By Aisling Finn on Tuesday 29 December 2020
We asked fintech leaders to take a look in their crystal balls and predict what might happen in digital banking in 2021.
In part one of this article, we asked leaders from within digital banks about what they think digital banking might look like in 2021, including from leaders at Starling, Atom Bank and Revolut to name but a few.
For part two, we spoke to industry leaders and founders of fintechs, which interact and work with digital banks, shaping the way we use digital banking about what they think might happen over the next 12 months.
And, just in case the opinions of industry leaders and digital bankers wasn’t enough, the AltFi team have also had a look into our crystal ball to see what we think might happen in 2021 with digital wealth, alternative lending and digital banking.
This is what fintech leaders think will happen within the digital banking space over the next year
By Charlotte Crosswell, CEO of Innovate Finance
In 2020 the whole attitude to digital banking has changed. And that's not necessarily just millennials that have been pushing forward digital banking before, it's taken us into a whole different sector, such as the elderly, who will not go back to queuing outside the bank to go and pay on the cheque. There’s going to be some amazing innovation coming in the space next year.
I also think that some of the quieter sectors, such as regtech, will continue to do incredibly well. Fintechs in the regtech space don’t often get as much attention, but they are powering these changes and quietly raising money and delivering this to you and will continue to be adopters of change. I think there’s a good opportunity there for the UK to be using that overseas as well. Looking at products here and then others overseas, such as in the US, there’s a great opportunity to scale regtech and showcase what they’ve done best over the past few years and taking it to the rest of the world.
By David Brear, CEO and co-founder 11:FS
Looking ahead to fintech in 2021, we can’t ignore the gap in the market for more tailored financial advice that takes into account people's holistic situations. Businesses are increasingly realising that - when it comes to money - one size does not fit all. And while the complex regulation around ‘advice’ might put some firms off, it’ll be interesting to see which firms take advantage of this gap in the market. And financial services won’t just be personalised; they’ll be automated, too.
We’ve witnessed the popularity of brands like Nutmeg, Cleo and Chip, and we’re only going to see more of these business models appear. The successful rollout of automation in retail banking does, however, raise important questions about financial inclusivity - it’s vital that we don’t reinforce the same privileges and exclusions of traditional financial services.
By Francesco Simoneschi, co-founder and CEO of TrueLayer
As more customers have turned to digital channels to manage every aspect of their lives, they have experienced a poor payments experience and service. The problem is cards. They were not built for a digital-first experience and have been retrofitted into current online payment flows. Newer approaches such as Google Pay or Apple Pay paper over those cracks but don’t change the fundamentals.
Open Banking is digitally native and mobile-first by design. Bank to bank payments move money at a fraction of the cost, securely and conveniently, while also delivering a vastly better consumer experience. It’s a huge win for merchants too, with a higher conversion rate than cards, with near-instant settlement and all at a lower cost. The introduction of Strong Customer Authentication (SCA) in 2021 adds another layer of friction to cards with workarounds that deliver a poorer customer experience. With Open Banking payments, authentication is integrated into the payment flow, often with the consumer using biometrics such as fingerprint or face ID to identify themselves in their banking platform.
There is a huge opportunity for banks to improve the experience, removing legacy card infrastructure and move money at a fraction of the cost, more securely and with a higher level of consumer experience and convenience. Cards have had their time. 2021 will be the year the future of open payments architectures powered by open banking capabilities comes into their own. We will see significant investment in innovative payments products and services built on top of open banking, driving further adoption, for a better user experience.
By Liam Gray, fintech lead at Tech Nation
Fintechs have experienced a year of mixed fortunes, but despite the many obvious negative consequences of the pandemic it’s been a catalyst for the adoption of fintech and accelerated a number of emerging trends. The first, a further transition to a cashless society. Following the pandemic, individuals and businesses have been forced to adopt digital payments methods both online and in-person. Therefore, I’d assume that many of those who have used online payments, digital wallets, QR codes and other contactless payment methods will continue to do so going forward.
In addition to this, a distinct segment of people were able to save significantly more money during 2020, prompting them to explore new areas to place that additional disposable income – leading to an uptick in wealthtech transactions this year. A new wave of digital retail investors have been born and we can expect to see this have a positive impact on the growth of fintech in 2021.
By Charles Delingpole, CEO and founder of ComplyAdvantage
We will no longer have to talk about Brexit. Banks will have their subsidiaries set up the EU and their license in the UK. Actually, we will realise that it was never such a big thing after all. Those who have to do state by state expansion in the US and go through the pains of launching in California, New York and Texas separately will realise that the loss of passporting, whilst an annoyance, was never the terminal death sentence for the City or for UK fintech that was initially feared.
Neobanks have to choose their niche - for all the talk of consolidation and rebundling, we will realise that neobanks and start-ups will have to choose a defined customer set and cater to them. It is not possible to build the very best trading platform, the very best pensions service and expand globally simultaneously - fintechs will be forced to choose what they are good at and what they want to focus on
Open Banking will move from the infrastructure layer to the application layer - we had a wave of infrastructure building out integrations - companies like Yapily, Credit Kudos and Truelayer - but now will come a wave of value-added service providers like Vyne and BillX who again choose niches and customer sets rather than being back-end providers.
Digital Banks will begin to care about adverse media - a neobank will be fined for a money-laundering breach and be exposed as having too lax an attitude to either terrorist-financing, sex trafficking or money muling. With this and advances in the underlying technology, regulators will begin to question whether it’s enough to simply look at the limited set of high-risk entities covered by sanctions and political exposure, and begin to look at mandating broad-based adverse media checks.