Fintech landscape is evolving at a rapid pace. Each passing day brings a radical change in the financial technology (FinTech) industry. The advent of new technologies paves the way for a new world where all the financial operations will take place online. Numerous technology implementations that happened in 2020 and 2021 will continue to be seen. But, there are some new FinTech trends that we’re expecting to witness in 2021.
We have already started experiencing many of the FinTech transformations on a daily basis, like when we make payments via eWallets, buy equities via stock trading apps, apply for a mortgage, and so on. Moreover, with the implementation of disruptive technologies, the horizon of FinTech is expanding quicker than ever.
FinTech after the Pandemic
Many businesses across the world faced a decline in revenues and customer retention due to the Covid-19 pandemic. Only a few industries have seen an upward trend, and banking and finance technology is one of them.
The fintech market saw a considerable upsurge during the pandemic. Both customers and businesses started realizing the importance of contactless payments. According to new research by deVere Group, FinTech apps in Europe have seen a massive rise of 72% due to the pandemic.
The situation is quite similar in the United States. According to a survey by Plaid, 69% of Americans found FinTech apps as a lifeline during the pandemic. Furthermore, 73% of the US population states that FinTech is the new normal, and they plan to keep using FinTech apps even after the pandemic ends.
FinTech apps and solutions have indeed received an overwhelming response during the pandemic. And considering the research and surveys, it will continue to increase in the future. Hence, we certainly will see a significant rise in the number of customers adopting FinTech solutions and apps to make their finances simpler, quicker, and most importantly, secure.
2021 Will Only See The Upsurge Of FinTech
Yes, 2021 has the potential to be the milestone year where innovations will happen with the implementation of existing and new financial technologies. However, with more customers migrating towards using FinTech solutions, we probably will see stiff competition among FinTech startups and enterprises.
In this article, we'll discuss the FinTech trends that will boost the growth of FinTech in 2021.
6 FinTech trends 2021 to watch out for
1. Digital-Only Banking
Many banking institutions in 2021 operate only digitally to offer a variety of banking services. The services include contactless MasterCards, international remittance, P2P transfers, and many others.
Digital-only banking minimizes the customers' need to visit the bank to carry out transactions and make changes to account details or other banking activities. Also, the digital infrastructure ensures that the banking services are accessible 24*7.
With less human resource and infrastructure requirements, digital-only banks' operational cost is meager compared to banks having physical facilities. Moreover, these banks can also offer innovative services at a much lower cost.
In a brief period, digital-only banks have gained popularity, and with this growth rate, we're expecting to see an upsurge in 2021. Especially in developing countries like Myanmar and India, digital banking is banking the unbanked population.
Some examples of digital-only banks are Finn (United States), Chime (United States), Fidor (Germany), Digibank (India), Revolut (United Kingdom), and Mashreq New (United Arab Emirates).
RegTech or Regulatory Technology manages regulatory compliance and processes in the banking and finance sector by using technology services. Various financial technology solutions designed for reporting, compliance management, and monitoring come under the term RegTech.
RegTech solutions empower financial institutions to simplify compliance management such as FinTech AML compliance, even when the institutions are operating in different political and regulatory scenarios. To put this into perspective, the compliance norms for popular companies operating in various countries differ for each country branch. For instance, rules such as the FinTech Anti Money Laundering compliance will vary for every country.
The digitization of banking and financial services has increased the possibility of money laundering opportunities and several other fraudulent activities, including data breaches and cyber hacks. RegTech solution providers use machine learning and data analytics to help FinTech companies reduce the company's risk.
Since identity theft and fraudulent activities annually cost billions of dollars to the banking and finance industry, blockchain technology is the perfect solution. Marketwatch believes that blockchain technology investments will reach USD 5,600 million by 2023.
If you aren't aware of blockchain, it is a computer program that assures decentralization of the information while keeping the data secure. Currently, blockchain applications in the finance industry are smart contracts, digital/mobile payments, international trade, and identity management.
Blockchain in the finance industry is used to store user and transaction data into the database safely. The banking and financial institutions use blockchain technology to allow users to track their transactional history. With blockchain, the user's transactional information is compiled in 'blocks,' which cannot be altered.
Blockchain is the FinTech trend that is transforming the mode of operations in the FinTech industry. It has made sure that online transactions happen in a safe and secure environment. More and more banking and finance companies adopt blockchain technology, and integrate it with their existing IT infrastructure.
Research by Markets and Markets indicates that the market for FinTech blockchain will grow to 6,228.2 million by 2023 at a compound annual growth rate of 75.9%.
What makes blockchain the Fintech trend for 2021, is that it has the potential to decentralize banking and finance operations, while strengthening security at the same time. With blockchain, once a piece of transaction information has been recorded in the system, it is impossible to change or undo it. Hence the data remains protected. The technology also ensures that the information is encrypted and stored to minimize the risk of data breaches. This is why blockchain is used in cross-border transactions.
Till date, blockchain technology has inspired the advancement and development of many Peer to Peer financial solutions. These financial institutions facilitate monetary transactions between users in a decentralized manner.
It is the blockchain technology that made it possible for cryptocurrency to exist. A cryptocurrency is a form of virtual currency that can be transferred via online means. Cryptocurrency companies use encryption methods to gain control over the creation of money and fund transfer verification. The most popular cryptocurrency is Bitcoin.
