Summary
It's no secret that Fintechs have been on the rise recently. Businesses of all shapes and sizes are constantly turning to digital solutions to stay competitive, and customers continually require more ways to improve their lives.
Recently, during the strange days of COVID-19, the industry became even more crucial in keeping companies afloat. Fintech investments hit a record high of $131.5 billion in 2021, a 170% increase from 2020. Firms in the United States led the way with a little over $60 billion in funding. With online shopping, contactless payments, and e-banking seeing wider usage, companies providing these services are constantly expanding to satisfy their customers’ demands.
Current business requirements for regulatory compliance, cybersecurity, and environmentally conscious solutions also continue to grow. Market demands will undoubtedly keep the innovations coming for the foreseeable future.
So without further delay, here is our rundown of some of the most notable trends in Fintech that are changing how our world functions.
Most of us use embedded finance regularly. When we purchase a coffee or request a taxi through an app, our payment goes through, and voilà, we have our product or service. We no longer have to go through a third-party website or enter our payment details every time we need to make a purchase.
In other words, embedded finance allows customers to access products and services through the seamless integration of financial services adopted by non-financial companies.
Various companies like Flexiti provide these payments embedded on their partner websites with options ranging from point-of-sale lending, traditional credit payments, and deferred payments, a.k.a., the buy now, pay later (BNPL) option.
Walmart, the American “superstore”, has also jumped into the game and will soon release its super-app after acquiring startups Even and One. Walmart plans to offer a range of financial services to their customers while also managing wages and pay stubs for their employees.
Uber in the U.K. recently revealed plans to include flights, trains, and bus booking options in their app and foreshadows a similar push for companies to keep their customers in a single ecosystem. The one obstacle holding back the trend, similar to streaming content, is keeping all the players on the same team.
The most well-known super-apps, WeChat and AliPay in China, allow you to pay for almost anything and validate the concept of providing users with an all-in-one platform that meets their varied needs. Thus, it is clear that these all-in-one apps will continue to play an essential role in our ever-evolving digital landscape.
With Fintech spinoff sectors creating their own identities, RegTech, or regulatory technology, is a rapidly growing sector and refers to software and other technologies used specifically to help businesses comply with regulations.
The sector has witnessed remarkable growth in investment and activity, driven by increasing regulatory complexity and the desire for greater operational efficiency. Investors have flocked to support companies that help businesses navigate these new compliance regulations.
To crackdown on money laundering and terrorism financing, BNP Paribas has designed and built a KYC (know your customer) system. This system calculates each customer's risk level to assess which ones may pose a threat more effectively.
Between 2017 and 2020, according to Fintech Global, investment grew at an astounding compound annual growth rate (CAGR) of 73.2%, with total funding exceeding $10 billion during this period.
In 2021, companies raised $18.9bn across numerous deals, beating the previous high of $7.8bn set in 2020.
But what does this mean for the industry?
Well, it's a sure sign that RegTech is here to stay. And with good reason. With the ever-changing regulatory landscape and the broader acceptance of cryptocurrencies, companies need all the help they can get to keep up with the latest rules and compliance initiatives.
Digital-only Neobanks exist only online and don't have any physical branches. They offer almost everything traditional banks do. Because they have low overhead costs, they can pass on the savings to their customers with higher interest rates on deposits, lower fees, and better customer service.
Some of the most popular digital-only banks in the United States and the U.K. are Chime, Simple, Varo, Monzo, Revolut, and N26. In 2020 in the United States, the penetration rate of users was 5% and is expected to grow to almost 15% by 2025, a threefold increase.
In addition to the ease of use and higher interest rates on deposits, digital-only banks are even playing a role in helping close the divide for the unbanked of the world. They are giving them access to products and services they never had a chance to use before.
One notable example is the recent approval of MTN and Airtel to operate payment services in Nigeria. The change opened up a market of nearly 40 million unbanked Nigerians. These telecom companies now have an opportunity to make a real impact by giving their clients access to vital financial products that were previously unreachable.
By opening up these underserved markets and helping bridge the gap between the haves and the have-nots, digital-only banks truly contribute to greater economic equality. Thus, it is clear that this new banking model is paving the way for a brighter future for all.
In the United States, only 17 states require a personal finance course to graduate high school. However, up to 45 states do have some form of finance education. This is a good step for the younger generation since 20+ years ago, only one state required it.
This probably explains why around 2/3rds of Americans can’t pass a basic financial literacy test.
