of opportunities and challenges being met in the payments industry is wide. From addressing the abandoned cart issue to streamlining mobile wallets to multi-currency invoicing, payments Fintech can go in many directions in a post-pandemic world.
Converging towards a shared future
The Fintech trends emerging out of global challenges, changes in consumer behaviour and regulatory hurdles share a common thread: converging towards making paying and lending easier and more customised to the consumer.
Much of this journey will be shaped by regulation frameworks to come, the extent to which Fintech and financial institutions collaborate and compete, and the next global issue to upend business as we know it.