4. Open Banking
Another Fintech trend for 2021 is open banking. It facilitates the secure sharing of financial transactions. In simple terms, Open banking helps users pay with ease, borrow money from third-party lenders, and even save money. Third-party lenders use APIs (Application Programming Interfaces) to gain access to the users' financial data.
Open banking is a revolutionary technology trend in the Fintech space that bridges the gap between FinTechs and banks. It brings FinTechs and banks together by enabling data networking across the financial ecosystem. Open banking is the Second Payment Services Directive (PSD2) that forces banks to reveal information in a secure and standardized environment. The data is accessible to only authorized financial institutions.
Allied Market Research published a report on the global banking market in 2018. The report found that the banking market generated $7.29 billion in 2018 and estimated that the market would generate $43.15 billion by 2026.
The Open Banking Implementation Entity (OBIE), which is established to promote an open-banking environment in the United Kingdom, announced that more than 2 million customers are currently using FinTech products enabled by open-banking.
5. Financial Inclusion
According to World Bank data, 3.8 billion adults (roughly 69%) across the world either have an account with a bank or a mobile money provider. Stille, there are 1.7 billion adults that are unbanked, even though almost 66% of them own a mobile device that can allow them to avail digital banking and financial services.
Most of these adults hail from developing countries, especially where the penetration for mobile devices is high. This creates a perfect opportunity for FinTech service providers. Financial inclusion is the FinTech trend in 2021 that will accelerate the growth of a cashless economy. FinTech apps have the potential to offer banking facilities to the weaker and underbanked section of society.
6. Robotic Process Automation
Robotic Process Automation or RPA is the form of technologies implemented to automate specific tasks (mostly the redundant ones) that require human efforts. It isn't the typical type of FinTech, but it is a FinTech trend for 2021 that will bring operational efficiency to banking and financial services.
Also, this isn't the FinTech trend for just the future, because it is already in place to reduce human capital requirements and offer financial services at a much lesser cost. The banking and financial industry have already adopted RPA automation solutions into both their back-end as well as the front-end processes. This includes customer onboarding, trial balancing, security checks, account management, mortgage processing, customer service, etc.
A popular example of RPA implementation in the banking and finance industry is FinTech Chatbots. Conversational technology is enabling the next wave of digital transformation in the FinTech sector. AI-powered FinTech chatbots are becoming an essential element of FinTech space. The technology behind AI-powered chatbots is speech recognition and Natural Language Processing (NLP)
The Era of Connected Customers is Here
There was a time when all the customers expected a banking institution to store their hard-earned cash and provide a convenient way to withdraw or spend it. Then came digital-savvy banks and some other FinTech businesses, which proved that the banking and financial services could be lightning-fast, affordable, and most importantly, mobile-friendly.
Meanwhile, customer expectations evolved from accustomed to top-notch banking experiences. This is thanks to Uber, Amazon, and other mobile apps that have made services a one-click breeze, from services that once used to be daunting processes. Gradually, industries worldwide developed a neat digital ecosystem of products and services that can potentially fulfill every customer need. Now, it's time for the fintech trends to find their place in the heart of the digital ecosystem.
If you wonder which customer segment a FinTech business should focus on, Millennials and Gen Z are the target demographics for this decade. This customer segment considers their banking products as well as the advisors and companions who can help them achieve their financial goals. However, Gen X is not far behind Millennials when it comes to FinTech adoption.
Additionally, fintech trends hiked last year on a global scale:
Banks Step Up Fintech-Powered Core Workarounds
A significant number of banks and credit union CEOs believe that the most crucial barrier to their FinTech innovation is their own digital ecosystem. Hardly any, however, are thinking of replacing their slow and expensive conventional infrastructure.
Banking and financial institutions finding core digital systems workarounds aren't new to the industry. As per the Cornerstone Advisors partner, Quintin Sykes, many banks and credit unions are comfortable integrating with best-of-breed FinTech solutions. It is one of the best approaches for institutions that are go fintech trends good at managing and integrating with many vendors.
But, what about those who aren't? Although, over the past few years, a significant number of FinTech businesses have emerged to help banking and financial institutions overcome their digital transformation challenges. It is logical to expect 2021 to see a massive demand for the following three types of fintech trends in particular:
Core Integration Providers
FinTech companies like Constellation, Sandbox Banking, and Sherpa Technologies offer core integration platforms to the banks and credit unions for the past few years. They've enabled banks and credit unions to integrate better and migrate away from their conventional core systems.
FinTech institutions like Finzly and Payrailz are helping banking and financial institutions route payments through their optimal payment mechanism, and allow the banking and financial institutions to offload transactions from the core processing.
Companies like Finxact, NYMBUS, and Q2 are helping financial institutions deploy digital banks. For some financial institutions, it isn't easy to re-envision the success of some competitor banks. Digital cores are the feasible option to create and deploy new financial products or services that would take years if done with the existing core system.
Overall, this will be the FinTech trends story for 2021. If you're seeking a FinTech development company, feel free to reach us at firstname.lastname@example.org. We are among the top developers in the FinTech industry that solely focus on developing technology solutions for the banking and financial industry.