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The past year has brought many hurdles for fintech companies and startups. The economic recession and the interest rate cuts have changed many industry predictions. On the other hand, the pandemic, followed by the social distancing and lockdown measures resulted in rapid growth in public adoption of online financial services.
Today, customers are expecting hyper-personalized services, and fintech has helped financial institutions provide it by complementing the digital lifestyles of today. The ability of fintech to combine cutting-edge technology with a deep customer focus has driven its adoption to a large extent.
In fact, the sector is expected to grow from $191,840.2 million in 2025 at a CAGR of 10.2% and to $325,311.8 million in 2030 at a CAGR of 11.1%, according to the Business Research Company. From payment apps like PayPal to DeFi, we can see fintech all around us.
Recently, we hosted a webinar on the topic – Breaking barriers in FinTech Innovation, in which we discussed the state-of-the-art of fintech technologies and innovations, challenges faced by the fintech industry and some creative approaches to overcome these challenges. You can watch the webinar video below;
According to Dr. Sanjay Tyagi, Director STPI, Ministry of Electronics & Information Technology,
“Last year has been very challenging for the business world. Several industries have been affected by the pandemic, while others benefited from it. Businesses were forced to look for strategies that would help them come out of the situation, and technology came in as the obvious solution. During the pandemic, digital adoption rates rose as high as 90%. Employees began learning about new technologies and embracing them in the workplace.”
Before exploring the scope of Fintech for 2021, let’s brush up on the basics.
Fintech is a word that has been derived from financial technology. It refers to any new technology that is used to improve and automate traditional financial services. Any company that uses software or other technology to provide financial services can be considered as a fintech.
Fintech has completely changed the way consumers perceive, manage and access their finances. It has enabled financial industries to access their large number of customers digitally and provides them with fast, easy and secure transactions.
From the bank’s perspective, fintech can be used for back-end activity like monitoring account activity to consumer facing solutions like mobile apps. Businesses often use fintech applications for e-commerce transactions, accounting, obtaining loans, payment processing etc. Let us take a look at some of the pros and cons of fintech.
Pros:
Cons:
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The COVID-19 pandemic has had a profound impact on the fintech sector. It has driven the adoption of features like contactless payments and has boosted overall digital adoption. In 2020, we saw consumers managing funds, trading stocks, paying for services and more using this technology. A few major trends that were observed in 2020 included-
We can see blockchain technology being used in various aspects of the fintech industry like fraud detection, record storage and management, regulatory compliance, secure payment solutions etc. Several cryptocurrency exchanges like Coinbase have also enabled users to buy or sell cryptocurrencies through this technology.
The year 2020 saw an increased adoption of mobile payment applications like Venmo, GPay and PayPal. This is because our dependence on physical money has reduced greatly. Most shops accept alternative forms of payment, and it is much easier to pay with your smartphone than carry cash with you.
DeFi can be considered as an ecosystem of financial applications that are developed on top of a blockchain. Its prime aim is to eliminate intermediaries such as banks, payment service providers or investment funds. Currently, there are many DeFi applications in the market that offer lending and borrowing services, exchange services, monetary banking services (e.g. the issuance of stablecoins), tokenization services, or other financial instruments such as derivatives and prediction markets
Many payment firms have now started focusing on their digital wallet offerings. This is mainly because it improves customer retention, as these firms often give cashbacks and refunds to users, which incentivizes them to use the balance for more transactions on the platform. According to a report by Grand View Research, the digital wallet market size was valued to be USD 16.65 Bn in 2013 and is predicted to reach USD 7,581.91 Bn by 2024.
Financial institutions are now using chatbots to improve customer experiences. These chatbots make use of ML algorithms and NLP to answer customer queries and provide recommendations. This allows banks and financial institutions to provide customer support 24*7 without acquiring any additional costs.
Although the pandemic has helped the fintech sector gain a stronger hold in the business world, there are some challenges that financial institutions face while adoption. Some of the primary challenges include:
From what we have discussed so far in the article, it is quite evident that the fintech sector has grown a lot in the past year. Financial institutions have had to adapt to the crisis brought on by the pandemic and adjust their operations accordingly. The burning question here is, what can we expect from the fintech industry this year? Here are a few thoughts that could help shed some light on the situation.
PSD2 will be coming into effect in 2021. This will allow fintech to access customers’ banking information, which can be a gamechanger for the sector. PSD2 is the second Payment Services Directive that was developed by the nations of the European Union. It regulates all the electronic payment services that are available in Europe in an effort to increase purchasing security. If you would like to know more about PSD2, you can read our article Payment Service Providers Directive 2 or PSD2: what it means for FinTech businesses.
This year, we can see the rise of digital wallet super apps. For instance, Google Pay is on its way to becoming a hyperconnected “super app” – tied to smart banking. The company stated that the revamp will aid visibility, streamline transactions and let users track a trail of payments. Google also said that it is expanding its merchant ecosystem, with the inclusion of more than 100,000 restaurants, 30,000 gas stations and the ability to pay for parking across more than 400 cities.
Fintech developers are now trying to build solutions that cater to customer needs and expectations. With these applications, customers will no longer need to fill out lengthy forms or go through the frustrating process of downloading, printing, signing, and scanning documents. By building document viewing, file conversion, and data capture capabilities into their applications, fintech developers can provide firms with a unified digital solution that addresses multiple needs and streamlines their customer experience.
According to Sivakumar Thangaratnavelu, CEO of Sequentis Consulting,
“Because of COVID-19, there are a lot of credit requirements that come from SME segments. People have started feeling the need to move from standard collateral based lending and have been looking at alternatives for establishing credit worthiness. In 2021, this could definitely be a space that will grow rapidly due to the events of last year”
According to the Global COVID-19 Fintech Market Rapid Assessment Study by The World Economic Forum, the fintech firms, on an average, witnessed a growth of 13% in 2020 during the pandemic. The fintech sector is constantly changing and evolving. We have also seen numerous trends crop up this year. Let us take a look at some of the major ones-
Open Banking allows businesses to electronically share financial information in a secure manner. This helps save money, pay conveniently, and borrow money quickly and easily through third-party providers (TPPs). This technology can bring together Fintechs and banks by facilitating data networking across banking and finance institutions.
Robotic Process Automation (RPA) allows businesses to use RPA bots or digital workers to automate repetitive and mundane tasks. This trend has become increasingly prominent this year. Many businesses in the fintech industry have already adopted RPA for the automation of various back-end processes like customer onboarding, security checks, trial balancing, account maintenance, account closing, mortgage processing, etc.
According to Sivakumar Thangaratnavelu, CEO of Sequentis Consulting,
“Having seen the proof of how RPA can make a real difference to people, many businesses are trying to convert manual and disjointed processes into streamlined processes with automation technology. The COVID-19 pandemic has largely nudged the adoption curve and increased the popularity of such technology.”
We can see several payment innovations in fintech today. They include mobile payments, contactless payments, mobile wallets, smart speaker systems, identity verification technologies, AI, and machine learning for security. According to PaymentsJournal, the biggest trend in payment innovations is the rise of mobile payments, especially during the COVID-19 pandemic when more transactions shifted online.
Consumers have started demanding for a seamless digital experience when handling their funds. In order to stay relevant, financial companies must provide this for them or risk losing out. These expectations will definitely give rise to new partnerships between fintech startups, technology companies, and established financial institutions this year.
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