Igor Izraylevych, CEO and co-founder of S-PRO, 10+ years of experience in startup advisory and product development.
FinTech is a growing industry at the intersection of technology and financial services. This is a powerful incentive for technological progress, which expands its influence on different sectors of the economy, allowing them to develop. For example, FinTech has been most active in consumer services, banking, money transfers, payments, insurance, asset and capital management. The industry is revolutionizing the way businesses and consumers conduct financial transactions.
In 2020, businesses continue to develop in digital-native scenarios: the consumer lives the digital experience, and businesses are built among platforms and ecosystems, companies can influence user behaviour more effectively and faster. Here are 3 main FinTech trends that contributed to these processes.
Enhancement of customer experience in banking servicesNew banking products. Crossing of financial products Rising popularity of cryptocurrencies
I suggest you quickly review each of them. This will allow us to better understand the looming trends and see the connection in this regard between 2020 and 2021 years.
FinTech 2020, a Retrospective:
In my opinion, nowadays many banks are still in the same position as before when they chose to provide customer service or not and still had a good profit. Gradually they find themselves in a situation where they need to look for a revenue stream and therefore try to maximize the number of their customers, as the margin of their products falls. Today it is not the bank but the client who chooses.
The modern client is interested not as much in a good bank rate or the price of banking service, but in the convenience and speed of using the bank, the ability to work with the bank only remotely (especially during the COVID-19 pandemic), the availability of a good mobile application with various services for family, work and study. An important criterion is whether the bank has a high-quality KYC service to recognize the identity of the counterparty.
The S-PRO team is currently developing a product for an American company operating in the African market. And transport paying products are gaining popularity there, for example, special bank cards. The number of such products is growing, as is the competition. This is a trend related to the first trend – customer experience. People need a lighter digital experience, which often involves paying for something. When a person wants to buy a product in instalments online, it’s also a fintech story but it happens at the intersection of eCommerce and fintech.
Banks used to hold the whole market, but today they have a lot of competition from startups. Young companies are more flexible, they see customer prospects faster, and they don’t need to do extensive analysis. In addition, there are many young talents who can and want to create something. Banks, in turn, are also interested in this, because they invest in such young companies and then can buy them. Here the issues are in the framework of collaboration with new players – large banks are already able to cooperate with startups. But middle-class banks still need to learn to do the same. Startups are actively becoming distributors of banking services.
Of course, banks are still trying to create their own financial products, such as banking products for accountants, for opening a new company, etc.
The third trend is cryptocurrencies, a subsection of trends 1 and 2, I would say. In 2020, this fintech product continued to penetrate the banking sector. And cryptocurrencies appeared precisely because of customer experience. For people who need dynamics, speed and simplicity, such products are more convenient for payments. And in some areas, Bitcoins or Ethereums are best suited for this.
There is an increase in the number of companies that conduct their business exclusively through Bitcoins or Ethereums. Cryptocurrencies have good financial turnovers and need strong operating activities and convenient banking services. But at the same time, it’s difficult for them to get legal and to get normal bank accounts.
Today there are more and more cryptocurrency startups that work in financial services, payment processing, and software. They work as a wallet service, can securely store cryptocurrency from a range of different attacks, support all cryptocurrencies as well as do a decentralised exchange and provide many different opportunities: Cobo, Javvy, Finhaven, Digital Currency Group, Binance, and others.
By the way, among our projects is a digital-bank, which works with large crypto companies, and provides them with various banking services. This is when you can come and put cryptocurrency in the bank. Also, you can get legal financing through a bank, but in cryptocurrency.
In general, the impact of the coronavirus outbreak on the industry depends on how much money banks make from their offline services and how they can operate online. The share of online banks is likely to have increased, while that of offline banks has decreased.
Different banks operate in different industries, with their own area of expertise. Some provide B2B services, others have certain products, and others just have a bank for the population.
During the first wave of Covid-19, the impact of the pandemic on the banking sector was negative, as turnover, orders and profits fell in many companies. Demand for bank loans decreased, and banks earned less on lending. In this situation, in order to maintain a positive level of profits, banks increase the fee for certain financial activities and services and develop Internet banking, including mobile banking. Citizens are increasingly shopping online and making payments through electronic banking. Among other things, since the beginning of the pandemic, the WHO (World Health Organization) recommends the use of contactless payments. Even before the outbreak of the coronavirus, the demand for digital banking grew due to the lack of time and desire to contact the physical branches of banks. The pandemic has stimulated the development of online banking platforms to make every banking service available online.
Fintech trends in 2021. What is expected?
