10 fintech forecasts for the ‘20s
The past decade has reshaped the financial system by introducing the first wave of emerging financial technology companies.
Many of these companies are now facing a second phase of maturity, new competitors and increased demand from consumers. Because of this, both the traditional banking system and fintechs are at the forefront of evolving challenges in 2020.
Here are 10 points on where fintech is headed next.
Rebundling will follow the great unbundling
During the last decade, startups have unbundled financial services for easy delivery through mobile apps and direct-to-customer acquisition models. Meanwhile, banks have mostly been caught flat-footed with outdated one-size-fits-all offerings.
Well-funded, single-product disruptors have reached significant scale in many markets. As new products and services are presented, these startups will expand into modern money hubs. Their significant financial benefits and actionable financial advice will secure stickier and higher-revenue customer relationships.
Incumbents should take note: It’s time to cut across product lines and resell services from industry peers (including startups), or develop more of their own, to create cohesive finance experiences for customers.
E-commerce battles are brewing
Lenders and payment processors globally will continue their quests to democratize e-commerce and prevent it from becoming concentrated on a handful of powerful platforms.
The fast-growing popularity of video-based mobile platforms will prompt the launch of more QVC- and HSN-like services across emerging markets, giving local sellers access to sizable markets that were previously unreachable.
Watch Asia for leadership: free from Amazon’s dominance. Large national markets with rising underserved populations and rapid adoption of smartphones present mobile commerce opportunities.
Big tech is moving into fintech
Big tech has data and distribution locked in key elements for the launch of new businesses. To boost future revenues, the tech giants will further expand their payments businesses.
Boston Consulting Group estimates that $1 trillion payments in revenue stands to be won by big tech through 2027. Bank accounts and other core banking services could follow once consumers overcome fears about a lack of privacy.
Once trust is established, machine learning and artificial intelligence assets developed by tech leaders could change how businesses and personal financial lives function. Process automation, real-time insights and safe online storage will lead to cost savings, efficiencies and better decisions for all types of consumers. Alexa, Siri and other voice-powered peers could be the future CFO and financial adviser.
As neobanks become incumbents, more will launch
Millions of global customers have adopted new digital-only “challenger banks” as their bank of choice. Remarkably, these neobanks are not banks, strictly speaking, and rely on a handful of licensed institutions to conduct business.
Neobanks have successfully won customer relationships away from the traditional banking sector. Given their size and success, they are unlikely to fade away anytime soon.
The banking industry needs to stop treating these new participants like underfunded, unproven upstarts and instead embrace them as peers. Success begets success.
Many more neobanks will launch in underserved markets and sectors globally. Even the saturated U.S. and Western European markets are ripe for verticalized challengers that will out-hustle incumbents. Small business, medical and legal professionals, new homebuyers and college students are huge market segments ripe for the taking.
Fintechs are facing an Amazon-like moment
Open data, open protocols and modern infrastructure platforms have thrust the financial services sector into an “Amazon Web Services moment” where it’s cheaper, faster and more reliable than ever before to launch new fintech products or services.
Fast-moving innovators will continue to attack the most profitable elements of financial services value chains and gradually unseat incumbents — from typical sectors such as payments, savings and credit, to adjacent sectors such as insurance and real estate.
The handful of licensed financial institutions that supported the fintech industry through innovative partnership strategies will become more active in seeking equity-based upsides in the unicorns they once helped grow.
Look for relief in high customer-acquisition costs
The Achilles' heel of many startups is the high cost of acquisition of new customers. Fintech innovators have an opportunity to pursue new “sell-through” and “sell-with” strategies, thanks to recent success stories at big tech.
New high-growth services do not have to be delivered as standalone offerings; it can instead become part of the native user interface of other products, embedded as features of platforms that already have direct customer relationships.
Fintech is poised to become a new layer on a technology stack that’s built on top of the internet, cloud and mobile technologies. Keep an eye on the sharing economy: Decentralized asset ownership and strong technology make this fertile ground to launch new models.
The U.S. payments market is begging to be disrupted
If any payments market has an expired “disrupt by” date, it’s the U.S. This huge market is lagging behind global competitors, and processors experience its inefficiencies every day. Most electronic payments aren’t really “real time,” and cash still isn’t dead. Politics and practicality are keeping cash alive.
Expect that retail environments will find a happy balance between checkout-free shopping and cash-preferred customers. Specialized locations like grocery chains, airport retail stores and sports stadiums will deploy checkout-free convenience options.
Despite criticism from domestic competitors, the Federal Reserve’s planned real-time payments network by 2024 gives hope that the U.S. market will catch up with other developed economies. This will be a massive game changer for all transactions.
Blockchain is going institutional
Over the past five years, the financial services incumbents who initially derided the promise of the blockchain have been quietly collaborating and securing IP and technology leadership in this broader digital-ledger category, with a focus on solving “real” financial services problems. This is still in its early stages.
As the discussion moves away from the price of a digital asset to the opportunities that a public digital ledger represents, these innovations will become critical parts of the financial services infrastructure, matched by significant investment and strong regulatory support.
It’s clicks, not bricks
In the past decade, leading banks navigated a journey: from being brick-and-mortar institutions to becoming digital banks. That’s where most cast anchor.
Today, these forward-looking banks are striving to become digital companies and are enjoying the benefits of having the majority of their customers engaging in digital-only channels.
The lines in the battle for wallet share and relationship banking have clearly been redrawn. Customer acquisition and retention through digital channels in a mobile-app world is the future of financial services.
Don’t forget the regulators
The success of fintech is largely due to the tacit approval of hospitable regulators that have allowed unlicensed entrepreneurs to rethink and rebuild financial services, enabled by advances in technology.
As the challengers become incumbents, regulators will increase their oversight and enforcement activities. It’s a welcome sign that fintech has grown up.
Privacy and competition will be top of mind for global regulators.The regulatory agenda is packed for the foreseeable future: whether it’s the dominance of big tech; the launch of new global cryptocurrencies; or the entry of nonbanks into the banking system.
However, for those in the U.S., the multistate regulatory framework will be an impediment to real progress, unless well-funded challengers deploy legal strategies in support of technology strategies.
Regulators are rapidly adopting new data tools and systems as they monitor their industries and enforce regulations.