There’s no question this is a tumultuous time for our economy as families struggle to make ends meet and fintech companies scramble to realign strategies and plans.
With the pandemic unemployment compensation program expiring a few months ago, we witnessed a ripple effect: Families adopted unprecedented spending habits and fintechs in the payments space suffered from a drop in transactions and fewer fees collected.
On the other hand, the pandemic inspired innovation and heightened awareness of cashless payments and digital identification, minimizing person-to-person interactions and human contact. Fintechs that focused on offering digital banking solutions likely saw a positive boost, and consumers’ increased use of mobile devices encouraged banks to partner with more fintech providers to keep up with the pace of innovation.
After looking back at the challenges and opportunities that 2020 presented, we can expect three main themes to emerge in the next year.
Greater banking access embraces open finance. We’re seeing a movement toward open finance, which gives consumers the ability to not only access data, but also leverage and take action on the data as they wish. Financial institutions are turning to their own API connections to allow consumers account access or money movement. While open finance will still be in its early stages of its evolution in 2021, the trend will reshape the banking industry in meaningful ways, including focused attention on customer data advocacy and the emergence of new business models.
Post-recession savings habits to surge. Upon recovery from the recession, we will see a rapid rise in savings activity from consumers. The percentage of income people are putting away will increase, largely in preparation for future economic challenges. Millennials, having experienced two recessions, may represent a majority of those making this move. As we deal with this savings surge, we should look to companies like those in Japan for how their banking system deals with more saving than spending. It’s worthwhile to look at Japanese interest rates juxtaposed to U.S. interest rates. Often, when there are net savers vs. spenders, we see the banks dipping into negative interest rates on savings accounts so banks can make more money.
Financial advocacy turns transactions into experiences: As we’re all waking up to a different world, the financial institutions will see 2021 as the year to really shift focus from being financial intermediaries to advocates for their customers. They will move beyond transactions to experiences. This includes more ways to seamlessly move, view and interact with money.
As our economy adjusts to rapid change and our nation looks for ways to bounce back in 2021, we’ll see greater adoption of open finance, a rapid rise in savings activities especially among millennials, and financial institutions leaning toward advocacy for their customers.
In our lifetime, there’s never been a moment in history in which the time it takes to focus on budgeting is no longer the barrier to budgeting one’s life. People have an excess of time and a dearth of dollars. And when that occurs you get more people who have the ability to focus on their personal finances.
