Despite the overwhelming challenges of a global pandemic,
2020 saw an enormous amount of resilience, ingenuity and innovation in the world
of fintech, payments and financial services. As we reach the final days of this
most eventful of years, we’re setting our sights on 2021 and sharing our
predictions of what to expect from the next 12 months.
1) The Effects of COVID-19 Will Continue to Influence
Consumer Behaviour
It is now well established that COVID-19 has accelerated
many pre-pandemic trends. For example, while the number of cashless payments
was already rising globally (a 14% increase in non-cash payments between
2018-2019, totaling 708.5 billion transactions), lockdown restrictions to
combat the coronavirus have supercharged the trend. Who could have imagined
that the World Health Organization would advise against using cash for health
reasons?
The impact on the digitisation of financial services has
been dramatic. In the UK, six million adults (or 12% of the population)
downloaded an online banking app for the first time. During the initial
lockdown, 90% of face-to-face transactions made in April were contactless, and
in July 2020 there were 1.5 billion debit card transactions (20.8% more than in
June 2020).
In the APAC region, which was already the global leader in
non-cash transactions (243.6 billion cashless transactions in 2019) due to high
adoption of mobile payments and digital wallets, a Mastercard survey found that
91% of consumers in the region had transitioned to contactless payments as a
result of COVID-19.
However long the pandemic lasts, these trends in consumer
behaviours will persist throughout 2021. Cashless payments will continue to
outpace cash, digital-only banking will see more widespread adoption, and
digital wallet usage will expand. Financial services providers that can quickly
and effectively react to these changes will thrive.
2) Securing
Fintech Investment Could Become More Challenging
Whilst investors pumped £1.8bn into UK fintechs in the first
half of 2020, an increase of 22% over the second half of 2019, more than half
of that amount was invested in just five companies–Revolut, Checkout.com,
Starling Bank, Onfido and Thought Machine–with early-stage fintechs raising
just 8% of total investments.
Has the ongoing economic uncertainty surrounding COVID-19
pushed investors towards ‘safer’ bets on more mature, later-stage fintechs?
It’s hard to say for certain, but we predict that startups may find capital
harder to access in 2021 as investors focus on “category winners” and become
more conservative and risk averse.
Fintechs seeking investment in the next 12 months will thus
need to have a differentiated proposition, a clear path to profitability,
strong leadership and partnerships with credible, experienced suppliers. For
businesses seeking to understand what investors are looking for in the next
fintech, our Chief Product Officer, Shaun Puckrin, wrote a blog on the subject.
3) The Embedded Finance Gold Rush Will Begin in Earnest
Aside from COVID-19, “embedded finance” has been the
industry topic of 2020. It encapsulates the idea that financial products in and
of themselves are less important than the context in which a customer needs them.
While the traditional core banking model has offered diminishing returns,
brands like Amazon, Apple, Uber and others have seen success by embedding
payments, loans and insurance directly into their offerings. It’s not hard to
see the value of, for example, a car rental company offering car insurance
during the hire process, or a house hunting app offering mortgages.
According to research by 11:FS, the embedded finance
opportunity will be worth $3.6 trillion by 2030. This will be supported by the
Banking-as-a-Service (BaaS) ecosystem, which offers the full banking stack to
any business, regardless of industry, seeking to improve customer experiences
with capabilities it would have been unable to build alone. The BaaS model has
now reached a level of maturity that will likely see a proliferation of brands
capitalising on it in 2021. The floodgates have therefore been opened and as
the number of businesses embedding finance into their offerings increases
exponentially, so will the number of traditional banks offering their services
to companies via the BaaS model.
Organisations looking to understand BaaS, and how it is
changing the financial services game forever, can watch the 11:FS Decoding:
Banking as a Service video series, sponsored by GPS.
4) The Fintech Industry Will Need to Get Serious About
Financial Inclusion
The coronavirus pandemic has thrown the inequalities of our
society into sharp relief. It is a crisis that, according to the UN,
disproportionately affects the poor and vulnerable, illustrating how the
inability of some groups to access financial services requires a meaningful
solution.
In 2020, we’ve seen some ingenious, innovative solutions
addressing financial inclusion: Starling’s Connected Card allows people to make
purchases on someone else’s behalf (for example, self-isolating vulnerable
relatives); Soldo Care enables governments and charities to distribute money
quickly and safely while maintaining budgetary controls; and B4B Payments’
partnership with Migrant Help has provided specially designed prepaid cards to
individuals without the ability to access a typical bank account.
And these innovations aren’t just limited to Europe. In
Brazil’s Marica neighbourhood, a basic income distributed through the Mumbuca
digital currency has provided support to people out of work as a result of the
coronavirus. In the Asia Pacific region, there has been greater acceleration
towards financial inclusion with the imminent issuing of digital banking
licences in Singapore and Malaysia, through which we are seeing the emergence
of exciting propositions like the Razer Card by Razer Fintech, which is
targeting the banking needs of the underserved millennial and Generation Z
segments through its Razer Youth Bank arm.
In 2021, we will likely feel the full of effects of a
coronavirus-driven recession. It will fall to fintechs and the broader
financial services ecosystem to build on the shining examples of financial
inclusion in 2020 and ensure the least fortunate in our society do not get left
behind.
Conclusion
More than anything, 2020 has shown how our industry can
respond to massive upheaval with agility and innovative thinking. As we enter
2021, these qualities will be more important than ever as we seek to deliver hyper-personalised
and inclusive experiences and products that customers demand in these
constantly changing times
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