The future of FinTech

Regulation sparks opportunity
Encouragingly, a significant percentage of firms see regulation as a new opportunity to do business, particularly in the US and Europe.

The role of Open Banking

Firms expect regulation to have a particularly strong impact on Open Banking. Given that Open Banking is a European directive, it is perhaps surprising that less than half (47%) of respondents from the continent expect new regulation to affect Open Banking more than any other area. What is perhaps even more noteworthy is that nearly a third of businesses in Asia and the US also see it as the area where the impact of regulation will be most felt, with one European delegate citing global Open Banking as the next big innovation that will disrupt the payments market.

After Open Banking, firms saw data privacy as the area most likely to be affected by regulation, with 31% of US respondents ranking this highest, along with 27% in Asia. In the US, twice as many firms (23%) as in Europe (10%) and Asia (9%) believe increased regulation makes doing business more time-consuming. In response to new regulation, US businesses are also far more likely to focus on working with regulators (41%) and industry experts (24%), compared with their global peers.

Cybersecurity: hygiene or high-stakes?
While 47% of firms were confident they have a robust approach to cybersecurity, by implication more than half were not. Asia is less confident than Europe and the US about cybersecurity, with only 37% expressing confidence (compared to 54% in Europe and 47% in the US). This difference may be partly down to cultural norms and behaviours, but is also likely to reflect the more structured environment around cybersecurity created by data privacy laws such as Europe’s General Data Protection Regulation (GDPR).

Further investment needed?
Despite this, it is still surprising that our global data shows only 23% feel they need to invest further in cybersecurity. This either reflects an attitude of resignation or relates to the low importance given to security in building brand loyalty as evidenced earlier in this report. Our separate research into cybersecurity (PDF^†‡ 144KB)  in August 2019 showed that only one in four firms had an in-house fraud expert, with the rest outsourcing this role. While this may present a risk, it could also be the result of an agile approach to accessing the best talent for the job.

Collaboration is key
While traditional financial institutions continue to innovate for their customers, the industry sees partnership and collaboration between all players as the way forward. 

This concept of partnership goes beyond FinTechs supplying a service to more established firms. On the one hand it involves established industry players providing support, mentoring, insight and guidance to cutting-edge start-ups and rapidly scaling FinTech firms. On the other hand, when collaboration on a project leads to implementation it is more and more likely that both brands will be visible and that the relationship will be truly mutually beneficial.

FinTechs seek to become Financial Institutions

In Asia, nearly 40% of firms expect FinTech businesses to seek to become financial institutions themselves in future.

“This result might at first seem surprising from a market which, according to Asian delegates, considers a strong brand least important to customer loyalty and experience,” accepts Jenni Himberg-Wild. “From a FinTech’s perspective, however, a regulatory landscape that encourages innovation and change is likely to prove an attractive prospect in enabling them to gain a banking licence and harness the power and operational benefits of a financial institution in a comparatively short time frame. This might explain why a lower proportion of European (20%) and US (31%) delegates believed FinTechs in their own regions would aim to become financial institutions.”

China seen as innovation hub
When asked which country will experience the biggest rise in payment innovation over the next five years, China came out on top for 45% of Asian and 40% of European firms. Even the US (where traditional financial institutions are investing heavily in innovation in the face of a rising threat from Big Tech) ranks China as the second most innovative country behind itself. “This may be in part due to an environment which fosters a culture of technological innovation, encouraging growth”, explains Himberg-Wild. “This evolving technological advantage means we may see Chinese firms taking the opportunity to break into new territories in the next few years,” she believes.

While still in the shadow of China, India ranks in the top three as a future source of payment innovation across all three regions, with 21% voting for it in Asia and a further 12% in Europe (and 10% in the US). Although 25% of Asian firms see consumers as having the key role in leading behaviour and disruption, overall the majority (53%) see start-ups as the most important idea generators for driving change in the industry.

Brand vs. experience
Globally, less than 8% of firms see a strong brand as a primary factor in keeping customers loyal and providing a great experience. Regionally, in Europe only 4% see it as important, while in Asia interest is as low as 2%.

