The global pandemic situation, the constant digitalization of the world’s population, and the active competition within the banking industry push the whole market to new trends and innovations. Today Maxpay will discuss the upcoming trends and technologies that the next year will bring to us.
Digital-only banking is looming
Nothing pushed so needfully towards the banking digitalization as strong as the whole pandemic situation. Social distancing and remote working during the last two years have proved to us how digital we can be. And also, how many more opportunities there are for managing our lives via the internet connection.
Digital banking is beneficial both for financial institutions and clients. They are more flexible, reachable, and innovative. Digital banking technologies must be improved constantly regarding all the compliances and regulations, which makes it well-updated security-wise. Besides that, online banking services are client-oriented providing open communication and a pleasant user experience.
According to TelecomTV, when the pandemic started, the percentage of digital wallet usage had risen to 83%. Experts predict that the industry will be worth more than 10 trillion American dollars a year by 2025. Another source, Capital On Tap, reports that in 2020 alone, there were more than 779 billion digital transactions around the world. This number is expected only to grow, and the upcoming years will bring a 13% rise. Capital On Tap also projects that by 2022 cash payments will become the least popular payment method.
AI: a natural for financial institutions
When it comes to financial services trends, artificial intelligence usage is one of the most innovative approaches in banking. 8Allocate reports that until the year 2030, AI is forecasted to reduce banking operating charges by 22%. Which is equal to savings of 1 trillion American dollars.
Benefits of implementing artificial intelligence in banking technologies
Reduction in operational costs and risk. Today banks hire AI specialists to automate as many banking services as possible, by simply replacing monotonous human work with advanced algorithms. Robotic process automation is software that copies digital tasks that are based on certain rules. The replacement mainly focuses on the time-consuming processes that involve entering customer data. Together with handwriting recognition and natural language processing, robotic process automation bots can take care of many banking processes that previously occupied humans.
Improved customer experience. A new type of customer support is well-known to all of us. Maybe yet chat-bots are not that great and complex as humans are, but the robotic support is improving tremendously year by year. Chatbots can solve basic problems, answer common requests, provide functional information, and also propose new features.
Improved fraud detection. Today’s fraud prevention services are AI-based with no exclusion. Machine learning algorithms and other AI tools help to recognize fraud at the very beginning of an attempt. The system is comparing changing parameters in a set of multiple features such as IP address, card information, phone number, email, and so on. The fraud prevention tool is also considering the behavioral patterns of the consumer, keeping track of the usual purchase time, type of purchased items, and location of the transaction.
Improved loan and credit optioning. Fintech trends include AI-powered tools to provide information regarding safe and profitable loan and credit options. Using the available clients’ data, an AI-powered loan decision system and machine learning algorithms evaluate the behavioral pattern to report if a client with certain credit history might or might not become a reliable credit client.
Automation of the investment process. Current banking technologies went even further. Some institutions apply AI tools to assist with investment decisions and potentially guide investment banking research. AI algorithms can discover supplementary opportunities by better modeling and discovery processes. Also, there is the implementation of special chatbots for advising purposes. Using personalization tools, chatbots can offer qualified guidance on investment decisions, being online at any time when the client needs assistance.
Intensifying fintech regulation
With the extreme progress of banking technology there comes an unavoidable financial services trend which is the intensifying of fintech regulations. The massive migration to the online platforms with each fast development requires a new set of rules for processing and storing clients’ data.
In the last five years, three huge updates have affected merchants in the European Union, and outside of it. First of all, the famous GDPR or General Data Protection Regulation is a set of regulations for any merchant in the world that stores, transmitted, or collects the cardholders’ data.
The next one is PSD2 regulation or the Second Payment Services Directive which impacts the financial institutions that have access to the cardholders’ data within the European Union and European Economic Area.
Another regulation to be complied with for any merchant in the world that operates with electronic payments both in retail and online is the PCI DSS or the Payment Card Industry Data Security Standard.
The future promises us not just less cash, but also less contact. PaymentsJournal claims that one of the most popular fintech trends is the rise of mobile payments. According to Payvision, retail mobile payments are promised to rise to more than 2.7 billion American dollars by the year 2022. And so by 2025, the global eCommerce transaction value will jump to over $5.4 trillion.
