Firstly, to really understand the growing importance of Fintech, you need to follow the money. According to estimates by KPMG, over $136 billion was invested in fintech initiatives globally in 2019. The number is most certainly going to be even higher for 2020. So what will be the 5 top trends for fintech in 2020?
1. Robotic Process Automation (RPA)
Major financial institutions have been using Robotic Process Automation or RPA for years. Banks use it to simplify their operations through a reduction of manual tasks. It will continue to be one of the top trends for fintech in 2020. Through RPA, German lender Deutsche Bank has achieved great gains in productivity and quality. In the meantime it frees up time for employees. In turn, it makes them happier because they can focus on more interesting tasks. Everybody wins!
RPA is particularly efficient for processes with repetitive tasks and that need to follow several expected steps. For example, you can use it for complaints handling or customer onboarding. You can expect the deployment of RPA to continue across all major financial institutions in 2020. Banks need to be more efficient to compete effectively against Fintech as well as Big Tech companies that expand in financial services.
2. Machine learning and Artificial Intelligence
Beyond automation, artificial intelligence or AI has been deployed at scale in financial services. We are here talking about machine learning, an application of AI in which a computer automatically learn and improve from experience. There are many applications in financial services. The industry is very rich in data that can be leveraged.
Machine learning is useful in areas such as risk management or hyper segmentation (also known as the segment of one). Banks and innovative startups have started leveraging machine learning over the past few years. However, there is no doubt that 2020 will see a greater adoption of the technology.
3. Blockchain and distributed ledger technology
Banks are experimenting with blockchain technology. Many have been trying to find use cases over the past few years. Many startups have also developed enterprise solutions as well as expanded the nascent cryptocurrency industry.
2019 has certainly been the ‘Through of Disillusionment‘ period for blockchain technology as per Gartner’s Hype Cycle for Emerging Technology.
However, there is no doubt that the technology will have a transformative impact on the financial services industry in the future. Watch this space in 2020, we will see more experiments go into production.
4. Big Tech becomes Fintech
Big Tech companies have been steadily expanding in financial services of the past few years. Also known as the GAFA (Google, Amazon, Facebook, Apple) in the Western World, and BAT (Baidu, Alibaba, Tencent) in Eastern World. Big Tech companies have mostly developed businesses in payments and small scale lending. For instance, Apple Pay or Google Pay. Amazon has started to lend to merchants on its platform.
More recently, Apple has launched its Apple Card in partnership with Goldman Sachs. You will have read that Facebook is developing its cryptocurrency Libra and an associated payment infrastructure. The others have been active in developing their propositions across financial services. Offerings have been launched across personal and business finance as well as payments. In 2020, we can expect further incursion into financial services by Big Tech. You can also expect banks to try to defend their turfs with more investments into Fintech!
5. Money continues to flow in Fintech
Funding will continue to flow into FinTech initiatives. There are two main drivers for that. Firstly, it will be driven by banks looking to modernise their technology stacks. Secondly, established startups will be looking to raise funding to keep on growing at rapid pace. It is the case for challenger bank Monzo, finalising a £100 million round only months after closing its latest fundraising, albeit at a lower valuation.
Investors are still very keen to provide massive level of funding to fintech companies. Meanwhile, we are likely going to see some high profile failures and consolidation. Many emerging startups are chasing the same customers, particularly in retail banking. A lot of them do not really have a sustainable business model. Not even talking about profitability, that is nowhere to be seen for most.
There will be big winners but also big losers!
Most of the financial institutions are modernising by adopting new technology. The objectives range from improving customer service to streamlining operations.
Meanwhile, new entrants from startups to big technology companies want to disrupt the industry. These five trends will provide challenges and opportunities for all in Fintech in 2020. An interesting year for sure!