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The Future of FinTech

Alive to Opportunity

Our research, conducted in 2020 at Money20/20’s virtual conference MoneyFest, explored the disruptive forces reshaping the financial services ecosystem, from new technologies and consumer expectations to regulation and security.

About the research

Money20/20 is the world’s leading, premium content, sales and networking platform for the global money ecosystem. For a second year, Barclays has partnered with Money20/20 to produce an in-depth report on the Future of FinTech.

Usually, Money20/20 holds global conferences three times a year in Asia, Europe and the US, with live polling of delegates, providing the results for the report. This year, Money20/20 combined all three conferences into one online content program – MoneyFest.

During MoneyFest, Barclays conducted a virtual survey of 231 industry leaders from across financial services globally. We present the survey insights in our new report, Alive to Opportunity, alongside a view on the creative disruption agenda in financial services in 2021 and beyond.

Explore our findings

  • Macro and industry trends

    Undaunted and focused on future growth 
    One of the most encouraging results of our survey was that despite the turbulent events of 2020, FinTechs have an overwhelmingly positive and proactive attitude for 2021.

    Asked to pick their top three priorities in the short-to-medium term, 42% understandably chose Covid-19 recovery in their answers. The most popular response, however, was growth - cited by nearly 57% of respondents. From these results it’s clear that the mood within the industry is strongly focused on rebuilding and energising the sector in the wake of the pandemic.

    Steve Lappin, Managing Director, Barclaycard Business, says this focus on growth over recovery makes sense.

    A lot of profit and loss is in the recovery and so of course it’s very important, but it’s also something businesses can’t do a lot about. I think that’s why growth came through as the big issue people are focusing on, because pushing for new business is an area where organisations feel they can affect the agenda – by being best in class at sales, making sure their base proposition is working for their clients, and making sure both internal and external partnerships are absolutely aligned to give them the best chance of success.

    Steve Lappin

    Managing Director, Barclaycard Business

    Banks and FinTech partnerships 
    Unsurprisingly, given their position at the cutting edge, more than half of FinTechs see start-ups as the most important source of disruption and change. With greater freedom to innovate, away from the constrictions of existing infrastructure and legacy systems, start-ups are fertile ground for idea generation that may lead new behaviour and expectations in financial services.

    That’s not to say they’re the only player in town for idea generation. Nearly a quarter (22%) of respondents saw a strong role for partnerships between start-ups and established players, an increase of nearly 5% on 2019’s survey. Meanwhile, a further 17% overall saw consumers as leading behaviour and disruption in the industry.

    When it comes to developing new ideas into useable products, partnerships really come into their own. Collaborating with established players for mutual benefit is now well accepted by FinTechs as the best route to market: 65% overall saw this as the role of traditional players in payment innovation, while in APAC that figure was as high as 86%. By pooling capabilities and human capital in this way, more innovative ideas should inevitably reach the market and create differentiated offerings for customers.

    A continuing role for small FinTechs?
    A belief in the power of start-ups to drive innovation is reflected in the fact that the overwhelming majority of respondents saw an ongoing role for smaller FinTechs (93% overall, consistent across regions and up more than 5% over last year’s already conclusive results). Jenni Himberg-Wild, Head of UK FinTech and PSPs Coverage at Barclays Corporate Banking, says this rise in confidence among small FinTechs makes sense in the current context.

    We’ve seen a situation over the past year in which the ability to demonstrate agility and embrace new approaches has been paramount. In this environment, many FinTechs have been able to pivot and really come into their own.

    Jenni Himberg-Wild

    Head of UK FinTech and PSPs Coverage, Barclays Corporate Banking

    The role of traditional banks
    While less of a trend in APAC, 22% of respondents in EMEA and 18% in the Americas saw a role for financial institutions in investing in, and enabling, early-stage start-ups. In these regions, incubators, accelerators and shared workspaces are very much a feature of the FinTech landscape. Rise, created by Barclays, is an initiative that offers a perfect example of how FinTech companies can connect, create and scale with the support of established global players.

    In the long term, it’s unlikely that FinTechs will be successful without banks and vice versa, as both types of business bring their own specific strengths to the party. FinTechs offer innovation and the agile initial development of technology. Traditional financial institutions, meanwhile, have access to a huge existing customer base, widespread distribution networks and strong relationships with regulators and central banks, as well as long-standing experience with cybersecurity and customer experience. 

    Invisible efficiency 
    From a customer perspective, financial services are becoming less visible (but no less important) as propositions based around seamless, integrated services become the priority.

    In our 2019 survey, a personalised, omni-channel, frictionless experience emerged as the key factor in providing great customer experience and keeping customers loyal across all regions. Led by trends in APAC, these factors proved even more popular in the 2020 survey.

