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2020 has been the most challenging year in recent memory for banks and businesses of all stripes – but for those that have weathered the storm, there are refreshed opportunities on the horizon. Read more inside…
If you listen to fintech CEOs talking about the genesis of their business, they will tell you how their frustrations as clients of incumbent banks led to founding a start-up. Their mission is to make banking hassle-free, efficient and cheap. And those that hit a loftier, humanitarian tone may also talk about their will to enhance inclusion by serving the pariahs of mainstream financial institutions: the unbanked and the underbanked.
Financial inclusion should also be a spin-off of open banking’s primary aim to level the playing field between established banks and fintech. Two years into the open banking era, it’s worth taking stock of which pain points have already been ticked off the exclusion list.
Recent figures show that there are still 1.3 million unbanked people in the UK – an astonishing number for any developed country, let alone a major global financial hub. But is it really that surprising, and is there room for improvement?
If we were to chart the number of unbanked individuals in the UK over the past ten years, there would be a remarkable plunge after September 2016, the date when the EU’s Payment Accounts Directive – which mandated the nine big banks to offer basic bank accounts – was implemented. Although fee-free basic bank accounts offering core banking services without overdraft or credit facilities had been around before this, banks, understandably, weren’t keen on introducing and promoting them without a legislative push.
Demand for basic bank accounts in the following years soon skyrocketed. According to Treasury data, 7,455,960 basic bank accounts were opened by 30 June 2018, when PSD2, the framework underlying open banking, had just come into force.
However, fintechs have broadened the choice of basic bank account services, likely drawing in many of the unbanked by the ease and speed in which these accounts can be opened. (About a third of the unbanked today has trouble providing proof of address, such as a driving licence, passport or utility bill.) But where fintechs and open banking’s AISPs (Account Information Service Providers) can make a real difference is helping clients remain banked, or even giving them a leg-up to the higher rungs of banking.
Automatic savings sweeping, when algorithms predict how much a user can save and deposit the amount in a savings account, as well as other budgeting and smart saving apps, can become tools to achieve just that. By nudging customers to save and sending them alerts to pay bills in time, banks – old and new – can help them remain in the system, and, in the long run, graduate to accounts that fully meet their financial needs.
Building credit capacity for the underbanked
A major pain-point of legacy banking has been the laborious, drawn-out processes of taking out a loan or a mortgage. What fintech is proving to be successful at is bypassing the old credit-scoring mechanisms which can, for example, decline your mortgage request even if you’ve been paying rent for years that exceeds the mortgage plan’s monthly instalments.
These new credit capacity-building offerings from fintechs look like real game-changers for the credit-invisible, who have thin financial track records if they have them at all. The digital trails clients leave can be leveraged to improve their creditworthiness. Regular, in-time payments of phone, cable TV or utility bills can be aggregated across a number of accounts, and serve as proof of responsible financial behaviour.
There is, however, a strand of fintech that could be pushing the boundaries of privacy too far in order to beef up clients’ credit scores. What can potentially turn this generously inclusive service into the stuff of dystopian nightmares is a willingness to blur the line between financial and social data.
According to this school of thought, any digital information left behind can serve as behavioural data supporting financial reliability – whether mobile data such as location, browsing history, installed apps, phone model or calendar events, or the people and networks the applicant is connected to on social media, and what they post there. Even mouse-movement monitoring and psychometric tests can also be regarded as legitimate tools to assess creditworthiness.
Fintech and open banking are undoubtedly making great strides towards extending banking services to everyone. But inclusion in this area is not only about getting access to bank accounts and passing affordability checks. It’s also about customers being able to do these things while keeping their dignity. The partial-salary schemes that some fintechs offer in partnership with employers, where employees can take out a proportionate percentage of their salary before payday, are financial transactions without the humiliation that payday and doorstep loans entail.
For freelancers and those on zero-hour contracts, smart loan repayment services accommodating their income fluctuations and saving them penalties are a boon – their applications having been rejected so many times by old-school banking. Also, shop-now-pay-later schemes, which in their present form can be regarded as alternatives to credit cards, are also innovations creating more equal financial opportunities. The pandemic has provided fintechs and progressive incumbent banks with a great opportunity to support the financially vulnerable in creative ways. But we must always make sure inclusion doesn’t come at the cost of intrusion into our privacy, or a new surge in sub-prime credit and loans breeding more trouble…
by Zita Goldman
As the behaviours and needs of both society and consumers change – and as the rise in digitally focused brands and service providers is proving – if a brand does not become an integral part of its customers’ life and lifestyle, it will at best become commoditised and experience margin compression, and at worst it will be disintermediated.
