Fifty Shades of Fintech

By Dr. Ingrid Vasiliu-Feltes

Globalist, Futurist & Ethics Officer

 

Global Landscape

Fintech deal volume in Q3 2020 highlighted that we are witnessing a resurgence of investments in fintech startups at $10.631B. Seed and angel rounds even grew by 20% compared to Q2 2020 and the African market hit an all time high. A recent PWC report indicated that Fintech will be a major driver for Financial Services business models. WEF also published a report that showcased that many financial institutions are embracing emerging technologies and are eager to enhance their innovation portfolio. There are interesting differences across markets, with North America leading the way in banking as a service, while the Asian fintech ecosystem is poised for large scale adoption. 2020 also was the year of the inaugural 2020 Global Fintech Index that included 230 cities in 65 countries, with San Francisco, London, New York, Singapore and Sao Paulo securing the top ranks.

 

Innovation Trends

There are several innovation trends that will shape the next few years, however a few stand out for 2021. Digital only banking, digital payments, and banking as a service.  Artificial intelligence, distributed ledger technologies, cloud and quantum computing, 5G and IoT are powerful technologies that are forcing new pathways of innovation. These pathways are centered around a few domains such as data access enhancements, augmented analytics, as well as heightened security and privacy methodologies. The combined and augmented impact of these technology clusters will likely lead to an accelerated pace of fintech adoption globally and establish the foundation for future global financial institutions. Just in time lending, verifiable impact investing, augmented purchases, data-linked green bonds, mobile to mobile payments are a few of the key shades of innovation in the fintech industry. They are complemented by optimization of core business functions and enhancement of transaction flows which can range from global ledgers to global fund transfer networks. The fintech innovation palette also includes use cases that transcend financial services such as life-sciences , education, law, trade etc.

 

Disruptive Impact

Legacy banking systems will be challenged by consumer expectations, cybersecurity threats will likely increase and macro-economic trends will continue to push the boundaries among industries towards the development of a global digital economy. Financial services are labeled as the epicenter of disruption in the new digital era, with up to 28% of banking and payments businesses being at risk and up to 22% of insurance, asset- and wealth management services at risk. A recent disruption index revealed that one in three millennials in the USA are open to switching banks and believe that they will not even require a bank in the future. Intelligent automation is also considered one of the major disrupting forces in fintech, with robo-advisors showcasing their ability to address key industry pain points, reduce costs and mitigate risks. 

 

Risk Mitigation Strategies

So how can business leaders adjust to and proactively address these complex factors within the fintech ecosystem? Hiring and retaining the right talent, designing state of the art cybersecurity defense systems, modernizing IT operating models and embarking on the digital transformation journey are a few essential strategic considerations. Furthermore, engaging all stakeholders and forging strategic partnerships can ensure long term success and sustainability. IT leaders will have to focus on interoperability and integration to ensure optimal user experience and maximal operational efficiency.

 

Future Directions

Emerging technologies are shaping the financial services industry and are likely to cause a further expansion of the chromatic fintech innovation scale. However for a sustainable large scale adoption of all these novel shades of fintech services it will be important to revise the legal and regulatory landscape, as well as to enhance the financial inclusion efforts. The global regulatory landscape has been extremely dynamic with several countries and the European Union highlighting major challenges to be addressed and global issues that are reshaping the financial services such as climate change, global debt, and social-economic inequalities. It is also likely that we will witness a convergence and blurring of industry boundaries, with fintech services becoming deeply embedded in the infrastructure of other essential domains that shape our society and the global economy such as healthcare and education. Special attention to ethical deployment of fintech services will be an imperative for our society given the mistrust and the potential for misuse.