Here is the list of the payment-related innovations that are about to come:
- Contactless payments. The pandemic situation has a direct influence on contactless payment popularity. The research conducted by Visa presents the global results on how people regard the implementation of contactless payment. 46% of worldwide cardholders think that the contactless payment method is one of the most important measures to provide safety and hygiene.
- Online shopping. IBM proffers that because of the pandemic situation, the shift from retail stores to online shopping has accelerated by approximately five years. The GPay BD – PSP reports that 18% of clients in North America and Europe have begun shopping online for the first time because of the virus.
- QR code payments. Juniper Research claims that in the next five years QR code payments will become the most popular online shopping mechanism in terms of volume. Presumably, QR code payments will establish 27% of all online shopping transactions in 2024.
- Embedded fintech. The client expects the payment experience to be seamlessly embedded in the shopping process, without being separated into two actions. Embedded fintech within all the connected banking technologies is about to create more revenue. The check-out solutions would be implemented in the clients’ experience, including innovative payment methods such as points redemption, stored value, and deferred payment options.
- Cloud technology. Cloud computing motivates the migration from static systems that require an in-team IT specialist to be managed to the progressive and easy-to-use SaaS or Software as a service. Research and Markets estimate that the worth of the global cloud computing market would be equal to 832.1 billion American dollars by the end of 2021.
- Open banking. Open banking technologies set the connection between financial institutions within the open-sourced networks and APIs. Because of this, transactions are more time-efficient and secure. Besides that, open banking technology decreases the number of manual processes, improves the clients’ experience, and increases fraud protection.
- Financial inclusion. Financial inclusion aims to remove the possibility of cutting people out of the digital economy. As the World Bank reports, there are 1.7 billion adults in the world that still have no bank account. Two-thirds of them do possess a mobile phone device that could assist in accessing digital financial services.
From competitors to collaborators
The prediction in financial services trends for the digital-only startup banks is not very promising. Most likely they would not be able to comply with all the regulations and would have to exit the market or take treating the cardholders’ data more seriously.
At the same time, established financial institutions, especially the traditional banks, would be craving startup-like innovations to implement into their heavy structure and to become attractive for the next generations of clients.
Forward with meaningful inclusion
As we have already mentioned in the payment innovation, another big fintech trend is inclusion. Financial inclusion is interpreted as the ability and equality of possibilities to access financial services.
Financial inclusion means as well both the tech and account-based inclusivity for unbanked clients. The process must bring these two solutions together along with payments. In the nearest future, there will be a lot of investments to cover the unbanked areas and to involve these clients.
The United Nations and UN member-state partners have taken the financial inclusion in seven of the 17 Sustainable Development Goals, highlighting it as a key enabler for the SDGs fulfillment. According to the report of The United Nations, during the last five years, more than 50 countries have included financial inclusion into the development strategies. Meantime, The United Nations research is proving the correlation between financial inclusion parameters and major development goals.
Why financial inclusion is so important:
- Equality in society: banking technologies and financial services allow the poorest members of society to make a step up;
- Economic growth: financial inclusion in personal cases brings the financial help, and in the major scale drives to the economic development;
- Business development: financial inclusion gives the ability to start a small business.
Starting a fintech heating up
Another upcoming change in the banking industry refers to the starting of a fintech business. Already before the pandemic situation, it was difficult for fintech startups to get some funding. Now with the market being invaded by small startups, it is not easy to prove one’s validity and quality of services.
Research conducted by CB Insights shows a 2% and 13% drop in year-over-year funding and activity for the fintech industry. But despite this, there are still young fintech companies that find the sweet spot. That perfectly shows another research by Boston Consulting Group, which presents that at the beginning of 2021 there has been a rise in fintech startups in North America, Europe, the Middle East, Africa, and the Asia Pacific region in comparison to 2020 statistics.
China to lead the fintech revolution
China is about to become the world’s leader in the fintech industry. The number of internet users in the country is 800 million. According to SIFMA, 98.6% of internet users do utilize mobile devices. Same time, the source claims that China is already a leader in the world’s eCommerce. Statista claims that China’s eCommerce market estimated value in 2019 was 1.9 trillion American dollars, while in 2020 it has become 343.15 billion American dollars.