    Overall, 29% of respondents cited a personalised offering as most important (39% in APAC), with 20% prioritising an omni-channel experience (30% in APAC) and 20% foregrounding frictionless payments (this was rated most highly in EMEA, at 22%). These elements of a seamless, integrated service were judged as significantly more important than security issues (7% overall) or demonstrating resilience (5%). 

    Brand as an engine of customer experience and loyalty has risen slightly in importance in APAC and EMEA, but interest overall is still very low at 8%. For FinTechs at least, customer expectations increasingly centre around ease of use, with services built on automated processes that happen in the background, limiting human intervention and direct interaction with a financial services provider.

  • Innovation in the payment sphere

    The geography of innovation
    There was a noticeable tendency for respondents to rate their own region highly for future innovation. This ‘home’ bias was particularly strong in APAC, where China, India, Japan and Southeast Asia together claimed over 83% of regional votes as key sources of innovation over the next five years. A similar tendency was evident in the Americas, with nearly 55% of respondents opting for the US or South America as major innovators.

    Collaboration is now at the heart of the FinTech ecosystem. If the industry becomes geographically siloed, innovation in one region will take longer to percolate through at a global level. Being connected to innovation outside one’s immediate home markets allows demand to drive fresh ideas.

    Jenni Himberg-Wild

    Head of UK FinTech and PSPs Coverage, Barclays Corporate Banking

    It’s worth noting that nearly 30% of APAC respondents see Southeast Asia specifically as the source of the biggest rise in payment innovation over the next five years, while China is now seen as less dominant in the region than previously. That’s not to say China is no longer important, however.

    “In terms of payment innovation, the Chinese wallet Alipay is expanding its capabilities,” says Lappin. “There are now a number of e-wallets in Southeast Asian countries that are actually part of the Alipay family, which may be contributing to the shift in perception.”

    Less marked but also significant is the nearly 11% of EMEA respondents who expect innovation to come from Africa. Both Africa and Asia are made up of a high proportion of developing nations with proportionately younger populations. In these regions, gaps in infrastructure create a strong and continuing role for FinTech to facilitate financial inclusion through digital innovations such as mobile money solutions.

    Automation brings improved integration and an enhanced experience
    With both consumers and businesses demanding greater integration and better services, APIs and AI are key to meeting customer expectations and driving success.

    A clear majority of FinTechs expect real-time payments to be the next big thing: 71% of respondents saw it as the most important trend or innovation that will disrupt the payments market, rising to three-quarters of Americans who responded. 

    Lappin agrees that real-time payments represent an important trend that is likely to be popular with consumers; however, he highlights an important implication.

    The one thing we have to wrestle with is when the transaction goes wrong, how do you get your money back? The chargeback process has been established for many years and is a brilliant way of dealing with issues, whether goods or services aren’t as advertised or people simply never receive them. With real-time payments you lose that customer protection, so that’s an area that needs to be looked at.

    Steve Lappin

    Managing Director, Barclaycard Business

    Faster, smarter, leaner
    Asked which technology will most revolutionise the way they work, nearly a quarter opted for APIs. Artificial intelligence (AI), automation and machine learning dominated the rest of the responses, together gaining 56% of the vote.

    The potential of AI, APIs and machine learning to enable faster, smarter and leaner internal operations has not yet been fully exploited. As an example, for treasury teams they offer the capability to improve risk management and automate decision making in line with the treasury policy, removing human error and ensuring decisions are executed against policy in the same way every time.

    AI has undeniable potential to enhance payments from efficiency as well as accuracy perspectives. However, there are challenges to adoption, one of which is cultural, as different parts of the world are accepting AI at different rates.

    Jenni Himberg-Wild

    Head of UK FinTech and PSPs Coverage, Barclays Corporate Banking

    Of the other options presented, interest in blockchain remains relatively high in APAC, with nearly 22% of responses, but has dropped overall, with enthusiasm much lower in the Americas and EMEA (11% and 10% respectively). This could reflect the fact that while the promise of blockchain has long been talked about, clear use cases for the technology remain limited. However, research and development is undoubtedly continuing and there is every possibility that interest will revive as practical applications for blockchain emerge in the future.

  • The Open Banking opportunity

    In 2019’s report we noted that while the impact of Open Banking  was expected to be strongest in Europe, where structured, regulation-driven implementation was most advanced, interest in APAC and the Americas was also surprisingly strong. In fact, we went as far as to talk about 2020 as ‘the year of Open Banking’.

    Looking at 2020’s results, expectations outside Europe that Open Banking will impact FinTech businesses has grown even stronger, while in contrast expectations in EMEA have waned somewhat. 

    In APAC, where Open Banking is currently being rolled out, businesses were unanimous, with 59% expecting it to impact them in a big way and a further 41% expecting it to have some benefit to them. By contrast, in EMEA only 38% expected Open Banking to have a big impact on their business, compared with 48% last year.

