Coronavirus has disrupted the functioning of all major industries and the finance sector was one among the worst hit. This year, we are likely to see a risk averse industry, as fintechs and banks alike move into survival mode. Yet, this will also spur innovation. The shift away from cash will give a shot in the arm to digital payments, while lenders in particular will have to get creative to balance their risk against the need to dispense funds.
Here are five core trends that can have a major impact in 2021:
Lenders will seek improved visibility to combat delinquency: Businesses particularly, SMEs need liquidity to survive. Money lenders are focussing on enabling visibility and control after a loan is dispensed in order to balance risk with need. This way lenders will not release funds in lump sum but as and when it is needed. They also have the power to reject or approve payments in real-time, based on whether the request is aligned with the terms of the loan agreement.
Embedded payments to become more commonplace: Embedded payments has been around a long time where payments are so integral to the customer experience that it doesn’t even feel like you’re paying anymore. In the coming years, we will see an expansion in payment methods as the options available are wider now. Use of cash to drop below 15%, falling from 23% of all payments in 2019: The UK and Europe’s departure from cash is expected to continue to evolve. Physical cards will begin to rise in digital payment methods – virtual cards, digital wallets, and the likes of Apple Pay and Google Pay. Banks should turn towards preparing for this shift.
Back-end bank modernisation set to continue: Traditional banks are recognising the need to innovate faster, particularly on the front-end, to compete with the new waves of digital banks and fintech entering the market. While we will see continued modernisation on the back-end, as they try to unpick the complex web of legacy systems they sit upon, one would not expect this issue to be fixed in a year. Instead of taking on the risk of full migration, many banks will leave core services in place that are too risky to move, whilst shifting towards newer services.
Alternative lenders will open up the market to support the financial industry recovery: The process of securing a loan has always been quite painful – involving lots of self-reporting, paper statements and credit reports and it takes a long time before the results arrive. Fortunately, it looks like those days might be coming to an end with the emergence of a new breed of alternative lender focused on transforming specific niches of lending. New alternative lenders are changing the stakes. Using data and modern payment platforms, decision making is now a matter of minutes and hours and not months. We are seeing the same in Point of Sale lending with companies, now you can apply for a POS loan and get approved in seconds. Fintechs to continue leading front-end innovation: Fintechs hold the monopoly on defining what is important in terms of features. From money management tools, to saving incentives, fintechs have created new, attractive products with a speed and creativity that traditional banks simply cannot stand up to. However, success in this regard is rare. Banks will always act as a back-end while fintechs will continue to serve the customer from the front end.