This applies across all industries and markets – and banks need to pay attention.
The most recent example comes from the US retail market where, during the COVID-19 pandemic, Target has achieved a 10.9 per cent growth in revenue and seen customer traffic grow by 4.6 per cent, while Walmart has seen traffic decrease by a significant 14 per cent. The difference between the two retail giants is that Target was quick to realise, react and adapt to the change in the needs of its consumers, doubling down on digital ordering and store pick-up.
As product providers, Target and Walmart can be seen as very advanced cores. But Target has differentiated itself through leveraging advanced digital technology that enabled it to better understand consumer sentiment and the needs of its customers, so that it was in a position to dynamically adjust and adapt to changes in those needs in near real-time as they were altered by the pandemic.
The critical part of this example, and the reason Target has continued to win share of wallet during what is proving to be one of the most challenging times for retail in recent history, is that it took an integrated approach to adapting to change. It leveraged all its channels – including brick-and-mortar – to provide its customers with a fully integrated, seamless experience where the customer felt fully in charge of their interaction at every step.
This is the holy grail for banks – known as empathic banking. Empathic banks are able to identify critical events in the lives of their customers and react to those moments to provide flexible, tailored services that add real value to the customer and drive loyalty and expanded wallet share for the bank.
But the ability to truly and dynamically adapt or adjust the right financial service offering to the right customer at the right time based on the triggers caused by these critical moments can be challenging. Simply implementing a digital platform on top of a core isn’t going to work. Neither is relying on a core platform – no matter how advanced – that doesn’t have a consumer-centric digital engagement and orchestration layer.
Banks need an integrated approach if they want to evolve to become an integral part of their customers’ lifestyles. If a bank’s core and digital platforms are not seamlessly integrated, it will not be able to provide the level of flexibility needed to identify and dynamically adapt to changing consumer behaviours and create new or adjust products and services in a timely fashion.
by Michel Jacobs, Chief Sales Officer for Technisys.
To learn more about an end-to-end core and digital banking platform that can help you get the flexibility you need to adapt and adjust, visit technisys.com.
This year, most companies have faced unprecedented challenges to their businesses. The global pandemic has raised one critical question in particular: how can companies continue to reach customers?
The answer from many corners of the globe is by moving commerce online. Thirteen million people in Latin America made their first online purchase in March. In the US, e-commerce volumes have jumped by 49 per cent since April. China’s online grocery market is set to grow by 63 per cent this year, doubling the pace of change in how the world’s most populous country accesses its food. Six out of ten European consumers say their online buying habits will stay the same post-pandemic.
“An adaptive business initiates change; an agile business reacts to it.“
Today, there’s a race to join the online economy – one that few companies took part in until recently. Last year, 14 per cent of global retail sales happened online. Only 3 per cent of global GDP is online.
At Stripe, we support some of the most ambitious, fastest-growing companies operating online. We take a close look at how industry leaders lead and scale their businesses, as well as how an increasing number of companies enter and navigate the online economy. Thousands of businesses start on Stripe every day – a rate that’s more than doubled since this time last year.
Across the millions of companies on Stripe, we’ve noticed that adaptive businesses outpace agile ones. An adaptive business initiates change; an agile business reacts to it. We consistently see that top companies prioritise operational flexibility over speed. They execute on strategies to find new revenue streams, pursue global expansion, and partner to scale faster. According to a recent study from Forrester, firms with advanced adaptive business practices are growing at over three times the industry average.
The practices of adaptive businesses
As the global economy moves online, leaders of adaptive companies push their business to anticipate and act, so it’s less likely that their business will need to react. They take a blended approach when investing in technology solutions, gauging when to build versus when to buy. To attain and maintain market leadership, they seek out and test new business models to generate new revenue streams. Lastly, adaptive businesses find ways to overcome regulatory and technological barriers to expand internationally.
Here are these practices in action:
• Blend your technology investments. Adaptive businesses grow with the technology curve, rather than fall down it. One way they achieve this is carefully considering when to partner versus build technology solutions. After Covid-19 lockdowns began, Swedish telemedicine leader KRY experienced a 163 per cent increase in European demand for 24/7 medical access. This rate of growth can strain homegrown technology, especially if it’s built to meet current needs versus operations at hypergrowth. User experiences can suffer and technical infrastructure can buckle. Stripe helped KRY maintain uninterrupted patient onboarding, reliable payment processing, and a consistent user experience during its unprecedented period of growth.
