FinTech trends to watch in 2021
By Evlogi Georgiev, COO & Practice Principal, FinTech & Banking, Sciant
The FinTech industry is undergoing radical transformations aimed at helping financial services organizations (and their clients) navigate risks, avoid overspending, and better manage their finances in general.
FinTech (short for financial technology) brings the financial and technology industries together. Thanks to tech like cybersecurity, biometrics, and artificial intelligence, banking can now be done faster and smarter than ever before. And with the help of innovative FinTech solutions, the nature of banking and payments is swiftly evolving.
As the year draws to a close, we take a glimpse of what lies over the horizon, trends that have already begun to take shape and will undeniably affect and improve the financial sector in the year to come. From machine learning and AI to behavioural science tech, here are the hottest FinTech trends to watch in 2021!
More digitized operations in the banking sector
While there has been significant investment towards B2C changes in digital payment, the COVID-19 environment will compel banks to adopt more innovative B2B processes, re-designing and rebuilding back-office processes which are time-consuming, complicated, and expensive. With more digitized operations in the banking sector, banks will offer their clients more flexibility and an easier way to manage their finances.
The world’s most innovative banks have already begun to change their organizational structures in order to increase the efficacy of their operational models that are responsive to customer requests in both the B2C and B2B space. To expand on this already infolding trend, banks will have to rely on customer data to create services that enhance the value proposition and enrich the customer experience.
During the course of the year, there has been a substantial increase in demand for Cloud and Software as a Service (SaaS). Because cloud technology and SaaS offer resilience, scalability, and security, it will become a primary focus for many financial services providers in 2021 if they still make use of legacy systems.
Expanded application of machine learning and AI
Expanding the application of ML and AI will help save money on human capital while reducing fraud and processing errors and generally lower long-term operating costs but will be design and capital intensive to deploy.
More and more banks are working on fine-tuning their AI solution strategies that will drive broader adoption of AI in the sector throughout 2021. It has been estimated that AI will reduce bank operating costs by up to 22% around 2030. This equates to savings of up to $1 trillion over the next decade.
McKinsey estimates that machines will perform 10–25% of all banking tasks within the next few years, which directly translates to cost savings and reduction in human errors for financial institutions. Although start-up costs for robotic process automation (RPA) are hefty, most companies see a 40–100% ROI within 3–8 months. When everyday tasks are delegated to AI, organizations can shift their attention to customer needs.
Due to its ability to work with unstructured data, AI is fully capable of dealing with the growing threat of financial cybercrimes. Since machine learning and AI will bring a better overall customer experience, financial institutions will increase their investment budgets to implement smart financial technologies like these.
Consolidation and partnership between FinTech start-ups and traditional financial players
FinTech startups have traditionally been seen as a global disruptor, providing innovative, cutting edge technical approaches and products to the financial sector. With FinTech firms now more established and technology more sophisticated, financial institutions will seek to license their technologies and leverage them to benefit and expand their customer base. This will require integration and adaptation on a significant scale.
Traditional institutions will continue to invest in and acquire FinTech technologies due to the growing need for agility and increased reliance on tech. Up to 82% of decision-makers aim to increase FinTech partnerships within the next five years as it allows them to pursue cutting-edge business solutions.
Financial institutions are more likely to collaborate with FinTechs than compete with them as FinTechs continue to seek more traction in an extremely competitive market, and financial institutions seek more sophisticated partners.
Increased focus on cost savings
With massive layoffs hitting the global finance industry (HSBC alone plans to accelerate 35,000 job cuts amid COVID-19 profit plunge), financial institutions need to extract every efficiency out of their existing technology systems and labour force to handle increasing digital customer volumes while also being under income pressure from low yields and loan demand. This focus on cost savings will drive a new wave of business-to-business FinTech innovations.
To optimize operational costs, banks will have to consolidate, simplify, and automate core processes. By refocusing attention on IT and operations, increased automation can offer an opportunity to develop more customer-centric products and services, driving more targeted business outcomes.
Reliance on Behavioural Science Tech
With banking and FinTech having broad KYC requirements, they will need to build relationships with clients that they cannot meet in-person to judge their trustworthiness, customer satisfaction, and a host of other parameters. Data harvesting, machine learning, and AI will feed the behavioural science models that will, in turn, turn these insights into client objectives and behaviours. Integrations will get better, and this kind of information can then be stored on existing platforms so that systems can be enhanced, not supplanted.
Due to the nature of the FinTech industry and its extreme data-intensity, behavioural AI allows this data-driven financial service to grow to a whole new level. From encrypted cryptocurrency trading to cross-border e-commerce and payments, all FinTech solutions are highly dependent on high-quality data and intelligence. But as data becomes more widely available, new types of decision intelligence (behavioural data science and behavioural AI) will allow financial service providers to look at data in a more responsible, innovative, and creative way.
Behavioural science tech will continue to impact the FinTech sector for the foreseeable future as it opens doors of better ways to understand spending patterns, designing interventions, and segmenting customers.
The future of FinTech is upon us!
The financial services industry is growing and expanding rapidly, and the FinTech trends we have mentioned here have all evolved based on client demands. These evolutionary trends will deliver more effective and efficient financial services that allow for enhanced availability of financial data, faster processing of transactions, and better customer experiences.
The shift to a customer-centric banking model happened sooner than most traditional financial services providers were anticipating, and the evolution of digital banking solutions aren’t set to slow down any time soon. Financial institutions and banks need to harness FinTech solutions so they can innovate and deliver truly exceptional customer experiences.
FinTech’s primary focus is exploring and claiming under-digitized or unoccupied niches. To survive the dynamics of the industry, financial institutions will have to focus on the flexibility of their product architecture and be willing to make changes to it to accommodate technological advances and market changes. To do that, collaboration with FinTech is essential.
