As one of the most rapidly evolving industries, the financial services space continues to grow at an exponential rate. We’ve already seen unexpected acquisitions as well as brands like Apple and Facebook entering the market with credit cards and crytocurrencies. 2020 will undoubtedly bring greater opportunities for growth and innovation for investors, major institutions and fintech incumbants looking to penetrate the market.

The Future of Fintech research report highlights not only the providers that are getting ahead of industry development but also outlines key strategies that companies can use to mirror their success.

1. Fintech globalization

Where previously larger tier 1 banks were the only financial services providers with the infrastructure to achieve global expansion, fintechs are now looking beyond their borders to growth.

Open regulation is one factor impacting this, including open banking and PSD2. PSD2, or Payment Services Directive 2, is legislation requiring payment services providers to allow for more streamlined access to third-party services.

Revolut is one fintech that has received quite a bit of buzz since they have announced their plan to enter the U.S. market. Revolut achieved this move through its partnership with Mastercard as the brand’s card issuer. The same goes for N26, a Germany-based company that has moved to the U.S. through its partnership with Axos Bank in California.

This takes us to our next point around partnerships. 

2. Symbiotic bank-fintech partnerships

In order for these fintechs to achieve scalable growth, they need the support of trusted banks and issuers. And in order for the banks to keep up and compete with these incumbent players, they need to look to these fintechs to innovate.

We’ve already seen some traditional mergers take place, for example the merger of traditional banks BB&T and SunTrust (now Truist), and we can expect more to continue into 2020.

In other cases, we’ll see smaller banks and credit unions invest a significant portion of their budgets on technology and fintech partnerships to remain competitive. According to Business Insider’s 30 Big Tech Predictions, “We think the value of a strong suite of online tools as a means of driving new customer acquisition will become more apparent.” Fintechs with optimized digital account opening functionality, customer acquisition support and cross-sell CRM tools will be key.

3. Fintechs will drive new business models

According to PwC’s Financial Services Technology Outlook Survey, industry respondents fear a quarter of their business, or more, could be at risk of being lost to standalone Fintech companies within five years.

Fintechs typically not only offer a superior customer experience, they are able to offer this at a considerably lower price to traditional institutions. Take Robinhood’s disruption in the brokerage space. Having captured such a larger market share of the U.S. millennial demographic with its $0 trading fee model, it forced traditional brokerage houses like Charles Schwab, TD Ameritrade and others to follow suit.

We can expect to see the same evolution happen in the insurance space, peer-to-peer payments industry, and digital banking arena with fintechs already capturing a growing portion of market share.

This takes us to our next trend – neobanks.

4. Neobanks will continue to take market share

Challenger banks are growing significantly and attracting big money. 2020 will see this space continue to further grow.

Chime is one of the biggest US challenger banks offering banking services virtually with no bank fees (no overdrafts or monthly maintenance costs).  According to Fintechtris, in December 2019 Chime was valued at more than $5 billion. That makes it more valuable than some of the country’s largest banks and has over 6.5 million active accounts.

Frank Rotman, founding partner, QED Investors thinks that soon these banks will become major players within the financial space. “While these neobanks can’t yet match the complete suite of banking products that a traditional branch-based bank can, this doesn’t matter to the typical consumer because they rarely, if ever, use any of the hundreds of products that are in a bank’s arsenal. So we’ll be talking about challenger banks in 2020 and in 2021 and in 2022 and eventually the ‘challenger’ title will be dropped because they’ll be major players in the ecosystem.”

This means traditional banks will need to evolve, or partner with these growing neobanks to remain competitive.

5. More sophisticated payment apps

With increasingly more people conducting their entire buying experience on an all-in-one platform, it is hardly surprising that Statista has predicted 2020 to see $581.9 billion in mobile app revenue.

According to a recently published article by Quartz, Apple Pay is on pace to account for 10% of all global card transactions. The app is not only pre-installed on iPhones, but it also has control over its NFC technology used for contactless payments. This means Apple Pay is the only iPhone mobile wallet that can make NFC transactions.

Apple, Google, and Alibaba are continually rolling out new features that can impact payments, such as biometric access control. Consumers will be able to pay how they want and instantly, using sophisticated biometric technology to secure the transactions.

FinTech Alliance put it quite simply: “Whether it be in payments, credit, insurance, or banking generally, the market is being continually tested by new entrants using disruptive technology, with the ability to do things quicker, cheaper or more effectively”.

Conclusion

As we are entering into the second quarter of 2020, it will be interesting to see what 2020 brings us.

Our current environment and economic conditions due to COVID-19 will only help to accelerate these trends and the changes we can expect to see in financial services.

What do you think will be the new fintech trends reshaping the financial services industry in 2020? Let us know in the comments below!

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