If you have yet to wrap your head around the idea of ordering everything from groceries to your latest gadget online, then brace for more radical transformations currently in the works in the financial industry. These fintech trends will simply impact everything that involves money, from payment to banking.
Blockchain is set to take the stage big time, pushing the capabilities of digital wallets. Nations will be happy to adopt all these tremendous technologies if regulations, security and national standards are well in place.
What is happening in fintech? There’s a valid, overwhelming reason why 88% of brick-and-mortar financial institutions fear fintech startups from digital-only banks to global payment solutions: people are falling for them. Digital wallets are booming everywhere, with nations in a virtual scramble to set national standards.
A technology that’s set to disrupt $4.7 trillion worth of global financial services can do that at any time. And to think that digital transformation has not even fully lifted a finger up yet.
Yet it is not as if these traditional financial companies are out of options. Indeed, many of them have already gone to either invest in these very fintech startups or partner with them. The results have been largely positive and we can expect more of this to happen.
The face of global finance is undergoing a full make-over, all thanks to fintech startups. No one is immune from this development. The best approach then is to meet these fintech trends head-on. Let’s start with a few of them.
When a bank that only exists in the virtual world offers global payments, P2P transfers, contactless MasterCard with free transaction fees—and a chance to buy and exchange Bitcoin, Ethereum and other cryptocurrencies—the financial world is quick to notice.
And notice Revolut they did. Revolut, one of digital-only banks that now fight for customer space in terms of money and membership. In this account, Revolut is joined by Moven, Monese, HelloBank, FirstDirect and the aptly named Digibank among dozens of others.
Digital-only banks have a lot going for them: there’s no need to spend one moment to visit any brick-and-mortar bank, no lines to test your patience, and no agonizing paperwork to deal with. And they’re growing in numbers and revenue all over the world.
They’re also one of the major reasons visits to bank branches are set to drop 36% from 2017-2022.
More: reset pins at the comfort of your home, snap-a-pic bill payment, convenient expense management, quick balance review features and real-time analytics are some of their other top draws.
Don’t rush to register into any of these fintech disruptors, however. Consider that like other businesses, they have their own drawbacks: they’re bound to be prime targets of the financial fraudsters lurking all over the internet. In an age when financial fraud is the leading internet crime worldwide, this should weigh heavily on your decision.
Digital-only banks might be superbly cheaper and more convenient but what happens to customers when they ran into problems and can’t seem to settle everything online? In traditional banking, customers can at least force themselves to get out of their homes and storm the nearest bank branch to settle matters.
Here the solution is in partnership with traditional banks, where customers can shift to traditional and digital banks at their convenience.
How firmly digital-only banks fix themselves on the financial market will decide if they’re just a passing fad or something that would become an absolute necessity for generations to come.
Considering that the digital transformation still has to peak, digital-only banks have ample time to correct their sails and land squarely on terra firma.
Fast, truly global in reach and with low processing fees, blockchain remains on the path of totally changing the face of financial transactions worldwide.
China and the US lead the world in blockchain use, ensuring its fast adoption everywhere. It’s not lost to global financial services, 88% of which are looking to increase fintech partnerships to incorporate all the innovations emerging from any front.
Similarly, 77% of these financial services companies want to see live production systems as early as next year, 2020.
The bullish rush by investors to increase the reach of blockchain services is of course easily match by the ever-increasing adopters of blockchain wallets, which now stands at 40 million worldwide. For perspective, that stood at just 11 million in 2016.
Source: StatistaDesigned by
With bank revenues exceeding the incomes of nations, it is no surprise that they are the first to embrace AI. Now banks are going further by fine-tuning their AI strategies. This will drive the wider adoption of AI in the sector further.
AI is projected to reduce bank operating costs by 22% around 2030. That could mean savings to the tune of $1 trillion ahead.
The path to this outlook is not straightforward, however. Just like the rest of global employers, banks are staring at a short supply of professionals skilled in everything AI.
AI professionals are just the tip of the iceberg in global manpower as current HR statistics show.
With its ability to work with unstructured data, AI is well poised to deal with the growing incidence of cybercrimes, financial fraud threats among them.
AI is already a hit with customer service solutions using chatbots and other smart systems. Financial institutions will be no exception, allowing for faster transactions and giving customers the convenience they demand.
The financial sector is one of the heavily regulated industries in the world. The entry of blockchain will further earn it the attention of governments all over the world.
Expectedly, countries would be nervous with a spate of headline-grabbing financial breaches. While blockchain investors will complain about regulations not created for them in the first place, no one would deny that security is a prime concern no matter the type of financial services.
In the age of digital banking, one topic that regulators would scrutinize closely is the question of data ownership. Nations will address this question at their own pace.
The ideal outcome is a set of national standards comprehensive enough to calm the nerves of businesses and consumers alike.
Payment innovations in fintech have multiple components. These are mobile payments, contactless payments, mobile wallets, smart speaker systems, identity verification technologies, AI and machine learning for security.
The first truly digital natives, Gen Zers, will also figure a lot in the conversation of payment innovations. As it is, they are the first generation to see the onset of cashless transactions and are thus more at home with these innovations.
Mobile payments are already well on their way to ramp up a total of $1 trillion value in 2019. That stands to increase further down the line.
The number of people using contactless payments already stands at 440 million in 2018 alone. It is on target to reach 760 million by 2020.
Mobile wallets will further replace physical wallets. The wallet with users’ credit cards, rewards cards and more will gain a wider audience. In 2019 alone, there are already about 2.1 billion mobile wallet users.
Add the blockchain technologies and fintech payments will explode further in just a few years.
We mentioned that digital-only startup banks will most likely bump into consumer concerns. In addition, they will certainly go back into the financial regulations that they will find too complicated to work with.
