As we enter the next decade, it is useful to reflect on what the emerging trends in financial technology will be for 2020 enabling banks and financial institutions to prepare for the opportunities and challenges that lay ahead.
The impact of regulation
Regulation will continue to dominate the banking and finance landscape of 2020. The introduction of PSD2 in 2019 marked the year by the effort that was required from banks to become regulatory compliant under the threat of risk facing heavy fines. However, even though visibly there was a huge effort, PSD2 was not implemented as expected with many banks failing to meet the deadline. So it seems like PSD2 regulation will remain a prevalent issue for 2020, guided by the European Banking Authority time extension to achieve strong customer authentication (SCA).
With PSD3 approaching, the year will continue to witness a strong regulatory presence in business models, as it is essential that banks get the basics right before attempting to jump the additional hurdles PSD3 is set to bring – aiming to eliminate fragmentation by including a more precise and concrete specification of API standards, directory services and infrastructure.
For banks to overcome the regulatory challenges they face, a more robust and flexible digital strategy must be implemented. They must continue their efforts to facilitate digital transformation across the entire business ecosystem, to become modular, to increase the focus on financial and operational resilience, and to respond to political and social pressures in areas such as environment, sustainability and financial inclusion
The rise of digital lending
The Fintech Revolution was a success in terms of growth, it is amazing how far it has reached and how it transformed traditional bank departments and services into complete new industries. But the revolution is not over and there are still some areas of the industry being disrupted. One of those areas is lending where the disruption seems to have only mainly reached the retail part and where new innovations and innovative players are appearing quickly. If incumbent banks and financial institutions want to stay competitive in 2020 they must develop their lending service offering. Traditional banking and financial institutions need to provide a far more unified, flexible and efficient approach, specifically when working within the SME market.
Teaming up with fintech providers will enable banks to develop their offerings to include multi-channel, self-service digital lending and leasing products, with loan processing and collection, screening, credit scoring – all as a single end-to-end process. This will enhance the experience for small and medium sized businesses as it will result in an approval and onboarding process that is both quick and seamless, meaning SMEs will have to wait minutes rather than weeks for a loan.
The introduction of cloud native solutions
Banks are realising that to stay competitive, they need to push beyond the regulatory and market mandatory ‘Open Banking’ strategy into new services and new products, and cloud technology is a perfect leverage for this. During 2020 we will see traditional banks increasingly realise the huge benefits of migrating their core systems to the cloud. Banks can cut costs, as they will not have to invest heavily in dedicated hardware, software and related specialized manpower, and will be able to take advantage of the cloud’s modular, pay-on-demand model.
Banks can drop their on premise monolitic software and embrace the modular shared approach that cloud applications provision for, creating greater efficiency and closer relationships with their clients. They can make use of the cognitive, processing and storage cloud capacities to better know themselves and their clients and with it innovate in services and products. Through using the cloud computing banks can adapt to changing market needs and regulatory developments faster as they can launch either as a stand-alone basis or in a partnership.
A lean, green, Fintech machine
2019 was a “wake up call” for many businesses to act more sustainably. The UN Secretary-General set out new climate goals to be achieved carbon neutrality commitments and accelerating the trasition to renewable energy. With climate change firmly on the world’s future agenda of major nations, we are seeing this mirrored in the FinTech world. The speeches and strategies of organisations and investors are displaying a move towards a ‘Green Fintech World.’
In 2020, we will see banks endeavoring to join up financial performance with positive environmental impact. At the same time, we will see governments and regulators continue to push a green agenda. This will result in new services, products, strategies and business models working towards “green focused” offerings. It will certainly be a very interesting year for innovation in Green Fintech.
The Red Queen Dynamics in collaboration - bigger, better and more global
2019 represents another year of fintech accelerating acquisitions and funding rounds. We can expect 2020 to continue to show an increasing appetite larger deals and fintech growth. Incumbent banks have also been active in the last couple of years acquiring and investing. In 2020, we expect that this strategy will reflect an increasing funding pipeline for fintechs. Therefore continuing to fuel the already present collaboration of fintechs and incumbent banks.
The discussion around co-existence of fintechs and banks seems to be over and the tactics of collaboration have been discussed widely. 2020 will be marked by a Red Queen Dynamic in the fintech world, namely how fintechs, banks and other financial institutions must step up on their constantly adaption, evolution, and proliferation in order to “survive,” while going up against a competitive environment creating market players in a constantly changing environment.
Discussions around the importance of ecosystems, hubs, sandboxes and strategies will be more important than ever as banks and fintechs will have to find new ways to differentiate themselves. In a market where technologies and successful business models are now relatively common, it will be all about how to position and how to take collaboration to a whole new level, far beyond the bank and fintech and into the ecosystem and hub level.
Fintechs have become globally known and globally active. From corporations like Ant Financial, to N26, or Nubank to fintech professionals and technologies, the space for the financial technology is continually changing, adapting itself to new regulations and opportunities. We can expect Fintech services in 2020 to make use of cloud powered technologies like AI, machine learning, blockchain, big data and analytics to continue to the disruption.