• Initiate new business models. Adaptive businesses seek new ways to generate additional revenue – for upstarts and market leaders alike. In 2017, retail giant Target added a new business model to accelerate its e-commerce sales. It acquired Shipt, powered by Stripe, to build out its online presence and same-day delivery services. Target could not have anticipated the pandemic, but it wasn’t caught off guard by it. Since February 2020, Target has seen a 400 per cent increase in online sales, and is currently one of the top 10 e-commerce companies in the United States.
• Aggressively enter new markets. International expansion and growth fall prey to regulatory complexity, a byzantine global financial system, and limited engineering bandwidth. As the global economy moves online, adaptive businesses choose platforms with global infrastructure to handle local differences, instead of treating each new country as a standalone project. Shopify, for example, empowers any small business to create an online retail presence. By partnering with Stripe, it gives its customers access to local payment methods in dozens of countries, rather than needing to develop a completely new payments infrastructure for each new market it enters.
Build an adaptive business
The way we interact and transact in the world is evolving rapidly. The next generation of market leaders will be companies that are able to anticipate and act before the pace of change accelerates. Stripe powers millions of adaptive businesses, including 40+ category leaders with more than $1 billion in annual payment volume on Stripe in more than 135 currencies with technology to simplify global expansion, optimise payments infrastructure, and add new business models and revenue streams.
There’s no one way to grow an adaptive business, but these three strategies can help. Adaptive businesses must invest, partner and expand to anticipate future customer needs and stay relevant. For more examples of businesses leaning into change and global growth, reach out to our team at Stripe. Our mission is to increase the GDP of the internet, and now more than ever, we’re helping business leaders with an adaptive mindset realise the opportunities ahead.
About the author
Jim Stoneham is Chief Marketing Officer at Stripe. Previously he led Marketing and Growth at New Relic, and has spent his career creating and scaling businesses at companies such as Apple, Yahoo, and numerous high-growth startups. He holds a Bachelor of Fine Arts in Photography and Graphic Design from the Rochester Institute of Technology along with post-graduate work at the Berkeley Haas School of Business.
by Jim Stoneham, CMO, Stripe
One area in cryptocurrencies attracting huge attention is DeFi or decentralised finance. This refers to financial services using smart contracts, which are automated enforceable agreements that don’t need intermediaries like a bank or lawyer and use online blockchain technology instead.
Between September 2017 and the time of writing, the total value locked up in DeFi contracts has exploded from US$2.1 million to US$6.9 billion (£1.6 million to £5.3 billion). Since the beginning of August alone it has risen by US$2.9 billion.
This has driven a massive rise in the value (market capitalisation) of all the tradeable tokens that are used for DeFi smart contracts. It is now around US$15 billion, almost double the beginning of the month. Numerous tokens have risen in value by three or four times in a year – and some considerably more. For example, Synthetix Network Token has increased more than 20-fold, and Aave almost 200-fold. So if you had bought £1,000 of Aave tokens in August 2019, they would now be worth nearly £200,000.
DeFi, most of it built on the ethereum blockchain network, is the next step in the revolution in disruptive financial technology that began 11 years ago with bitcoin. One area in which in which these decentralised applications (dApps) have taken off is cryptocurrency trading on decentralised exchanges (dexs) such as Uniswap. These are entirely peer-to-peer, without any company or other institution providing the platform.
Other DeFi services now in use allow you to:
DeFi is sometimes known as “Lego money” because you can stack dApps together to maximise your returns. For example, you could buy a stablecoin such as DAI and then lend it on Compound to earn interest, all using your smartphone.
Though many of today’s dApps are niche, future applications could have a big impact on day-to-day life. For example, you will probably be able to purchase a piece of land or house on a DeFi platform under a mortgage agreement whereby you repay the price over a period of years.
The deeds would be put up in tokenised form on a blockchain ledger as collateral and, in the event that you defaulted on your repayments, the deeds would automatically shift to the lender. Because no lawyers or banks would be required, it could make the whole process of buying and selling houses cheaper.
Why the craze?
First, regulators have been behind the curve, and DeFi has been able to flourish in this vacuum. For instance, in traditional unsecured lending, there is a legal requirement that lenders and borrowers know one another’s identities and that the lender assesses the borrower’s ability to repay the debt. In DeFi, there are no such requirements. Instead, everything is about mutual trust and preserving privacy.