Meanwhile, established banks and other financial institutions will be looking at the technological innovations that the startups are bringing to the table. They are already making a serious dent in the markets and would love nothing but to shake up the entire financial industry anywhere on the planet.
Who’s to blink first then? Each player old and new has something the other offers that each lacks.
The easy answer is working together, bringing a new dimension to the commonly overused concept of collaboration in the process.
Established names in the banking industry are in fact looking to gain a foothold in these financial upstarts. One way to do that is by investing in these digital startups.
Goldman Sachs has just done that with Elinvar, giving it a stake in the digital banking space.
Goldman Sachs is not alone. Visa has launched an investment fund for fintech startups and it is expected to add weight to Visa’s thrust in the digital banking market.
A more direct approach is of course via partnerships. Who’s doing it now?
US-based CBW Bank has partnered with fintech Moven to provide real-time insights to their users. Visa has done it with Ingo. The value of the partnership involves erasing paper checks at a modest $33 trillion value. Yes. Modest indeed.
How far is this collaboration trend going? PwC sees 82% of current financial service providers increasing partnerships within the next five years.
Fintech promises tremendous benefits not only to nations but also to individual consumers. There is just one problem: how to integrate socioeconomic elements who until now have only cash to trust for their financial transactions?
Fintech if done without proper planning would push already marginalized players further away from the mainstream. Stuck adrift out of mistrust for new technologies, they call for nations and major players to find a middle ground somewhere.
The establishment of the Alliance for Financial Inclusion (AFI)—itself an offshoot of the Maya Declaration—is a concrete step towards ensuring that fintech does not leave out large sectors of societies as it moves ahead rapidly transforming the global economy.
Fintech should help many currently marginalized socioeconomic profiles to gain access to financial services to work in their favor. They wouldn’t have to wait days to years to do so, a cause of past frustrations for many of them.
Aside from AFI, there’s the Consultative Group to Assist the Poor (CGAP) that in 2016 worked with 18 fintech pilots in Africa and South Asia. The success and failure of this undertaking exposed areas where nations, businesses, and investors can work further to ensure that these sections of societies could participate in the economic gains taking place without them.
But perhaps the biggest initiative in this direction is the one spearheaded by Accenture and Microsoft in 2017. The initiative sought to provide a blockchain-based ID network for illegal aliens, refugees and people who do not possess any government-issued documents. This is a massive undertaking, affecting no less than 1.1 billion people worldwide.
It’s easy to get caught up in the upswing of business ventures. The lava-hot reception that fintech startups are getting is no exception. If you itching to get into the field, however, don’t rush barging just yet. Why?
Because investors are not going to rush into the negotiating table with you for sure. Having seen plenty of action in the field—not all of it rosy—they want to see that you get your business fundamental in the right order first time. They are training their keen eyes on later-stage ventures that have shown some traction in the market.
This new attitude among venture capital providers means that early-stage fintechs will not get the same warm reception that their earlier counterparts did.
The figures bear out this new development.
For example, only around 6,000 early-stage fintechs managed to get funding in 2017. While that may sound a lot, that is less than half the number in 2014, which stood at 13,000.
If your vision of a fintech startup has no clear outline for reliable returns, you will definitely feel the bar has lifted quite some notches higher for getting VC funding in this industry.
From wealth management, lending, to payment, fintech has left no stones unturned, penetrating every financial services segment everywhere. Fintech attackers and collaborators are everywhere on the planet. But as it stands now, China simply emerges as the first among equals in many respects. Listen to any fintech conversation anywhere in the world and one country will simply dominate the rest: China.
And it’s hard to match China’s leadership in almost all fintech categories right now, as the next figure shows.
In a country where there are more internet users (800 million, 98.6% of them mobile) than the combined population of the US, Russia, Mexico, and Japan—and more than any country in the world—the Chinese fintech juggernaut is hardly any surprise.
Consider too that China leads the world in ecommerce. Its ecommerce market is valued at $740 billion, compared to the $561 billion of the US, for example.
When you combine all of that together, it’s hard to look further away than China when it comes to the country that is set to hold fintech by the scruff of the neck. Unless, of course, India decides to do something about it.
Without going to the deep technological, legal and philosophical underpinnings of contracts, smart contracts simply digitalize trust in a way that makes transactions robust, safe and enforceable anywhere. If fintech is to move forward, fintech is the engine that makes it possible.
How would smart contracts achieve it?
Consider two parties who agree to enter any transaction. Traditionally, they would get a lawyer to fix the terms of the contract on two pieces of paper. Once that is done, they would call witnesses to see that the signees faithfully deliver their end of the agreement. Any breaches and they’re liable to any legal action filed against them.
In smart contracts, parties sign a smart contact using cryptographic keys as a digital signature. Instead of paper, the contracts are encoded in computer language. The codes are virtually tamper-proof. They are also guaranteed to execute in a precise, predictable manner.
The smart contract analog for witnesses comes in the form of numerous computing devices that receive the same copy of the first digital contract. This virtually makes it impossible to breach the authenticity of the contract. Not only that, these devices—now comprising what is called a public blockchain—would see to the execution of contract until the full terms are satisfied.
You can imagine how smart contracts do away with many inconveniences associated with traditional contracts. This further speeds up the fintech transactions from anywhere in the world and practically any time.
From the foregoing, it’s easy to see that fintech is going to revolutionize the financial sector in many ways, from increasing the use of payment gateways to providing credits. With the much easier account setups and no-fuzz transactions, fintech will also boost ecommere everywhere.
The steady population growth rate from the likes of China and India will further drive fintech to territories unknown. When you consider that this is coupled with increasing computing and internet penetration, then there’s just the looming likelihood that the current generation could expect to see fintech vastly different from it is now, say in even five years’ time.
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