Financial tech (or FinTech) has created major inroads in the financial services world in recent years, disrupting traditional banking, payment processing and more. With more accessible technology, Europe’s adoption of PSD2 regulations and other recent developments, the financial services industry is seeing a greater influx of banking and payment options than ever before.
Improved user experience, greater data insights and other services make it easier to manage payment processing and other vital tasks.
However, with all these innovations, there are also several challenges that remain in the FinTech world. All industries have been impacted by the Coronavirus pandemic, no more so than in FinTech, and much of its success depends on its ability to navigate through a global pandemic. We’ve already witnessed a downturn of 11% transactions/investment in FinTech between 2020 – 2021compared to the same period last.
How these issues are addressed in the coming decade could shape the entire direction of the industry:
1. Financial Inclusion
A key element of FinTech is financial inclusion — ensuring that all communities and subgroups gain access to banking, digital payments and more. A focus on underserved groups helps to eliminate the idea of a “one size fits all” product approach. Instead, FinTech enables businesses to develop and launch more tightly targeted offerings to better reach additional groups.
For example, one company that is providing solutions to its global FinTech client base during the current pandemic is Global Processing Services (GPS). GPS is a company pioneering issuer processing within the FinTech space, becoming known as The Super Processor™. GPS has addressed lockdown measures for its end users by allowing a rich suite of secondary card functionality. This has allowed its clients such as Starling to offer its card holders in self-isolation the option to permit friends and family to use funds on card holder’s account. Configurability from GPS allows card holders to define spending parameters, such as allowing spend up to a certain amount within one store in a certain location during a limited period of time.
2. The Commoditization of Banking Relationships
“There are currently waves of new challengers coming through the incubation period, many of which have great new features or a ‘mashing’ of various functionalities. As the relationship between the consumer and the bank becomes untangled and the process of switching becomes easier, we are more likely to see brand affiliation come and go like fashion fads,” predicts Joanne Dewar, CEO of GPS.
“Traditional banks will be forced to innovate to remain relevant. Given the increasing pace of innovation with new features being released every month, the only way that this is going to occur is through partnerships.” Says Reece Mennie
This increased pace of innovation means that many traditional banks will likely lose market share as mobile apps become increasingly popular. Consumers will be more willing to switch to new products often, rather than sticking with the same bank for years and years.
As part of this, reports already indicate that mobile app use is a key driver of bank loyalty, highlighting how tech integration is increasingly important for the everyday customer.
3. Finance As A Service And New Business Models
Software as a Service (SaaS) has already become quite commonplace in the business world, and similar concepts are beginning to take root in finances as well. Finance as a Service is poised to quickly propel new players to the market by reducing Startup costs and providing off the shelf infrastructure for a faster launch.
“A key idea will be to eliminate the forced choice between “one-stop shops” that offer simple setup, but limited flexibility and geography and full setup that requires the selection of multiple partners to cover all needed services,” added Joanne Dewar.
In 2017, an Adobe study found that only 7 percent of financial services companies had begun using cloud-based technology stacks. Expect this number to change dramatically as Finance as a Service becomes increasingly commonplace.
4. Embedded Financial Services And The Rise Of The Super App
FinTech is poised to move beyond being part of a siloed gateway and instead become embedded with other tech products like Amazon. Rather than competing to provide the go-to credit card for everyday spending, competition is more likely to shift to FinTech brands trying to become the go-to financial app.
As more non-banking entities like Google and Facebook begin competing in FinTech, this race for a “super app” with embedded financial tools will heat up even further.
“Companies will need to find ways to integrate PayTech as part of their native user interface, regardless of whether their origins lie in finances, insurance or gaming,” concluded Joanne Dewar. “Creating stored value and payout functionality will prove essential to brands trying to earn their place in the market.”
5. Regulation And Integration
Cross-functionality and new technologies create opportunities and streamline banking operations, but they can also introduce new risks. For example, the recent cyber attack on Travelex significantly disrupted banking activity throughout the United Kingdom. Banks and businesses need to address the risks that come with third-party FinTech integration so as not to compromise customer security.
As more third parties get involved, new risks (such as exploiting consumer spending behavior) may emerge as unsavory groups attempt to undercut the competition. As such, expect the FinTech sector to receive more regulatory attention from government entities in the coming years in an effort to protect those who use these resources.
New Decade, New Challenges
While there is no telling for certain how FinTech startups will respond to these challenges in the coming years, it’s clear that these issues are quite different from those of the past. Coronavirus will transform the landscape of FinTech forever. Everyone who relies on financial services must learn to adapt to the disruptions FinTech is continuing to introduce in the marketplace. How FinTech startups and other brands rise to the challenge will shape this future.