Fintech trends 2021: Seven insights for now and the future
Fintech firms have always been at the forefront of financial innovation, whether it's enhancing customer experience, accessibility, budgeting, or access to online credit reports, among other things. Many users of internet banking and neo banks have found that these developments have made their lives easier. With that in mind, this askwallet post answers the question “what are the fintech industry's breakthroughs and trends for 2021?”
Financial technology or as it is more popularly known fintech has taken the world by storm. It has single-handedly been driving for a change in the way we perceive and interact with our finances and financial institutions in general. Most of the advancements you might have noticed in recent years in the financial sector have been in part because of the rise of fintech companies.
Fintech companies have always been in front of financial innovation in the financial sector, Whether it's improving customer experience, accessibility, budgeting, online credit reports, and many more. These innovations have made life easier for many users of online banking and neo banks. With that in mind, what are the innovations and trends of the fintech industry in 2021?
In 2021, there will be a number of trends from facial security models to blockchain and crypto banks. Fintech is not just setting trends for the financial technology industry but the financial industry at large. Before we start giving you a rundown of all the trends the fintech company has set in 2021. We will give an overview of what it is and how it has changed the financial industry.
What is FinTech?
As stated earlier, Fintech is short for financial technology. This is pretty much the idea of adding technology advancement to our traditional financial institutions. Whether it's applications for you to control your finances or send money in a matter of minutes from anywhere. These are some of the examples of technologies that we have all come to enjoy. However, this is just the tip of the iceberg as there are so many more improvements that the fintech industry has introduced that make the traditional banking system seem more and more obsolete.
The driving force for all the innovations in the fintech industry is to cater to the needs of users and help them be in charge of their finances. There is a huge number of people who are unbanked in the world for a plethora of reasons. For some, it is the high cost of traditional banking, for others, its obstacles like documents i.e a valid ID card that is stopping them from having a bank account.
FinTech solutions are widely available and make use of biometrics, artificial intelligence, blockchain technology, and e-commerce. FinTech, on the other hand, is not a brand or a piece of software. The term refers to technical breakthroughs and the patterns that surround them. As a result, FinTech solutions are utilized to improve the efficiency of one's corporate operations.
It combines several banking software applications into a full-proof digital ERP system. As a result, you can utilize it to make banking faster, safer, and easier for suppliers, workers, and consumers.
Factors that have shaped the Fintech industry in 2021
With any sector, there are a number of factors that everyone has to overcome to make their product better. Some factors might help to better the popularity of a product while some could make it more difficult. Let's look at some of the factors that have shaped the fintech industry in 2021.
Covid 19 Pandemic
For many companies, the Covid 19 pandemic was a disaster to their bottom line but the fintech industry experienced growth during the pandemic. The pandemic put a lot of stress on the traditional financial sector, especially on banks that weren’t prepared to have their services work fluidly online.
The pandemic made for economic uncertainty in the world which has led to the lowering of interest rates and other measures to stabilize the economy. Remote work was also implemented which was a huge hit to traditional banks. However, fintech companies could easily move their operations online since most of them don't provide physical locations.
Many people turned to fintech companies to make international money transfers because of their low transfer costs. Others turned to them as a quick and safe way to keep and spend their money online.
Many customers have gotten accustomed to using applications that are designed to meet all their needs. Many fintech companies have invested a lot into bringing their consumers the best customer experience on their applications. Another factor is the customer support provided by fintech companies. Many companies only have an email or live chat option for users to reach out for help. However, some companies also provide support via telephone. As we can see now in 2021, almost every fintech company now has phone support available.
Fintech Trends 2021
The popularity of mobile-only banks or Neobanks
In recent years, we have seen the rise of banks that do not provide their services at a physical location. Instead, provide an app for all their customers and it gets all their banking needs. There are some big names in the mobile bank or Neobank spaces such as Revolut, Wise, Monzo and Monese and many more.
