5 Trending Topics in Fintech
There is no question – the banking industry is changing, and at a more rapid pace than ever. Emerging fintechs and digital technologies in the banking sector have expanded exponentially and are continuing to do so. At the end of 2019, investment in fintech was predicted to exceed $30 billion by 2020.
Most recently, the impact of the COVID-19 pandemic and economy downturn has generated many discussions around banking and fintech. Questions focused on the impact digital innovation can have on banks’ abilities to support their customers. While we have seen the pandemic slow the global economy and rock stock markets, there has been a positive upswing in fintech performance.
We’ve taken a look at what has contributed to this growth and identified five top industry trends. Read on for these five trends and how they may continue to impact the financial services sector.
1. Increase in online brokerages
Self-directed trading is making a comeback. There are a number of factors influencing this, with two in particular having the biggest impact. One is the current market conditions, which have created an opportunity for many to invest in household names where stock prices are more than likely to rebound. The second is our current state of living. With the decrease in spending while being stuck at home, many have the liquidity to invest in the markets.
According to SoFi, a fintech in the personal finance space, they have seen a record number of account openings as well investment activity in the past few weeks. And they aren’t the only ones. Digital mortgage software provider Blend, who has 230 bank clients, have also experienced an increase in product usage.
Well-known industry influencers like Investors.com are encouraging people to invest in these companies now. They explain that Fintech stocks have grabbed the spotlight as digital technology continues to change the competitive landscape. This is across a range of sectors, including e-commerce, payment networks, online lending, money transfers, business-to-business payments, personal finance and banking.
Barons.com explains how robo advisor products like Wealthfront and TD Ameritrade’s automated investment offering have also seen a positive spike since the pandemic. TD apparently surged 150% from the same period last year and Wealthfront has seen a 68% increase in account openings since the virus began.
2. Banks investing in digital technology
COVID-19 has created an even greater urgency for banks to digitally innovate.
New protocols and solutions are needed for banks and fintechs to equip their employees with the capabilities of working remotely.
In addition, with the social distancing protocols still in effect, consumers are quickly embracing digital technologies, from videoconferencing to online banking to remote bill pay. As consumers become increasingly more comfortable and reliant on digital technologies, it creates added pressure for banks to keep up with the pace of fintech innovation.
The Financial Brand recently expressed that they saw the current situation as an opportunity for banks to strengthen their online service offering. Alex Kreger, founder of financial UX design agency, UXDA, further explained, “In conditions of social distancing raised by COVID-19, consumers may now divide financial institutions into ones they can use without leaving home, and those from where it is better to close their account.”
News outlets such as Forbes are publishing articles and advice for banks looking for innovative solutions they can implement cost-effectively and efficiently. See here for their article listing fintech firms offering free technology solutions during COVID-19. There is an opportunity for these banks to partner with fintech firms like the ones on this list to provide consumers with the digital solutions they need.
3. A consolidation wave
There is talk that fintech startups may be hit hard by the pandemic, particularly those with shorter runways in need of more capital. In addition, consumers often look to the more credible institutions for protection during trying economic times. COVID-19 may accelerate potential consolidations between banks and fintechs during this time.
According to a report by Sifted, in collaboration with Finch Capital, the fintechs marked in red are predicted to see a downturn. The color yellow indicates uncertain results, and green areas signify a likely boost in performance.
Acquisitions have already begun taking place, far before the pandemic took full effect. LendingClub and Radius Bank is a good example. LendingClub paid $185 million in cash and stock for Radius Bancorp in February, making it the first US fintech to acquire a regulated bank. SoFi has agreed to buy payment processor Galileo Financial Technologies for $1.2 billion in cash and stock, announced in April 2020.
The Financial Brand highlights other recent mergers and explains, “As the marketplace adjusts to some new realities, many more acquisitions, partnerships, and collaborations may occur that could completely change the banking ecosystem as we know it.” It will be interesting to see what 2020 will bring and whether we further see a consolidation wave happen.
4. Consumer spending via digital channels
Digital has become an even greater part our lives while in lockdown. Whether they like it or not, consumers are being forced to adapt to purchasing online, and we can likely expect these behaviors to persist beyond COVID-19.
Those companies and brands that can adapt quickly in accepting digital payments and support a user-friendly purchase experience will likely experience a positive uplift in growth.
According to Forbes, the pandemic has led to a 72% rise in the use of fintech apps in Europe. Digital banks apps in Asia and the Middle East have also experienced significant growth in product adoption. For example, a Philippines bank saw daily sign-ups increase 117% in March of this year.
Division Manager of financial advisory organization deVere Group, James Green, believes that the COVID-19 pandemic will significantly accelerate consumers’ preferences towards fintech, with fintech becoming the new normal.
5. Adapting to promotional marketing
While promotional advertising in the fintech space has decreased due to consumer sensitivity, this does not mean marketing efforts will decrease.
Bernard Marr, international bestselling author and keynote speaker, explains that in the next few months, “Businesses are going to become more reliant than ever on their digital strategy.” With live events and conferences cancelled as well as consumers spending an increased amount of time at home, it is predicted that many banks will be forced to focus on their digital marketing strategies in order to stay relevant and connect with new customers.
Businesses are using digital marketing strategically to provide the support, education and resources consumers need during this time. HubSpot recently published a research report Benchmark Data: How COVID-19 Is Impacting Sales and Marketing Performance. In this report, while website traffic has increased and customers are looking to engage with companies, it does highlight the importance of education. During these uncertain times it’s important to show support.
Banks and fintechs alike will be adjusting their strategies and marketing. They will be looking to meet their customers where they are now (at home and online). At the same time many will be looking at their marketing budgets and deciding which marketing channels to use as their overall marketing strategy.