What will Finance look like in 2020?
It’s just a year, right? It doesn’t seem so far away.
But Fintech is evolving so fast that sometimes it's hard to keep up.
At Plug and Play, we know a lot about innovation in Finance. In our day to day, we match disrupting startups with corporations that are changing the way the world works. And this expertise has proved to be better than any crystal ball.
So - Since sharing is caring, we have put together the insights from Plug and Play employees from all over the world. What’s their prediction for Finance in 2020?
Let’s find out:
Collaboration between startups and corporations will grow
Gabrielle Inzirillo. Program Director. Fintech (Paris)
“If it isn’t broke - don’t fix it. A harmless adage used time and time again and none so much as in the financial industry where core banking systems often date back to the 70s.
Dependable infrastructure built to handle large volumes of transactions and safeguard consumer data with minimal downtime, these systems have served financial institutions well. Yet, these very rigid structures are proving to be Achilles' heel of traditional banking. In the past decade, best-in-class platforms have by and large been characterized by interoperability, modular system design, API management, and cloud computing.
2020 will be the year banks make the choice: take on the mammoth task of updating legacy systems or lose out to neo-banks and other fintechs with agile IT environments. Burying their heads in the sand will cause incumbents to have their value chain broken up, and become overly dependent on low-margin activities such as accounts and transactions.
Network effects are changing the world and the banking industry with it. We predict that the league table of top banks will change dramatically over the next few years, with the top spots taken by those players that heavily invested in their infrastructure and embraced partnership models as part of a revenue-generating open banking strategy.”
A year for Artificial Intelligence, RegTech and Cybersecurity
Fernando Zornig. Program Director, Fintech Europe (Frankfurt)
“Fintechs are here to stay and traditional players in the financial industry already acknowledge that. We have seen a few successful partnerships between banks and financial technology providers (i.e. U.S. Bank and Socure, Credit Suisse and NoPassword) but there is still a long way to go.
We have found 2 main issues in the corporate-startup relationship:
- Integration: Creating, in a matter of weeks, an API or connector in a 30-year-old system is a real challenge.
- Procurement: The long and slow process, that can take up to 6-8 months, and makes any startup or corporate reluctant of moving the needle.
These challenges, clearly, have to be eradicated if both sides are to create value for one another.
But in a perfect world, what type of technology will flourish by 2020?
- Artificial Intelligence: Within the past 12 months, the search for comprehensive algorithms and adoption of Artificial Intelligence have doubled within our Fintech programs worldwide. Use-cases range from personalized client communication to speech to text transcription and analysis.
- RegTech: Financial Institutions are being pressured by regulators to comply with old and new laws i.e. EU's GDPR, MIFID I & II, PSD2 and others. Besides that, innovation and digitalization bring new challenges in terms of data handling and protection.
- Cybersecurity: Banks are constantly fighting cyber attacks that can potentially cause loss of client data, assets and hurt confidence with its customer base. The number of these attacks increased in the UK by 10x in just four years, according to UK's Financial Conduct Authority. And a third of their targets are financial institutions. With new digital offerings, the tendency is for this number to increase. Bankers need to be cautious when dealing with a new startup by bringing the CISO office from the beginning.”
Customer-centricity will be a must for Financial Institutions
Bob Rode. Ventures Associate, Fintech (Frankfurt)
“2020 will be the year of customer-centricity in banking.
While the traditional financial institutions were relying on their outdated business models, Fintechs were playing catch-up and obtained market share from the existing players by following a customer-centric approach and addressing the specific needs of the customers.
It was about time that people started to ask “Why do I have to pay a substantial fee when I transfer money to a foreign account?”, “Why do I have to wait days or even weeks to unlock my bank account after registration?”, “Why do I have to pay high management fees to hold a bank account and use certain services?” There could be a few reasons why these questions didn’t come up in many people's’ mind earlier.
One, there were simply no other options available.
