Fintechs and banks are in a race to innovate and shape the future of financial services. However, as new technologies emerge, traditional banks will have to adapt quickly to provide their customers with what they expect. Subsequently, this will lead to the emergence of new business models across the financial services sector.
The ongoing uptake by consumers of new ways to access and use financial services requires a complete rethink from traditional financial providers. Consumers are driving change on an unprecedented scale because of new technology and broader societal trends.
It goes without saying that the pandemic has changed the way we live, work and buy. This in turn is impacting traditional banks and fintechs alike, who need to identify new solutions to deliver competitive advantage. We see five core trends driving that change as we move into 2022 and beyond.
1. The rise of digital/neo banks. Banking has traditionally been a monopoly with high barriers to market entry. But the relaxation of regulations in countries around the world has paved the way for neobanks to take the initiative and attract customers with the promise of lower fees, convenient mobile banking and improved customer experience that removes in-store banking. That’s why the neobank sector was valued at USD 30+ billion in 2020 and is projected to grow at a Compound Annual Growth Rate of 47.7% over the next eight years. Neobanks are also attracting unbanked customers with a combined purchasing power of USD 1.2 trillion. As more of the world’s population gets online, expect digital banking to move ahead of in-store services.
2. Real-time cross-border payments. Approximately 40% of large enterprises in the US have already adopted real-time payments and this percentage is set to rise according to Levvel Research. In other countries and regions, approximately 50 real-time payment schemes are now up and running. Demand is high for immediacy of payment settlement that delivers competitive advantage for businesses, reduced risk for payment failure and highly improved efficiency in cash flow. As domestic schemes become more established and popular, expect real-time capabilities to extend to cross-border payments.
3. Open banking. During the pandemic, our reliance on digital payments and self-service banking confirmed the need for banks to become more digital. Open banking is an API-enabled, technology-driven approach that allows banks and other providers to seamlessly deliver financial services using aggregated and authenticated customer data. Already, several countries have introduced regulations that have compelled banks to deliver open banking in response to customer demands. Fintechs everywhere are incorporating open banking standards into their products and services. Banks that don’t embrace open banking will limit their capabilities to better service their clients and also limit their growth opportunities.
4. Artificial Intelligence (AI) and Machine Learning (ML): Machine learning applications enable the processing of large amounts of data sets, reaching valuable conclusions which, by using its algorithms, can drive effectiveness and provide time-saving opportunities. Moreover, it analyses patterns in real time enabling quick decisioning. A range of financial services applications already use AI/ML today for everything from fraud detection, lending approvals, and AML screening, to risk monitoring and investment predictions. Machine Learning is constantly evolving, and Fintech will continue to be one of the main industries to benefit from the power of AI/ML.
5. The emergence of Banking-as-a-Services. In recent years, Banking-as-a-Service (BaaS) platforms and services have emerged as a cost-effective and efficient way for delivering financial services using open banking concepts. Banks must adapt to a service-oriented and composable/modular architectural approach in the delivery of new and innovative digital services. BaaS is a critical component for traditional banks and financial institutions on their digital transformation roadmap. Expect many more legacy financial institutions to collaborate with fintechs by using BaaS services to bring innovative tech in-house and enhance their own offerings.
As technologies and markets mature over the next 12 months, these core trends will create an environment for further innovation and the emergence of new business models in financial services. They create global opportunities for banks and fintechs to cooperate and extend their offerings globally in payments, lending, digital banking, instant credit and more.
About Abdul Naushad
Abdul Naushad is a highly accomplished and proven business leader, with deep expertise in payments and enterprise financial software, with a track record of growing growth stage companies into later-stage companies. Today, Mr. Naushad is the Founder and CEO of Buckzy Payments Inc, a Canada-based global fintech innovating and shaping real-time cross-border payments. At Buckzy, he is responsible for setting the vision, shaping, and executing the global business strategy to take Buckzy to market. His exceptional ability to motivate and foster a performance-oriented culture across the organisation is delivering the growth performance at Buckzy.
About Buckzy Payments
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