What’s Next for Post-Pandemic FinTech Innovation?

By Brannan Coady, CEO Netsells Group, CPO YourParkingSpace,

Even before 2020, FinTech was fundamentally transforming the way financial services operate. Established market players have been forced to step up their use of technology to keep pace with challenger banks and FinTech start-ups.

New market entrants are clearly following on of two strategies – they either aggregate existing services onto a unified digital platform, or break them down into niche digital products serving small, but well defined market segments.

This bundling and unbundling has become a familiar pattern of innovation across multiple industries ever since the .com boom.

However within the context of FinTech, there are unique ecosystem pressures that are driving new products and services. For anyone looking to work with or build a fintech business, these are the three trends I would take note of to drive my strategy in 2020:

Digital Transformation Will Be Non-Neogtiable

The abrupt move to digital during the first few months of 2020 came as the biggest shock to incumbents that relied heavily on outdated processes, multiple intermediaries and legacy systems.

For example, homebuyers in the UK at the beginning of the pandemic faced month long delays for mortgage approvals. This was blamed on the rise of homeworking, however delays also result from the fact that multiple parties interact with manual updates throughout the transaction lifecycle.

This is further exacerbated by the fact that risk appetites across the sector have been depressed, but assessing risk is still in many cases reliant on manual investigations by underwriters.

My feeling is that having had these issues exposed in such a painful manner, traditional banks will have a healthy, if not voracious, appetite for rapid technology implementation over the coming years. This matter will be even more pressing given the fact that most banks have several start-ups in their rear view mirror for each service in their portfolio.

We are already seeing a massive interest in the potential of Blockchain to streamline the home buying process, as well as the way financial institutions handle mortgages. If data can be held by multiple parties that is trusted, accurate and secure, process steps can be automated and reduce the complexity, time and cost for all parties.

I’m also very excited about the potential of AI to increase speed and further reduce risk through document analysis and intelligent decision making. It would be a shock if we do not see mass-adoption of multiple emerging technologies over the next few years.

Regulation Will Become a Driver of Innovation

As competition and innovation heats up, regulators will have to become part of the driving force behind new services and products.

There are two sides of the coin at play here, as of course regulators are in place to stop abuse or misuse, but they also have to become conscious of the potential for regulation to impede progress.

Brannan Coady

As new technologies are introduced, there is a clear opportunity to rethink how regulatory frameworks might actually support the development of new propositions by offering clear guidance to those looking to build in the FinTech space.

An example of this is the Payment Services Directive (PSD), which aims to encourage innovation in the payments industry and outlines the criteria and obligations for payment providers and users.

PSD2, in particular, forces providers to open up their data and services to third-parties which has been transformational for FinTechs and traditional banks alike, allowing for better customer outcomes and more streamlined internal processes.

The next phase of post-pandemic fintech innovation will require regulators to instill confidence in both consumers and those creating solutions.

Digital Payments Will Continue To Dominate

Despite its boring image, payments remains one of the hottest areas of fintech investment, with €55.6bn worth of exits since 2013.

Digital wallet services such as Apple Pay and Google Pay leverage well understood technologies such as near-field communication (NFC) technology and biometric authentication to make the consumer payments experience seamless and secure.

However there is more still to come from consumer-facing solutions, especially as the demand for mobile payments have skyrocketed dramatically over the last 6 months and shows no sign of slowing down.

We are starting to see solutions emerge that do away with card machines and hardware altogether, facilitating purely mobile to mobile transactions enabled by a mobile application installed on retailers’ and consumers’ devices.

Alongside consumer-facing propositions, we are also seeing an expanding desire for the payments ecosystem itself to be productised and opened up.

API-driven, banking-as-a-service platforms are using the opportunities provided by regulations such as PSD2 to enable payments by directly connecting the merchant and the bank, reducing the number of intermediaries and therefore costs.

This openness is also providing opportunities for collaboration between banks and fintechs and actually provides a new type of opportunity for incumbents with a large existing customer base. Banks now have the ability to become true platforms, bundling up and connecting services provided by a multitude of fintechs