In 2021, in the field of banking, there will be an emphasis on improving the customer experience, KYC, and onboarding processes. Work with mobile applications, chatbots, automation will also be aimed at improving interaction with users.
Obviously, banking services will become more and more friendly. A bank that wants to develop should not squeeze money out of the client, but score the client before providing financial products, check their solvency by improving the work with credit ratings. Today, this is a well-worked practice, but credit scoring models will be revised. The bank’s task is to give more value to the customer through various services. Thus, the bank will be able to earn not only on its main services, such as saving money or lending but also on additional ones – insurance sales, delivery, etc.
The insurance industry has worked extensively with personal and business transportation and travelling. Now, these areas have fallen due to lockdown. In 2021, insurtech is likely to focus on health insurance and on improving the customer experience.
“In 2021, in the field of banking, there will be an emphasis on improving the customer experience, KYC, and onboarding processes.”
Healthcare is now at the forefront of technological innovation and financial systems, providing investors with promising growth opportunities throughout the market cycle. This growth continues because of the increasing prevalence of chronic diseases and the ageing population. And of course, COVID-19 isn’t the last reason for this.
The healthcare sector is very large and offers a wide range of options for investors. Medical devices, pharmaceuticals, life sciences, and biotechnology have fairly reliable, good sales and profit indicators.
Therefore, investment in healthcare is expected to increase. People are paying more attention to their physical and mental health and buying more expensive insurance. Obviously, there will be new technological challenges in this industry. And it’s logical that telemedicine will continue to develop.
According to my observations, it so happens that people don’t pay the loan because of the lack of money, but because they simply forget. The bank can be more effective in dealing with debtors if it’s able to interact properly with them through mobile applications, chatbots, or automatic write-offs, rather than through collectors.
Within the projects we’re working on, the trend of resale of loans is becoming obvious. There are many lending platforms for microcredit. Such small platforms work very effectively with clients, they understand how to sell and collect these loans well. But they have a significant problem – limited access to finance. So they can’t borrow a lot of money and scale. As a result, specialized companies are emerging to help banks and these microcredit platforms, as well as startups in other financial sectors.
Among our projects is the scoring of loans issued by lending platforms, and giving other institutions the opportunity to invest in these loans through API. This is what the reselling of loans looks like, and it can be done automatically. Standard mechanisms of interaction in the Intermarket space between small borrowers and banks or investment funds are being created. With the help of these scoring products and automated APIs, you can invest money in one loan or in a set of loans at once. These platforms create a variety of package offers and tools to analyze where it’s best to invest. And the margin of such investments can be quite high.
We cooperate with one major sports association and within this project, we make a wallet for athletes, in particular for children. That is, the financial product integrated into the field of sports. Children have access to information on the entire sports infrastructure and can use it through a special mobile application. Parents can financially regulate the child’s access to certain sections.
“The bank can be more effective in dealing with debtors if it’s able to interact properly with them: through a mobile application, chatbots, or automatic write-offs, rather than through collectors.”
Fintechs, which originated as monoproducts, are fighting for a leading role in the entire financial system. To do this, they create multi-solutions. For example, innovative banks are expanding their digital product line to become more versatile and offer hybrid products such as investment cards and smart deposits. For the user, the value of hybrid products is that such solutions help to take the first step towards savings.
In particular, hybrid solutions help to use the current account more competently and at the same time not to save too much. Different mechanics are used for this purpose: rounding of purchase and transfer of “change” to the digital account, robotic investment, etc.
Hybrid products are more marginal because they are easier to use. They give added value to the customers, for which they are ready to pay more. And for a financial institution, successfully crossed products are an additional revenue stream.
Today most Africans don’t have bank cards or pay in cash. We’re doing one project with a startup – a payment service in the field of urban mobility. People on the streets will receive cards to pay for transport. The registration procedure is simple and is carried out in seconds right at the bus stops. And then the user can pay with this card for other purchases and services. But the mobile application itself is made so that a person can call a taxi or get on the bus in time. In short, it’s created for the convenient use of transport.
By and large, there is a tendency to digitize services for the African population. This large region is interesting for investment. The African market is strategically interesting both for countries and for companies, so business goes there from different directions. There are social initiatives to work with the population, as well as to create appropriate conditions for doing business. Africa is the next China. The development of the financial area, social projects, health care, and renewable energy are forecast.
“The African market is strategically interesting both for countries and for companies, so business goes there from different directions.”
I know how hard it is sometimes to overcome a long read. So today I will save your time and leave a little intrigue. The next 5 fintech trends in 2021 we will discuss in more detail very soon in the second part of this article.
Also published here.
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