In 2020 the fintech industry witnessed ground-breaking changes and achieved goals that could have taken years. While the pandemic might be subsiding, the Fintech industry isn’t showing any signs of slowing down. The pandemic has changed the way people interact with financial services, thereby accelerating the adoption of innovative digital financial solutions.
This year alone, the global fintech industry is expected to grow by 23.41% and reach $324 billion by 2026. However, with the continuous changes in the fast-paced fintech space, financial service providers are looking for advice on how to stay one step ahead.
Relevant Software, a software development company, has highlighted advice from six fintech experts on trends that are separating the leaders from the laggards in the Fintech industry.
Let us dive right into the details.
More innovations in Banking as a service (BaaS)
The COVID-19 pandemic reshaped many industries, including the financial ecosystem. This factor, coupled with regulatory changes and increasing customer adoptions, has enabled third-party service providers to embrace BaaS solutions to deliver core banking services like account creation, payment and remittance, loan management, and many more.
Fintech companies are becoming increasingly aware of the opportunities BaaS offers. As a result, they are exploring more opportunities to improve customer experience and streamline their processes with BaaS.
Robert Pasco, the co-founder of Plend, a social lending marketplace, is optimistic about seeing “more and more innovations in Banking as a service space, which will help take the hassle away from frontline customer-based businesses and B2B businesses”. Fintechs that adopt Baas models now will stay ahead of the curve to increase revenue and extend their lifetime value.
Increased use of decentralized finance (DeFi)
Last year, the DeFi market saw exponential growth, ending with nearly $15 billion in total value locked (TVL). As of this writing, it has tripled to a TVL of $50.12 billion, according to Defi Pulse.
Although DeFi is up and running with major fintech industry players embracing the technology to facilitate smart contracts, it can grow beyond basic applications. Fintech companies may use blockchains to decentralize financial services like asset management, financial data exchange, insurance, and P2P credit.
Toby Lewis, CEO of Novum Insights, sees this trend intensifying: “We will see a lot more usage of both the crypto and the blockchain space in the future. There are new projects linked to some of the protocols, such as Ethereum, Solana, and Polkadot. And I think it’s super exciting that things like Lightning are coming online”.
Kathryn Miller, the founder of Templar PayZments, agrees with this. She says: “Cryptocurrency is obviously the future. I don’t see any long-term sustainable players yet, anything that stands out, but that’s because the regulation can’t keep up with technology. Regulators need to catch up because even well-respected organizations such as the FSCA, BaFin, and all other big ones move so much slower than the market”.
Wider adoption of embedded finance
Embedded finance offers Fintechs new digital opportunities worth over $7.2 trillion by 2030. As more non-financial merchants incorporate financial services to provide new offerings and improve end-user experience, this figure is expected to grow.
“Embedded credit definitely is on the uprise. And I think there’s going to be more and more innovation in the embedded finance space as well,” Robert Pasco predicts.
Embedded financing solutions—payments, credit, insurance, and investments—will drastically change how people conduct business. Anticipating this shift will help Fintechs make strategic decisions to capitalize on this market or be replaced by innovative competitors.
More focus on B2B Fintech
According to Katya Dorofejeva, CEO at Finadvant, a business banking platform for SMEs, “Today, businesses are struggling to get financing from the existing banks; therefore, many companies are trying to address this challenge and go to the B2B sector instead of retail.”
Despite the success of consumer Fintech in recent years, investors are now prioritizing B2B Fintechs. The drivers of this trend are changing customer expectations and large-scale shifts in buying behavior amid the pandemic.
These changes have challenged financial service providers to look to B2B Fintechs for digital solutions to streamline business payment processes, inventory financing, and many more. Such solutions may help Fintechs maximize their chances of attracting investors’ interest while simplifying B2B transactions.
Partnerships with non-fintech companies will increase
Consumers are looking for digital solutions for everyday services. In fact, 68% of consumers will consider a financial service offered by a non-fintech company (EY). This need has made it critical for Fintechs and non-financial companies to develop fast convenient digital alternatives.
Although many retailers—particularly e-commerce giants—have made a head start on this trend, there’s more to come. Other non-financial companies like software and logistics providers now partner with Fintechs to create innovative payment methods and installment of financing services for their large customer base. With the opportunities this trend provides to Fintechs, seeking partnerships with non-financial companies can help them maintain a competitive advantage.
“Another big trend I can see is “embedded fintech”, which is that many non-fintech companies, like Uber, Instagram, and Shopify enter the fintech market by adding banking or payment capabilities in their product,” Nikos Melachrinos, CEO at Quirk, says.
Improvements in open banking
With data accessibility identified as one of the biggest challenges in risk assessment and customization, open banking is expected to break down this barrier significantly. Banks, Fintechs, and other financial service providers can share users’ financial information to make data-driven decisions, manage risks, and deliver more personalized products and services.
On the consumers’ side, data privacy issues are greatly diminished as they have more control over the information they share on highly secure third-party platforms. Robert Pasco predicts that “there will be more data sources available that the customer has control over. As a result, customers will be able to provide more data to providers, and providers will be able to make better decisions”.
Citing transparency, Koray Koska, the Founder of VitraCash, who is at the forefront of user data consolidation, believes that “over the next five years, Fintechs will focus on either providing services that give transparency back or building fully transparent solutions from scratch.”
Over to you
To keep up with the stiff competition in the Fintech landscape, it’s important that businesses stay current with the key fintech trends. Now that you know the major trends, the next critical step is implementation. This is important because the change is here, and it’s not temporary.
According to statistics, 77% of traditional financial institutions plan to focus more on fintech innovations to improve customer retention. Fintech companies will continue to provide banks with cutting-edge platforms to reach and retain clients, while banks, in turn, will provide the infrastructure that enables the fintech firms to grow. The innovations in the Fintech Industry will help improve collaborations of fintech companies with banks. Also, it will only improve the way transactions are made between financial institutions and their clients.
Embracing and implementing the innovations will provide your business with a great competitive advantage. Allow the systematic transformations in the financial technology industry to give you leverage.