    I think the drop in Europe is down to monetised use cases still being lacking. The potential is huge, but as an industry we’ve yet to fully seize the opportunity.

    Jenni Himberg-Wild

    Head of UK FinTech and PSPs Coverage, Barclays Corporate Banking

    Realising Open Banking’s potential
    Expectations remain high for Open Banking to create positive disruption: 45% think it will ease integration and enable value-added services to be developed on top, while 37% see it as a driver of innovation and increased consumer choice. It’s also expected to be the area in which regulation will have the most impact, which as we've already seen is in itself recognised as a major driver of innovation and opportunity. A significant 37% of respondents overall voted for its importance in this respect, with interest understandably highest in EMEA, where regulation is the key driver of Open Banking.

    Lappin recognises the potential opportunity for FinTechs in helping financial institutions (and regulators themselves) with monitoring and compliance. “Open Banking is maturing and so regulators will start to see what’s not working and regulate to close down any loopholes they perceive,” he comments.

    Overall, the enthusiasm for Open Banking is encouraging, given its huge and still largely untapped potential. The ability it can offer to personalise the content clients receive could be a major differentiator, but current functionality is only scratching the surface of what is possible.

  • Regulation

    Embracing regulation
    Despite significant changes, such as those around the revised Payment Services Directive (PSD2), adjusting to new regulation was a low priority for FinTech businesses, with only 13% listing it among their top three priorities in the short-to-medium term. Covid-19 seems to have put regulation on the back burner in this respect, with a much higher focus on recovery and growth, although the lack of strong interest may be a sign that regulation is by now accepted as a hygiene factor for businesses in the financial sector.

    Encouragingly, recognition is growing across the sector that regulation is not necessarily a restriction and can in fact represent an opportunity. Exactly half of firms overall cited the most likely impact of regulation as being the emergence of new opportunities for their business. This was up 11% from 2019, with the most significant increase in APAC, where previously only a quarter of businesses had seen regulation as an opportunity.

    The need for effective supervision and efficient monitoring in relation to the growing range of regulations has provided fertile ground for innovation, resulting in the emergence of regulatory technology (RegTech) as its own sub-sector. With regulators interested in everything from climate risk and environmental, social and governance (ESG) issues to cyber resilience and the use of AI, the potential for technology to automate the huge task of collecting and evaluating compliance data should only continue to grow.

    In this exciting yet challenging environment, FinTechs are increasingly willing to work with all parties involved to develop technology-based solutions to regulatory issues. In fact, the increased enthusiasm for collaboration with all stakeholders in response to new regulation is one of the most measurable trends from this year’s survey.

    This year, 54% of respondents said they were working with regulators to respond to new regulations, an increase of 9% on 2019. Meanwhile, 52% were working with industry experts (up from 29% in 2019), 36% were working with payment experts (up from 17%) and 49% were learning from other businesses (up from 16%).

    It’s great that FinTechs are seeing regulation as a catalyst for their businesses rather than a burden. The jump in appetite for collaboration – with regulators, with industry experts, with each other – is really positive. Barclays works with a large number of FinTechs across the globe and the vast majority are proud to be leading the way. They genuinely want to go far beyond the minimum expected and partner effectively with other stakeholders.

    Jenni Himberg-Wild

    Head of UK FinTech and PSPs Coverage, Barclays Corporate Banking

  • Cybersecurity: a sleeping dog?

    Cybersecurity continues to be given low priority as a driver of customer loyalty, with only 6.5% of respondents citing it in this respect. The lack of interest is probably partly because it is viewed as a hygiene factor, but also because it’s an element of the financial services offering, which is largely invisible until it becomes a problem.

    It’s one of those things that some people don’t think about until it becomes an issue. Sadly, when issues do emerge, they are often pretty spectacular. So you probably don’t drive loyalty by being cyber secure, but you definitely drive disloyalty by having a cybersecurity issue.

    Jenni Himberg-Wild

    Head of UK FinTech and PSPs Coverage, Barclays Corporate Banking

    There was a 5% drop from last year to 42% globally, regarding firms’ confidence in their own approach to cybersecurity (although in APAC confidence was up by 4%). These results probably reflect the shift to remote working during the pandemic, particularly in the Americas and EMEA. This has put additional pressure on infrastructure and heightened potential vulnerability to attacks.

    The need for investment and education
    Globally, 29% of respondents said their firms needed to invest more in cybersecurity. For EMEA, the figure was close to a third (33%): a positive sign in a region where cybersecurity has traditionally been a tough sell. The same percentage overall recognised the need to do more to support and educate colleagues about cybersecurity, although this time interest was lower in EMEA at 26%, with APAC coming out on top at 32%.

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