Keeping Tabs on FinTech Trends in 2020

In starting the 2nd half of 2020, let’s reflect on the current industry trends for FinTech in 2020. Despite the global economic impact of COVID-19, the majority of activity in the industry is still thriving — the exception being investment growth and funding in new ventures.

The list of trends below may not be necessarily new, but the level of adoption or pace of change within the trend is noteworthy, especially as other business sectors are slowing down. Here’s what the remainder of 2020 holds for FinTech, and how these trends shift for 2021 and beyond.

next generation of Payments Innovation

Innovation in payments has been the heart of FinTech since its inception over 15 years ago. There are multiple components in payments that include mobile, contactless, virtual wallets, voice (through smart speakers like Alexa), identity verification (through biometrics), and AI (security against payment fraud).

The post-millennial generations will come to know payments as being cashless, and eventually cardless. Mobile payments reached over $1T in 2019. Contactless payments is estimated to hit $760M in 2020. Neobanks and challenger banks are making mobile wallets an automatic choice by offering virtual cards to all clients for online purchases and tokenization into Apple, Google, and Samsung Pay (via their smartphone). What’s left to keep in your physical wallet if you don’t use cash or cards? ID or Driver license (that may also be replaced in the future with blockchain).

On the horizon, Real-Time Payments (RTP) and blockchain-based transfers are speeding up current payment rails (ACH, SWIFT wire transfers, and card processing), and lowering costs. Financial institutions and government entities have formed consortia to evaluate regulatory changes and implement industry standards for adoption — these groups are now at a turning point for finalizing guidelines and implementation. Despite no defined timeline being announced, anticipate RTP to gather momentum at the end of the year (into 2021) and minimize the use of ACH.

FinTech fusion with banks

The dynamic relationship between banks and fintech companies has evolved from disruption, to collaboration, and now towards partnership. Based on the strengths inherent to both sides, fintech partnerships with banks have exploded in the last 5 years.

The strategy has turned to acquisition based on the last year of deal activity in the industry — mature fintech unicorns have been acquired by financial institutions, card networks, and established industry players. As fintech companies continue to iterate and expand on innovative business models and products, expect the buy & sell activity to continue; the impact from the pandemic is also propelling fintechs to consider a sale earlier than expected due to a downturn in business.

In terms of what’s to come that we haven’t seen — internal innovation from banks and financial institutions. These organizations have been strategizing on what to build based on market response; they also have piles of cash to invest internally on proprietary products that would keep them relevant and protected from losing future market share.

On the opposite side, fintech companies are going public, gaining financial licenses and bank charters (e.g. Varo Money), or purchasing community banks (ex. LendingClub purchases RadiusBank). Anticipate more activity through the end of the year as fintechs looks to own more of the banking equation and become less reliant on direct integration with partner banks.

neobanking 2.0

With over 75 challenger banks across the globe, the industry is becoming saturated with virtual alternatives to branch-based banking that allow for digital account opening at no monthly fees. Competition is leading to a demand for differentiation among neobanks. From niche-focused platforms (focused on freelancers, immigrants, or gamers) to apps focused on credit-building and financial advice — the next generation of digital-only banks is delivering more than the basic checking and debit card.

Part of this trend will come from non-fintech companies with an established base of customers or employees that can benefit from banking services. Gig-economy firms (like Uber and Doordash) can offer employee banking that automatically receives wages, deducts withholdings, and allows for advances based on earnings history. Business expense management tool providers are launching complete business banking platforms that include corporate cards, deposit accounts, and credit lines for cash flow.

We’ve also seen non-banking fintech firms (like Acorns and Robinhood) add depository and card products to their core offerings. Adding a secondary level of financial services not only leads to more revenue, but also increases customer loyalty and retention.

As companies across all industries experiment with banking in the next decade, expect existing challenger banks to offer more to current clients, and branch out to new sectors or verticals.

achieving Financial Inclusion

A pillar in FinTech has been its commitment to financial inclusion and expanding access of financial services to all communities around the world, regardless of social or economic status. For individuals who come from societies that are distrustful of banks and government monetary policy, inclusionary efforts have proved challenging.

Industry groups around the world, such the Alliance for Financial Inclusion (AFI), are taking solid steps towards changing perspectives through fintech focused investment in education, resources, and support programs. The Consultative Group to Assist the Poor (CGAP) has helped launch 18 fintech ventures in Africa and South Asia targeting financial inclusion.

In the current impact of the pandemic, both unbanked and underbanked individuals have the largest need for access to financial services — in order to receive federal and state benefits in a timely manner.

More global groups will be formed to meet underserved demand, and established fintechs will contribute expertise and mentorship to early stage ventures focused on financial inclusion.

banking that fits you

Data has become an abundant resource in today’s hyper-connected, digitally-enabled world. Banks had exclusive access to customer transaction data, but only for internal operations and improvements. Fintechs are determined to access this data and generate insights that benefit consumers and businesses through personalized offers and recommendations. In particular, 64% of the SMB segment is interested in custom advice for cash flow, invoicing, and planning that leads to improved business decisions.

With the help of artificial intelligence (AI) and big data, this goal is becoming a reality. Robo advisors for investment, personal finance assistants for budgeting and goal-based savings, chatbots for customer support, and specialized offers that improve credit profiles currently exist — however, the depth and reach of these products will dramatically increase over the next year with AI and autonomous FinTech. Insurance, lending, wealth management, customer service, and real estate are all sectors being improved upon with AI.

Blockchain is here to stay

The discussion on blockchain has evolved from buzzword to industry practice in financial services. Top banks and government organizations have adopted the technology for cross-border transfers and records management. Despite not reaching mass adoption, there are developments taking place that pave the path for daily usage in payments and business activity.  

Specifically, the areas of privacy, real-time funds settlement, currency, and investment are maturing throughout blockchain applications and with support from government and industry associations. Cryptocurrency has matured with stablecoin offerings that are pegged in value to fiat. Large banks have built their own blockchain research centers to evaluate how their customers can benefit in the long-term from efficient transactions.

2020 is going to see advanced discussion on blockchain regulation, higher usage of crypto for businesses, and enhanced comfort and maturity with this technology.

What’s Next to trend in fintech?

FinTech continues to broaden its reach by location and industry sector. Combining other developing technologies like artificial intelligence and blockchain, will continue to deliver dynamic innovation and applications in financial services. The pace of innovation and adoption remains to be seen — government regulation and oversight represent the most influential factors here. What is clear is that payments, relationships between banks and fintech companies, and technology that opens paths for access to financial services will be dominant trends over the next decade across the world.

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