Fintech Trends in 2021: Personalization, Modularity, and Embedded Finance
The COVID-19 pandemic has changed people’s lives dramatically, but it has also boosted a number of industries, and financial technology is one of them. People are now stopping or reducing the frequency of their trips to the bank and using contactless payment methods more often.
This article gathers information from four finance-related perspectives — fintech companies, service providers, banks and blockchain companies — to provide a comprehensive perspective on the trends in fintech in 2021.
This article is part of my master's thesis, do let me know if you are interested in the full version.Having analyzed the industry, I have found that two important patterns have emerged in the sector, namely the scenario and partnership levels. Scenarios represent scenarios where services are used, with financial scenarios referring to banking services, such as money transfers, and non-financial scenarios that can refer to life events, such as hailing a taxi.
Level of Partnership, which represents how the company develops its services, with in-house development meaning building the service itself, and non-financial institutions meaning partnering with non-financial companies such as ticket booking sites. Combining these two patterns, I concluded that there are three main trends in 2021: personalized banking services, modularity, and embedded finance.
Personalized Banking Services
Following the implementation of the revised Payment Services Directive (PSD2), the European banking landscape has changed and entered a new era — Open Banking.
Open banking improves data transformation and management that allows those financial service providers to use customer data more effectively to track preferences and engage customers. Specifically, non-financial data with transaction records can also be used (McKinsey Company 2017). The use case of customer data can be seen in new entrants’ strategies that are committed to providing services that are closer to their customers.
From the reports regarding future banking (Deloitte 2019; Accenture 2020; OBIE 2020; Capgemini 2021), consumers are now looking for more perks on online shopping, alerts about over-consuming, personalized saving suggestions, and other budget control services. However, banks should still capture the voices of their customers to generate detailed value propositions.
Modularity
In a report from Tink (2020), over sixty-nine percent of the respondents said they had increased the partnership with other fintech companies since 2019, showing that building partnerships has become more important in the banking industry than competing with each other. Besides, the development of DeFi has demonstrated that building on the infrastructure of others is feasible and more efficient, and more mutually beneficial than doing it alone. The same pattern can also be seen in the supplier’s section, that APIs providers build a convenient pathway for both fintech and banks. To accomplish this mission, modularization would be essential.
Modularity means integrating a new feature or function into a single component that can be read and used. In an open banking environment, this is where the use of APIs comes in, but it is not limited to that. The advantage of using APIs or modularized functions is that banks or financial institutes can deliver services to their customers much faster. For example, suppose a bank wants to create a peer-to-peer marketplace for loans. In that case, they don’t necessarily need to build this function by themselves, but technically build it on top of an existing service; once they can find out what the customer needs, they can simply find the corresponding function from the service provider. Furthermore, challenger banks can also become providers of modularized functions, as long as they have a strong development team and allow other banks or fintech companies to use them.
Embedded Finance
Connecting possible services and providing an Omni-finance channel could be another opportunity for banks once their functions can be modularized and used by other service providers. As it is known that customers crave a personalized experience, in order to provide them these personalized services, banks will not only have to scan their customers’ financial
status but also be able to analyze their non-financial transaction data to gain a deeper understanding of them. For example, by connecting a customer e-commerce account with a bank account, a bank can partner with online merchants to offer a loyalty program to their customers while providing an overview of their shopping behavior, helping them manage their monthly budget. By connecting touchpoints in customers’ lives, this study pictures a world where financial behavior is ubiquitous.
Such a service would not only facilitate the providers (e.g. banks and service providers) to achieve a more efficient and effective quality of service with lower development resources, it would also make financial services available and affordable to customers who have been excluded by traditional banks (e.g. those on low incomes, or those with poor credit but who are improving their financial conditions), in order to achieve the concept of financial inclusion.
To sum up, providing personalized banking services suggests challengers o integrate technology and provide personalized services to the customers; this is an opportunity that focuses on in-house development and service innovation. Challengers who want to focus on this trend should put more attention on customer’s needs and exploring new use scenarios that can solve a life problem.
Modularizing the functions can achieve flexibility in innovation and lowering development costs. Challengers who want to enhance their existing markets at a faster pace should start thinking about how to modularise their functionality.
Lastly, an embedded financial service system allows a bank to connect with other service providers to achieve a bigger vision of the financial world, the Omni-finance channel.
However…
These trends provide opportunities for those who want to jump into the industry or will be re-anchoring their business strategies. The next step for the challenger will be the evaluation of the business concept. That is, how to assess the company’s own resources, market position, core values and business strategies to fit the market trends will be a major issue.
Analyzing an industry and summarizing a trend is not a difficult task. The real challenge will be to choose the right path and continue to maintain the momentum of innovation along the way!
(Extracted from ‘Opportunity Exploration and Evaluation: in the Trend of Open Banking, 2021’ )
👏 Congratulations! You've finished this article! 👏 Please let me know that you are interested in more articles like this. Just clicking the applause button or leaving a comment will be an encouragement to me!If you have further questions you would like to discuss, or have something you would like to share with me, you can also send me an email 📬 hello@imsyc.info
Read more:
Reference
Accenture, 2020 Accenture Global Banking Consumer Study, viewed 16 May 2021, <https://www.accenture.com/us-en/insights/banking/consumer-study-making-digital-banking- more-human>
Chainlink Today, How Banks And Fintechs Should Prepare To Satisfy Demand For DeFi, viewed 15 May 2021, <https://chainlinktoday.com/how-banks-and-fintechs-should-prepare-to-satisfy-demand-for-d efi/>
Open Banking Implementation Entity (OBIE), Annual report 2020, viewed 16 May 2021, <https://assets.foleon.com/eu-west-2/uploads-7e3kk3/48197/obie-ra-artwork-10096a5716bf3 0–2.5853a6c2c203.pdf>
Srinivas V., Schoeps J-T, Jain A., 2019. Executing the open banking strategy in the United States. Deloitte Insights, viewed 6 May 2021, <https://www2.deloitte.com/us/en/insights/industry/financial-services/open-banking-model-st rategy-united-states.html>
Tink, Open banking attitudes and fintech partnerships, viewed 16 May 2021, <https://tink.com/resources/reports/attitudes-and-partnerships/>
Townsend, Z., 2021. What the embedded-finance and banking-as-a-service trends mean for financial services. McKinsey & Company, viewed 7 June 2021, <https://www.mckinsey.com/industries/financial-services/our-insights/banking-matters/what-t he-embedded-finance-and-banking-as-a-service-trends-mean-for-financial-services>
Wyman, O., 2016. Modular financial services: the new shape of the industry. Marsh & McLennan Company, viewed 7 June 2021, <https://www.oliverwyman.com/content/dam/oliver-wyman/global/en/2016/jan/OliverWyma n_ModularFS_final.pdf>