These mobile banks have many services that are available to their users. Most mobile banks provide almost every service that you can get at brick and mortar banks and more. Some of the services provided by mobile banks include international money transfers, Person to Person transfers, virtual cards, prepaid debit cards powered by Visa or MasterCard, contactless payment, low transaction fees, and quick registrations.
When you compare the amount of service and the comfort that most mobile banks provide to their customers. You can easily see why they have become very attractive for many consumers from around the world. Being able to take control of your finances from anywhere, even the comfort of your home. Mobile banks let you skip the long lines at brick and mortar banks and the strict working hours of traditional banks.
Ever since the introduction of mobile banks. More and more people have stopped visiting their local bank branches. Even the bigger banks have started to roll out mobile apps to compete with the mobile-only banks. There is data that shows that by 2026 the number of traditional bank visits will have decreased by a whopping 36%.
A huge number of our day-to-day transactions are now done digitally and faster than ever before. Digital transactions and mobile banks are here to stay and there seems to be no stopping it. When the pandemic started digital transactions reached an all-time high and haven’t really lowered much since the lockdown was lifted.
How is this going to affect the fintech industry going forward? Well if the past is something to draw upon we will definitely be seeing a lot of improvement in the service provided by mobile banks. One of the services that would need to be added to mobile-only banks to completely legitimize their reign in the financial sector will be adding credit and loans for their consumers.
As an industry disruptor, blockchain has a lot of potential
If you haven’t been living under a rock for the last 10 years then you must be familiar with the term blockchain or at least cryptocurrencies. The Blockchain has become a disrupting force in the payment industry and it shows no sign of slowing down anytime soon. The fintech industry has adopted blockchain technology and you can find a number of products touting all the advantages they have because of their use of blockchain technology.
As stated earlier the reason for the disruption is blockchain technology which enables secure payment and transactions without the need for any intermediaries. The secure nature of this technology allows it to be very attractive to many companies as well as individuals.
Another great thing about blockchain technology is how easy it would be for the financing and banking sector to adopt the technology. As cryptocurrencies are already getting so much attention from the media, companies, and all over the fintech industry. We can see that it is only a matter of time before the blockchain becomes an integral part of our financial sector.
We can see several fintech companies coming out with their versions of blockchain or crypto banks and they are here to stay. There are so many benefits that will come from adopting blockchain technology. Some of those advantages include:
- Fraud prevention
- Automation of trading procedures
- Verification of clients by third parties
- Smart payments
- Payment processing is safe and secure.
Many fintech companies have already started adopting the technology. Some of the big names include Robin Hood, Choise.com (ex-Crypterium), crypto.com and many more. We believe that more companies will continue to leverage the technology of blockchain to help make their service more secure.
Open banking (Open Source API)
Open banking or as it is also known as “open bank data” enables banks whether mobile or traditional to give access and control of a consumer's banking transactions and financial data to other companies using APIs. This is done to allow for faster transactions between consumers and the companies they are making purchases from.
It is very easy to see the similarities between open banking and the already popular API banking that is already in use by many banks. However, there are some differences even though they both provide API integration directly to companies.
Seeing the differences between API banking and Open banking, however, take a long and scrutinous look at the details to properly see them. Though they both use API the main difference is how they make use of it.
Banking-as-a-service makes use of APIs to deliver many sorts of banking functions. In turn, open banking offers access to consumer data (with their consent) through API without transferring banking operations. To understand how open banking works and how it varies from the Banking-as-a-Service paradigm, consider a financial app that helps you plan your budget, evaluate your spending, and improve your economic behavior.
Typically, such apps are not banking products, and they do not provide the issuance of a debit card, making deposits, or applying for a loan directly within the app, as API-banking-based apps do.
Instead, they allow for the collection of real-time financial data from different finance accounts, as well as the determination of credit score ratings, the analysis of transactions, and other similar tasks. In a nutshell, they allow consumers to obtain a more thorough picture of their present financial status based on actual data from their bank account.
The way we make payments have changed drastically from how we used to. The advent of credit cards allowed us to make payments in just a single swipe. With the development of NFC, we can now make contactless payments with our cards. NFC technology is now in every mobile device of the new generation and consumers can easily make payments in a matter of seconds with their mobile devices.
