By Koen Vanpraet, CEO at PXP Financial
The last decade has been incredible for fintech, with advancements being made across a range of areas including retail banking, wealth management and, in particular, payments. To give some perspective, in 2019 we saw 64% of consumers worldwide using one or more fintech platforms, nearly twice the amount of those taking advantage of them just two years earlier in 20171. We also saw the global mobile payments market grow to more than $1 trillion last year, up from $450 billion in 20152.
It’s great to see how far the fintech industry has come but let’s put that reflection on pause and take a look at what we can expect from this year. There are certainly big changes afoot, as to be expected as we experience the global pandemic, with a clear opportunity for payments and payments related businesses to help make some societal improvements in light of COVID-19. But how is that likely to play out? Here’s a run-down of my 2020 fintech predictions.
The industry has seen a rise in digital banks that tailor their services to a tech savvy, digitised customer profile. Once perceived as novel and exciting, they are starting to set the standard when it comes to banking.
Initially, digital banking providers found success by offering more convenience and cutting-edge tools to customers. Users no longer need to go to their local branch to make changes and manage accounts, instead they are able to use mobile applications and online banking to do so. Never before has this convenience been more appreciated by customers, who are adhering to strict social distancing rules and avoiding stepping foot outside unless for absolute necessities. This is already taking effect on consumer habits, and is one of the reasons that we will see visits to bank branches drop 36%, by 20223. In that same period, we will see the number of mobile banking transactions rise to 121%.
We don’t expect to see challenger banks replacing legacy banks entirely, as there’s a lot to be said for the loyalty and trust that high street banks have built with customers over the years. Regardless, more and more people are turning to digital banking for at least some of their banking needs, and by the end of this year, we foresee that almost every consumer will have a digital banking profile.
Regulation and Security
One of the most hotly anticipated regulatory changes coming is Strong Customer Authentication (SCA), a requirement of PSD2 for payment service providers within the European Economic Area. SCA intends to crack down on fraud in the payments industry by ensuring merchants use multi-factor authentication on purchases.
The standard was due to go live last year but will now go into effect in December 31st, 2020 in the EU and the 14th September 2021 for the UK. While we won’t see the full effects this regulation until next year, in the meantime we will see fintechs developing imaginative solutions to ensure their clients are fully compliant ahead of the deadline. But following reports of an increase in fraud following the onset of COVID-19, the payments industry will need to make implementing increased security options for merchants a priority to combat those taking advantage of the crisis.
Over the last few years, the mobile e-wallet industry has boomed; in 2019 alone, around 2.1 billion customers were mobile wallet users5.It’s the youngest cohort of shoppers who are driving this payment innovation forward, but adopting these new technologies is no longer just for Generation Z. Due to COVID-19, we’ll see a sharp increase in adoptees of mobile wallets across the age spectrum.
It has been widely reported that the pandemic has forced consumers to change their payment habits, including the dramatic move away from using cash. Largely, this is due to a reduction in face-to-face payments and customers switching to card payments when they are in store over fears that handling coins and notes could increase exposure to the disease. Despite the World Health Organisation (WHO) advising that handling cash does not pose more of a health risk than touching any other surface, it was recently reported that the use of cash had halved in the space of a week.
These changing behaviours are accelerating the move away from cash and towards digitalisation, something that has been a long time coming but is now part of a global cultural shift. Not only is it possible that online spending may soon balance out on-premise transactions, but the current climate is providing that final incentive for those slow to make the switch, typically the older generations and those that are in the lower income bracket.
While the outcome for this year isn’t looking good for cash, it does provide another good opportunity for fintechs.
Efficiency is key for businesses regardless of the sector they are in, but for fintechs supporting customers with innovative, fast, and secure services in the face of COVID-19, this has never been more important. As such, they are increasingly looking to AI to help ease their operations, whether that’s dealing with customer demands or cutting down operational costs. An example of this in action would be the integration of AI into chat boxes. This creates a messaging system that deals with customers queries, designed to mimic and conduct human like conversations.
The current pandemic has forced many consumers to shop online and reach out to digital services, and the sudden influx of customers en masse to some of these e-commerce sites will be too much for many businesses to handle. This is particularly so for those smaller and medium sized businesses that may not have the manpower to help support them. As such, this year we’ll see companies increasingly turn to AI to alleviate that stress, reduce the burden of manual labor, and increase business efficiencies.
Although there will likely be many positive outcomes for innovation and demand within the payments industry as a result of coronavirus, unfortunately it will take some hits too. Investment could drop as companies hold on to their funds to see them through any immediate rough patches, while some larger, enterprise-size organisations could also be feeling the pressure due to fluctuating share prices. As such, we could see traditional players and emerging talent in the space battle for market share amid the changing landscape.
While we no longer have the ability to bank on the future as we once did, which no doubt will bring some uncertainty to players in the payments industry, one thing we can be sure of is that the landscape has shifted, and will continue to shift as the full effects of COVID-19 play out. The responsibility of the payments industry is to continue to adapt, to enable businesses and consumers to transact securely in a digital arena and to take advantages of new opportunities that will open up as the world comes to terms with a new reality.