2020 was the year we moved our lives online.
From shopping and work, to exercise and admin - we shifted from real-life interactions to the digital world. Of course, being online isn’t new; globally we have been experiencing a digital transformation for many years. Even pre-pandemic, 85% of businesses felt they had just two years to make significant inroads into digital transformation or they would fall behind their competitors and close to 90% of adults were daily internet users.
Fintech was already one of the most innovative sectors, even before COVID became a catalyst for wide-spread digitisation.
Fintech – or financial technology - is changing the future of financial services. Touching most areas of banking and finance, from online banks and insurance providers to blockchain and online payments, fintech aims to increase customer engagement and usage through digitisation.
Primarily through the use of online platforms, automation and AI, Fintech streamlines processes and makes access to financial services easier for customers. Fintech also helps organisations to meet the demand for increased customisation and personalisation of services that today’s consumers have come to expect.
A greater trust in fintech
COVID has fast tracked digital transformation across many industries, accelerating the number of digital or digitally-enabled products in company portfolios by an estimated seven years. A similar digital rise has been seen within financial services.
“The rapid demand for and use of digital platforms, digital banking, no-touch payments and other fintech related services in every region of the world is driving many financial services companies to double down on their fintech investments” reports KPMG.
COVID-19 presented a welcome opportunity for the fintech industry, as more people than ever turned to online solutions.
“We will trust technology more after this, and see a willingness to embrace and accelerate its use in products and services that we create, sell or use” says Gavin Powell, General Secretary of FinTech Wales. “Open banking will see new customers coming on board that would have previously still had a preference for physically located banks with cash and safes. Wealth investment and management opportunities will grow as a result of the hammering that most of our pensions and investments will have taken.”
Data certainly seems to reflect this shift, with an estimated 88% of traditional financial institutions currently worried about losing revenue to fintech companies. In fact, it is predicted that 82% of non-fintech companies will be collaborating with fintechs for financing, financial management and banking by 2027.
Fintech was also ‘hard-wired’ to fare well during COVID.
“Tech sectors in general are the most likely to experience a positive or low impact [from coronavirus], as they tend to be agile, innovative and well enabled for remote working” reported intuitive data platform Beauhurst.
Which areas of fintech have seen a rise?
One area of fintech to see a rapid up-tick is cashless payments. The percentage of cashless businesses - companies where 95% or more of transactions are card payments – rose from just 8% at the start of the pandemic, to 31% two months later. QR code payments are also gaining popularity, especially in China.
In response to the pandemic, JP Morgan is also looking at modernising its payments system, using payments and finance digitisation as an opportunity to pivot toward new business models and drive strategic growth for the entire business. They intend to take the lessons they learned in 2020 and are planning more collaborations with fintech businesses, who they believe present an opportunity to ‘raise the bar’ for the financial services as a whole.
It is likely that changes like this will further accelerate us toward a cashless society, with China, Finland and Sweden among the most progressive countries in this area. This is a positive move for fintech due to the rise in demand for digital payments and services - but also controversial, especially for those such as the elderly or homeless who rely on cash.
Fintech will likely also gain through a shift to mobile-first banking.
“We’re not going to go into local branches anymore, so the high street banking footprint will radically shift towards apps and other remote tools” says Josh Bell, General Partner at Dawn Capital.
As traditional banks struggle to offer their services to customers face to face, fintech providers are also stepping in with offers of free, discounted or accelerated deployment offers.
Online wealth management is also seeing a boost as advisors move to online collaboration. My Prosperity, a digital platform for accountants and financial advisors, reported a 110% increase in the use of their online forms as a result of the pandemic.
However, fintech has not emerged completely unscathed from COVID. One segment that is facing the biggest future risk is fintech lenders, with customers in financial hardship as a result of the pandemic being seen as more likely to default on payments.
Investment in fintech also suffered a massive hit in 2020 – down from $150.4 billion in 2019 to $25.6 billion in 2020, although experts say this is to be expected.
‘‘Given the pandemic, it is no surprise that market activity [in fintech] almost ground to a halt” says KPMG.
As we look to the future, investment in fintech will likely increase again – with businesses expanding into ancillary areas including fraud prevention, digital identity and cryptocurrency, as people continue to find new ways to succeed in the digital space.
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