One company impacting this knowledge void, Greenlight, provides children with a prepaid Mastercard linked to a parent-monitored spending account. It’s an innovative solution to help parents instill financial responsibility within their children.
The app includes spending limits, chore calendars, money transfers, and an educational investing platform that allows kids to research stocks and make real investments in companies they like as long as their parents approve, of course. We’ve even managed to digitize the weekly allowance, but provided some hope we won’t see another 2008.
What does a typical loan application process look like? Piles of documents, waiting in stuffy bank offices, face-to-face meetings, and the cost of transport and time.
Digital or automated lending generally uses automated software to underwrite and approve loans. This type of lending has become increasingly popular recently, as it can help speed up the loan approval process and reduce the number of hurdles to getting approved.
According to a report by Infogence Global Research, the global digital lending market is expected to grow from $16 billion in 2022 to $55 billion by 2027.
Companies like Kabbage in the U.S. are leading the way in digital lending, providing quick and easy business loans with reduced paperwork and flexibility for borrowers. The company also includes checking and payment services for small businesses in their app.
As more lenders adopt automated approval software, they will be able to scale up their operations and reach borrowers both in their local markets and abroad. Ultimately, digital lending is opening up new opportunities for borrowers and lenders alike, making the loan process much more efficient.
In the past few years, handling cash has become a source of anxiety for many. Do we spray it with disinfectant before putting it into our wallets or not? Be honest with yourself; it crossed your mind.
As more and more people worldwide turn to digital payment methods, the days of paper money and coins are numbered.
Credit and debit cards are much more convenient, and technologies like mobile payments make it even easier to pay without cash. As a result, we see a shift toward a cashless society worldwide.
Sweden is genuinely at the forefront of modern trends regarding money. The first European country to issue banknotes, while fast-forwarding to today, it is widely considered one of the most cashless nations in the world. With a low number of ATMs per person, over 98% of citizens owning both debit and credit cards, and a growing number of contactless mobile payment options available, cash seems destined to go the way of the dodo in Sweden.
The pandemic has also undoubtedly hastened the shift towards cashless payments and online shopping, and countries across Europe are already seeing significant changes in this area. A 2020 study released amid our masked-filled summer showed that the Netherlands was the most cash-free society in Europe, with Poland and the Czech Republic rounding out the podium.
The convenience of paying with a tap of your phone or a wave of your wrist is hard to resist. And as digital payments become more widespread, it's clear that the days of carrying around wads of cash are numbered.
When it comes to Green FinTech, there are endless possibilities for innovating in finance. Whether using big data analytics to uncover new investment opportunities or leveraging blockchain technology to create more sustainable currencies, there is no limit to how we can leverage technology to promote environmentally friendly financial practices.
This ultimately is about creating an economic system that supports communities and protects our planet.
For example, eco-friendly payment options are beginning to gain traction as a customer-friendly means of reducing carbon emissions from traditional banking methods. In Sweden, the mobile app BankID allows consumers to access multiple online services with one account and password, which reduces paper waste from physical bank statements.
By empowering everyday people with tools like mobile banking apps and proof-of-stake validation for crypto transactions, companies can help give everyone access to a fairer, cleaner financial system.
What about the future? As anyone’s cousin has probably already mentioned, crypto has been all the rage the past few years. We’ve seen the memes and wished we didn’t purchase a coffee with those five bitcoins ten years ago. But how can this change how we handle our money?
DeFi or decentralized finance is an umbrella term for financial applications that run on a decentralized network like Ethereum. DeFi apps are built on open-source protocols and offer trustless and permissionless access to financial services. Decentralized finance protocols provide a wide range of services, including lending, borrowing, stablecoins, and token swaps.
DeFi protocols have unlocked a world of new possibilities for users and developers by providing an open financial system accessible to anyone with an internet connection.
This topic is so big it probably deserves its post, so to give you a quick background, take a look at this video about how DeFi could change how finance functions in the future.
Do we call the abovementioned “trends”, or are they now considered an essential part of our lives?
When you hear the words Fintech paired with disruptive technologies, you get a chaotic vibe from the imagery. Disruptive technology is, innately, changing the way we do things. That disruption of routine is what most are reluctant to change.
With Fintech technology, companies and governments are forming partnerships with software developers to handle all kinds of tasks almost unthinkable ten years ago. We manage our daily lives with devices that, in the past, were used to complete the simple task of telling us when to get out of bed or were once only connected to the wall with a cord.
The “new normal” may not be that our world will be less accessible as many of us feared; it could be that Fintech’s acceleration will help create a world more convenient than it ever was before.
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