Two, switching cost was high.
Three, banking and financing was (and still) is a trust business: people would rather pay more for services of a company with a good reputation.
The landscape of the industry has been changing at an astonishing speed. Fintechs are obtaining banking licenses, extending the current products in the market and attacking some of the most profitable elements of the financial services value chain.
By 2020, the offerings in the market and the customer behavior will have drastically changed. The reasons which hindered customers opting for other service providers will have vanished. Traditional players, therefore, have to become more customer-centric to stand their ground in the business. It never has been more important to understand what your target customers really want and know your customers' value. Through alliances between traditional financial institutions and disruptive Fintechs, industry players will obtain a competitive advantage over others and will set new standards in mobile payment, real-time payment, customer on-boarding and asset management.
Due to the inevitable collaboration between the parties and the lack of adjustments of some traditional players, it is likely that the market will consolidate with time, seeing increasing M&A activities in the industry in the next years. Financial institutions will double down on investments of advanced technologies such as computer vision to analyze their data, unlock the information inside, and explore further offerings that better provide the customers with what they want.
Japan will live the consolidation and standardization of QR code settlement
Yuki Kishi. Fintech Director (Japan)
"The word “cashless” has been a buzzword in Japan since the Ministry of Economy, Trade and Industry (METI) released “Cashless Vision” on April 2018 with a target to reach at least a 40% cashless payment ratio.
“Cashless” means monetary transactions using non-cash tools such as credit cards, debit cards, electronic money, and a wide variety of payment services such as QR code settlements. Japan has been lagging in adopting cashless settlement as cash is still seen as king in Japan. It is clear in a report from METI that Japan sits around 18% of cashless settlement ratio, while other developed countries such as South Korea register an 89%, and Canada/UK/US around 50%.
The emergence of cashless settlement, such as QR codes, has been growing recently and there are many Japanese companies entering into this field with the aim to become a Japanese version of Alipay or WeChatPay.
However, the rapid growth of QR settlement players has brought negative consequences such as:
- Consumers are getting confused about which app to use.
- Retailers which have adopted QR codes had to implement many different types of QR settlements, resulting in an increase in operational costs.
Given the competitive landscape, this year will be the consolidation of players of QR code settlement and also the year to consider standardization of technical and operational specifications for QR code settlement."
Fintech will become key for financial institutions in the UAE
Ashlene Ramadan. Director, Operations/Communications. Plug and Play Middle-East
"Like many other emerging markets, the financial services industry in the United Arab Emirates (UAE) is placing increased attention on Fintech innovation and adoption. The UAE is still in the early stages of innovation where financial institutions are responding to the rapidly changing technology landscape and are benchmarking how this can augment or even disrupt their core businesses.
Generally speaking, regulators and many financial institutions in the UAE, particularly at the C-level, see Fintech inclusion as business and economic imperative. This has resulted in a top-down approach for development in the Fintech market here. As such, we are gradually seeing significant progress.
For example, many larger financial institutions are developing initiatives and engaging with 3rd parties to promote Fintech education and cultural transformation; staying in the forefront of tech trends; connecting with high-quality startups; and setting up the internal structures needed to be engage with them. As a result, accelerators/incubators are playing an increasing important role here in the UAE.
By 2020, the financial institutions in the UAE will become more advanced with startup engagements by continuously participating in strategic deal flows, initiating more pilots/proofs-of-concept (POCs), and begin structuring a clear innovation management structure, with set budgets, KPIs, and designated decision-makers to expedite the POC process.
Technology focus areas are wide-ranging and dynamic. One industry trend we are seeing is that many POCs will focus on customer profiling whereby financial institutions will leverage their data to better understand their customer behaviors/needs to up-sell them with relevant financial products.
In addition, a seamless and personalized digital experience is also top of mind for the UAE banks by providing their retail and SME customers a one-stop-shop for all their financial needs, ranging from loans to accounting services. "