For financial services institutions, much of what was road mapped for 2020 was ripped up or, at the very least, put on ice in response to coronavirus. At the time of writing, the world has been in ‘pandemic mode’ for over a year and there is little doubt that the global crisis will have a more profound impact on our societies and world economy than we can entirely know at the moment. Nonetheless, some clear patterns are emerging in the financial services industry making this an excellent time to consider what we can expect next for the sector. In this article, I consider what the events of the last year will mean for FinTech as we move towards the ‘new normal’.
Necessity Is The Mother Of Invention
This is different from the 2008 crisis in that it is not a banking crisis but a crisis of the real economy. Banks and financial institutions are now well capitalized and resilient and in a comparatively better state to weather the economic storm. Those slower to embrace digitization and modernization pre-pandemic may find themselves in a weaker position than others whose digital infrastructure was sufficiently resilient. The situation is not irretrievable but there is now a race on for many to catch up on lost ground.
Traditional FIs are rethinking the way work is done and reassuringly, the industry as a whole has reacted well. Remote working is already normalized and recognized as an efficient method of operating and satisfying regulators and consumers. The growth in e-commerce activity and cashless transactions is evidence of a shift to a digital economy with solutions requiring less physical interaction. FinTech firms that offer money management and budgeting tools, robo-advisors, personalized digital credit and insurance products, blockchain-enabled payments and digital currencies are likely to play a big part in the industry’s future.
Corporates are adapting to behavioral changes suggesting that they believe that the shift to digital-first finance will not roll back. This requires them to enhance the capabilities of their legacy infrastructure to meet demand for closer to real-time payments and more. Mastercard, with whom we have a relationship through our long-term client VocaLink, acquired open banking solutions firm Fincity and Visa attempted the big money acquisition of API leaders Plaid demonstrating clear intent from the biggest in the industry.
Blockchain technology can improve trust and transparency while lowering costs and reducing transaction times. Automated transaction reconciliation for real-time management improves on lengthy and error-prone settlement processes which are synonymous with the industry. We have worked with clients involved in mobile money and P2P transfers to efficiently leverage blockchain tech for simple, reliable, cost effective and fast transactions.
In general, while end-users are not concerned or even aware of the processes going on in the background of the financial tools and platforms they are using, those late adopters of mobile, card and contactless methods of payments still hold misgivings when it comes to the security of their data. They will need additional reassurance from providers about security and time to adjust. While many of the changes consumers were required to undergo over the last year were unavoidable, necessitated by lockdown branch closures, genuine financial inclusion and buy-in are critical as we adjust to a more permanent model for the industry.
The Future Of Finance Is Digital
Not only is the financial industry not the cause of this crisis, it in fact holds the potential of being a key driver of economic recovery. Many of the trends of the last year will remain in the new way in which the financial services industry operates. Digital payments, improved data security and system resilience, and innovation in the use of blockchain and digital assets are not new to FinTech but now they offer up genuine avenues for solving the real world problems of today. Most importantly, there is now an environment within the whole FS ecosystem that recognises that technology can help improve our lives exponentially and create a better future.
FinTech firms, being well versed in the art of disruption, are well placed to adapt and prosper as we settle into any new normal. The transition towards a digital-first economy will maintain the momentum to accelerate digital transformation. With governmental support and suitable regulation, FinTech will be one of the sectors that will end up with enhanced importance as we emerge from the crisis.
Author: Michael Jaiyeola
FinTech Lead at Erlang Solutions