These results suggest a model in which financial services – or at least payments – become invisible to customers. As one delegate predicted: “Payments and lending will become an ‘invisible’ brick building the consumer experience”.

It is notable that brand is already seen as least relevant in Asia, where two names dominate but where the need for brand differentiation is arguably lower. The rise of the consumer is a strong economic driver in Asia, with affluent, high-spending digital natives who favour super apps heavily influencing the market. “At the same time, it should be remembered that outside of Asia regulation and consumer brand recognition create a natural barrier to these super apps,” notes Maria Parpou, Managing Director – Product, Barclays Payments.

The future of payments 

Asked to describe the future of payments in a few words, responses clustered around words including ‘access’, ‘convenience’ and ‘cashless’. “The future of payments means instant, easy and trusted” was a typical response. In terms of keeping customers loyal and providing a great experience, price and security come far down the list below personalisation, frictionless payments and an omni-channel approach. This attitude is most evident in Europe, where less than 2% vote for either price or security.

More than one quarter (27%) of US respondents see frictionless payments as key to providing a great customer experience, compared to only 9% in Singapore and 8% in Europe. Americans also place high importance on personalisation (26%, compared to 16% in Europe and only 9% in Singapore). “This may reflect some self-consciousness about their current abilities in this area and continuing reliance on more traditional payment systems, as well as a strong desire to evolve,” explains Maria.

When asked to name the next biggest innovation which will disrupt the payments market, delegates’ answers commonly mentioned APIs (Application Programming Interfaces) and Open Banking. Though driven by technical innovation and regulation, the increased connectivity these trends give to the ecosystem is likely to bring other pressures. For traditional financial institutions, this increased competition is likely to be accompanied by a greater need for resource to ensure both effective interoperability and the security of data being shared.

B2B connectivity
“As a sector, FinTech is keen to make inroads into the B2B marketplace, where firms see innovations such as virtual cards (28%) and improved connectivity (27%) as key,” says Maria Parpou. “FinTechs are not alone in recognising the upcoming importance of B2B connectivity, especially in payments; large global corporates have also embraced the opportunities in this space,” she adds. Barclaycard’s Precisionpay, for example, enables merchants to make payments simply and quickly using a secure virtual card.

Globally, businesses consistently see potential in the data-driven optimisation of both payments and funding for B2B, with just over 20% naming this as the most important B2B payments innovation. As an example, many FinTechs are focusing on the automated chasing of invoice payments. B2C companies launching into B2B should be fully aware of the sectoral differences in order to ensure their launch in a new market is a success.

The rise of user-centric design
Businesses across the globe also told us they see UX as a significant area for innovation as customers look for the same flow of efficient, personalised end-to-end interactions they experience in other areas of their lives. When asked what the future of payments meant to them, one US delegate replied: “Seamless UX from a trusted and safe provider.” Another European attendee answered: “People don’t want to pay. They want to buy. Payments need to be invisible.”

Fast, no-click or even invisible transactions, already seen in Asia, may become the norm as Europe and the USA follow the trend. Just over one quarter (27%) of US firms ranked frictionless payments as the single most important way of keeping customers loyal and providing a great experience, with a further 26% opting for personalisation and 19% for an omni-channel approach. While figures were lower for Europe and particularly Asia where these trends are more advanced, all regions rank these three aspects far higher than price, security and even brand.

One of the big predicted trends across the delegates was a demand for ‘virtual’ services, which are built on top of your existing bank account and do not require you to open additional accounts. Several others cite the continuing global growth of mobile wallet adoption as part of the move towards more seamless payments. The demand for frictionless payment as part of the flow of consumers’ online activity is likely to drive further developments in technology such as biometrics and facial recognition.

Rather than particular products, customers are looking for solutions to make their lives easier. Digital platforms will enable banks to build on their client relationships to deliver new customer-focused services, while benefiting from network effects. Nearly 40% of European businesses expected banking as a platform and its wider evolution into finance as a platform – including lending, investment, insurance and other products and services – to be the key future business model by which financial firms deliver the advantages of technology to customers.