Cash has definitely become a thing of the past, even when it comes to sending money to friends, family members, or even pocket money for your kids. There are a number of P2P services such as Cash App, Gohenry and many more that allow for such transactions.
The traditional banking institutions no longer have an armstrong hold over the payment ecosystem. There have been a number of payment services that have flooded the market such as Wise, Revolut, and others who are giving consumers a choice.
The payment services that seem to be winning in the payment ecosystem are mobile payment applications. We are talking about the likes of Paypal, Google Pay, Apple Pay, and Samsung Pay have become very popular, especially amongst the younger generations.
Mobile wallets and e-wallets have also been slowly creeping into the payment ecosystem and cutting out a share of the revenue for themselves. Some of the big names in the mobile wallet or e-wallet space include ecoPayz, MuchBetter and many more!
Operations and customer service are aided by robotics
A trend that has been making its rounds in almost every sector has found its way into the fintech industry as well. That is adopting robotics and AI for use in customer service and internal processes of a fintech product. There is a lot that Robotic Process Automation has to offer to streamline the inner working of the fintech company. RPA leverages machine learning and AI to automate some of the mundane but important tasks that need to be done.
Some of those very important tasks that RPA could make easier and faster than any human can include:
- Verification of identity
- AML and Fraud Detection
- Regulatory adherence
- Processing of loans through the internet
In terms of client service, we're seeing more robo-advisers being utilized to improve the customer experience and productivity of customer-facing employees. These helpers may be found both online and in person. For example, Stadtsparkasse Düsseldorf utilizes a robot assistant to help clients invest in the proper "green" investment, while Sparkasse KoelnBonn employed a real robo-adviser, Ivy Pepper, to lead people to its stand during the Fitnetz-Wochen live event.
Regulation of fintech is becoming the norm
There has been an effort to assist authorities in keeping up with and even encouraging, blockchain innovation. Regulators in Singapore, Australia, and the United Kingdom are actively seeking to establish sandboxes to test situations and determine how technology might be used to solve problems. Instead of simply reacting to the process, many regulators are figuring out how they can be a part of it and facilitate it.
There is a lot of interest in blockchain and what it can achieve in Europe and the United States. In the United States, many regulatory agencies are addressing this issue. US officials are keeping a close eye on matters while allowing the participants time to work things out. The problem is to strike a balance between innovation and risk and control. We are currently in the observer phase. There are currently no specific guidelines in the fintech area.
Europe has more regulated fintech companies than the US and other countries. A lot of fintech companies want to move their product to every corner of the world but getting their service regulated is the best way to keep their consumer safe.
As the number of embedded finance systems grows at an unprecedented rate, the general population has discovered an increasing demand for proper financial education. Credit cards, “buy now, pay later,” and one-click purchasing make it easier for customers to manage assets that they do not see or physically control.
The fintech industry is not only giving financial literacy to the unbanked but also helping banked people get access to services they couldn't get at their traditional banks.
Where is the industry going from here?
The problem with disruptive technologies is that they are, well, disruptive. And, in a highly regulated industry like finance, going all-in on something that hasn't survived the test of time or been subjected to regulatory scrutiny may be risky. Executives should be looking at fintech trends and thinking in terms of trials and pilot programs, providing customers incentives to test out new services with the awareness that they will only be available for a limited time or with restricted features.
Blockchain is an excellent illustration of how financial services firms may develop specialized apps and solutions to test new ideas in a controlled environment.
Startups have some regulatory freedom, but they can only go so far with their own platforms. One fintech trend that can help push innovative technologies to broader acceptance and iron out implementation bugs is the formation of partnerships and industry alliances.
Reaching out to other firms and identifying opportunities for collaboration can help enhance customer connections and user experience. It can also aid in the maturation of technologies. Companies must identify implementation gaps and understand consumer demands, and one of the greatest ways to do so is to collaborate. There has been a lot of buzzes, but we believe that collaboration can help transform those lofty promises into tangible results.