The FinTech sector and financial services during the pandemic
Before the COVID-19 pandemic, consumers tended to opt for financial services that were not “digital-only”. The pandemic forced us to change our habits. We started to pay more attention to risk management and value financial literacy skills (ability to effectively save money, plan financial investments. Also, decision-making in terms of budget planning is important).
The adoption of digital banking technologies rose, even among seniors, who are traditionally more reluctant to change. The boost in the e-commerce industry and the need for faster, more secure and cashless methods resulted in the widespread use of mobile and digital banking. Also, the importance of Customer Experience grew, forcing technology companies to design secure and customer-friendly financial solutions.
Why do customers choose innovative services of financial institutions?
When asked about FinTech companies, most of us can mention at least one. The most recognizable names in FinTech worldwide are TransferWise, Klarna, Revolut, Ant Group, Monese and Abra. As financial services went digital during the COVID-19 pandemic, we are all asking ourselves the question: what will the future of traditional banking be? Will traditional banks and FinTechs become partners or competitors? Regardless of the answer, we know what makes people search for alternatives. According to Capgemini research, customers take advantage of the services of non-traditional banking entities because of:
- 70% – low-cost offerings
- 68% – ease of use
- 54% – faster service
- 39% – better features
- 39% – personalized products
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- Banking-as-a-Platform – also known as a Banking-as-a-Service, this is a new, increasingly popular business model and important trend. Thanks to platform banking, users can take advantage of functionalities developed by third parties (e.g. neobanks), while financial services providers focus on their core business. It is a beneficial solution for banks as well since they can integrate with other services. According to Deloitte, “It is not the same as open banking; however, the latter enables and amplifies the former”.
- Open Banking APIs – the trend of integration with the services of Third-Party Providers was already visible before the pandemic, but the objective of the Second Payments Directive (PSD2) was to ensure that payments are secure and the interests of customers are protected. The goal of the European Commission’s directive is to create a widely integrated payment market with the use of Open API solutions. Traditional banks are still resistant to integrate with external providers though, especially FinTechs. In turn, the FinTech industry has recognized the potential of Open Banking and taken advantage of it, integrating multiple services and thereby providing new standards in the financial industry.
- RegTech – some people wonder what the difference between FinTech and RegTech is. Regulatory Technology is a narrower term, defining all innovative banking services including, among others, Anti-Money Laundering and anti-fraud, minimizing risks, improving data compliance and regulation, as well as protecting consumers. RegTech companies provide solutions e.g. that allow for the rapid verification of users and companies in terms of legal regulations.
- Artificial Intelligence and Machine Learning – Artificial Intelligence has been with us for some time now and we are starting to regard it as standard rather than as cutting-edge technology. Nonetheless, AI and Machine Learning are widely used in the FinTech industry, especially in all automation-related processes that make users’ lives easier and empower FinTech providers to design solutions leveraging customer service to the next level. Some of the most fascinating applications of AI in FinTech include Digital Financial Advisors, Virtual Coaches, insurance services, risk assessment or contract analysis (with assistance of OCR technology).
- Big Data – Broadly-defined data science is revolutionizing the financial services sector together with FinTech. In the data-driven world, the amount of data is rapidly becoming overwhelming and we are simply unable to process it. All of the data from users’ electronic devices are useless until data scientists extract the most valuable information. Data scientists and Machine Learning engineers design solutions e.g. enabling the creation of personalized offers. Some of the most interesting applications include micro- and nano-finance solutions for mobile use.
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Trends in the FinTech industry – summary
In 2020, as a result of the breakout of the pandemic in March, new disruptive FinTech technologies joined the game.
Some of them, like AI, Blockchain, IoT, and Big Data, have been with us for a while, but the pandemic gave them increased momentum. In 2021 we will see Open Banking, cashless payments, online payment methods, and biometrics, as they are used often and eagerly in FinTech services. Are they here to stay? Will they make a significant change in our lives and impact the market in a long term? Will they revolutionize financial institutions? Time will tell.
Read also: Top FinTech trends in 2020
At Inetum, he is responsible for business development in Central Poland region. He has many years of consulting experience in educational, recruitment and outsourcing business processes. In his private life, he’s a fan of basketball, hockey and baseball from overseas.