Financial technology (fintech) is rapidly transforming the financial services industry. From mobile payments to blockchain, new innovations are disrupting traditional financial services and creating opportunities for consumers and businesses alike. Here are five key fintech trends to watch out for in 2021 and beyond:
1. The Rise of Digital Banks
Digital banks, also known as neobanks, are one of the hottest areas of fintech innovation. These are branchless banks that operate entirely online and via mobile apps. Some of the key players in this space include Chime, Varo, and Revolut.
Digital banks are attracting customers, especially millennials, with their slick interfaces, easy account opening, lack of fees, and modern features like budgeting tools, savings pods, and early access to paychecks. At the same time, they are chipping away at the dominance of traditional brick-and-mortar banks.
According to Business Insider Intelligence, neobanks will reach over 207 million users worldwide by 2023. As they continue to gain market share, expect digital banks to add more financial products like loans and investments to become one-stop shops for consumers’ financial needs.
2. The Proliferation of Digital Payments
Digital payments have exploded in popularity over the last decade, from mobile wallet apps like Apple Pay and Google Pay to peer-to-peer (P2P) payment services like Venmo. The pandemic has further accelerated adoption of contactless payments.
Now emerging innovations are taking digital payments to the next level. For example, technologies like QR code payments are gaining ground globally thanks to their convenience and hygienic touch-free nature. Meanwhile, biometrics like fingerprint and facial recognition are making payments more secure.
Cryptocurrencies have also entered the mainstream as both a digital payment and investment vehicle. Facebook’s Diem (formerly Libra) project aims to launch a global stablecoin-based payment system. And CBDCs (central bank digital currencies) may soon offer digital versions of fiat currencies.
Overall, the variety of digital payment methods is exploding. This fragmentation will force merchants to accept multiple payment types and optimize checkout flows accordingly.
3. The Rise of Embedded Finance
Embedded finance involves integrating financial services like payments, lending, and investments into non-financial environments. For example, purchasing insurance directly within a travel booking app.
This embedded finance trend promises to make accessing financial products and services faster, easier, and more convenient across all sorts of daily activities. Businesses from retailers to rideshare platforms are beginning to partner with fintech providers to offer embedded financial services to customers.
According to Lightyear Capital, the embedded finance market is projected to grow to over $7 trillion globally by 2030. As it gains momentum, embedded finance will create new distribution channels for financial services companies while allowing non-financial brands to generate additional revenue streams.
4. The Role of AI in Finance
Artificial intelligence (AI) and machine learning are transforming the finance function. AI is being used for everything from chatbots and virtual assistants to investment advisory services and fraud detection.
For example, robo-advisors like Betterment and Wealthfront rely on algorithms to automate investment portfolio management. In the lending space, AI streamlines the loan underwriting process to provide faster credit decisioning. And across banking, AI powers virtual assistants that can answer customer queries and execute tasks just like a human representative.
According to Mordor Intelligence, the AI in fintech market is poised to grow at over 23% CAGR from 2020 to 2025. As algorithms become more sophisticated, expect AI to deliver even greater efficiencies and insights from data across the financial services ecosystem.
5. Open Banking Goes Global
Open banking rules like PSD2 in Europe are enabling greater financial transparency and the free sharing of data between banks, fintechs, and third-party providers. This levels the playing field and fosters more innovation.
Now open banking is going global. Countries like Australia, Hong Kong, and Singapore have already followed suit with open banking frameworks of their own. Many other nations are expected to implement similar regulations in the coming years.
As open banking spreads, expect to see new services emerge that harness financial data to deliver more personalized, seamless experiences for customers. From budgeting apps to financial dashboards, the possibilities are vast.
At the same time, issues like consumer privacy, security, and appropriate data usage will need to be worked out. But overall, open banking has the potential to spur significant innovation.
From digital banks and payments to AI and open banking, fintech is redefining every aspect of finance. As these technologies continue to evolve, they will integrate even more deeply with daily life and business operations.
Incumbents like banks will need to adapt or risk losing customers to new, nimble competitors. At the same time, regulation will need to keep pace to ensure financial stability and consumer protection.
It is an exciting and transformative time for finance. Fintechs and forward-thinking institutions that can capitalize on these key trends will be poised for success in the coming era of smart, digital finance. Those that fail to innovate risk being left behind.