Regulators are having to weigh the delicate balance between stifling innovation and failing to protect society from such risks as individuals putting their money into an unregulated space, or banks and other financial institutions potentially being unable to make a living as intermediaries. But it seems more sensible to embrace change – and that seems to be happening. In July, the US Securities and Exchange Commission (SEC) made a major shift towards embracing DeFi by approving an ethereum-based fund, Arca, for the first time.
This is welcome and important, since one of the major challenges towards financial innovation is the hostile environment created by archaic regulations written for a bygone era. This has caused some DeFi projects to fail – including major ones such as New-Jersey-based Basis, which returned US$133 million to investors in 2018 when it concluded it couldn’t work within the SEC rules.
A second reason for the DeFi surge is that mainstream players are getting involved. Many high-street financial institutions are beginning to accept DeFi, and seeking ways to participate. For example, 75 of the world’s biggest banks are trialling blockchain technology to speed up payments as part of the Interbank Information Network, spearheaded by JP Morgan, ANZ and Royal Bank of Canada.
Major asset management funds are starting to take DeFi seriously as well. Most prominent is Grayscale, the world’s largest crypto investment fund. In the first half of 2020, it was managing over US$5.2 billion of crypto assets, including US$4.4 billion of bitcoin.
Third is the effect of COVID-19. The pandemic has driven global interest rates even lower. Some jurisdictions, such as the eurozone, are now in negative territory and others such as the US and UK could potentially follow.
In this climate, DeFi potentially offers much higher returns to savers than high-street institutions: Compound, for example, has been offering an annualised interest rate of 6.75% for those who save with stablecoin Tether. Not only do you get interest, you also receive Comp tokens, which is an added attraction. With two-thirds of people without bank accounts in possession of a smartphone, DeFi also has the potential to open up finance to them.
One final important reason for the surge in people putting money into DeFi tokens is to avoid being left out of their explosive growth. Many tokens are worth nothing or close to nothing in practical terms, so we are seeing a lot of irrational exuberance.
But like it or not, we are heading towards a new financial system that is more liberalised and decentralised than before. The central question is how best to guide its development with checks and balances that minimise the risks and spread the potential benefits as widely as possible. That is the challenge for the next few years.
The ecosystem of eCommerce is changing, and it’s changing rapidly. With the COVID-19 pandemic having had a large part to play in the shift from offline to online retail, we speak to Paul Marcantonio, Executive Director of UK & Western Europe at ECOMMPAY, about how merchants have been impacted and where eCommerce is heading post-COVID-19.
PM – There has been a big digital shift due to the COVID-19 lockdown. Bricks and mortar stores are being forced online. This has resulted in businesses having to re-focus their attention, from a physical to a digital marketplace. This has presented several challenges for traditional stores, including new customer expectations, a change to the way stock and orders are managed, and a need to address the end-to-end customer journey.
Take abandoned shopping carts as an example. Retailers now have to consider things like payment flow and user experience, all of which can affect the number of shopping carts are abandoned. The abandonment rate also be impacted by things like delivery times, lack of stock (due to COVID-19) and other issues. Any new online business is going to have to find out about these the hard way.
It’s not all bad news however. As most of the transaction can take place online, the delivery aspect can still be managed if “click and collect” methods are used. Since the start of the pandemic, there has been a 443% increase in the number of orders for click and collect. In fact, up to 50% of shoppers make a decision about buying from a particular store, on the basis that it offers click and collect.
These numbers all point to taking an omnichannel approach to your business.
This shift in focus has not only affected the offline businesses. Those who were already online have also found it difficult to adjust, especially with the increased level of orders. Were those businesses ready?
PM – Obviously there has been an increase in demand, with businesses now having to cater for a sharp rise in customer orders. They also need to cater for the individual payment needs of their customers.
As a result we are seeing a rise in demand for localised payment methods. eCommerce doesn’t know borders, and now one in seven online transactions are made cross border. Failure to offer localised payment methods can result in losing customers.
It’s important to understand that consumers now have less disposable income, and are therefore now buying more cautiously. This has resulted in them doing more research and more shopping-around to find the deals that work best for them.
What are the tendencies in cashless transactions and how do you see the future?
PM – During the course of the pandemic, the number of cashless transactions has spiked: the UK has seen an increase in cashless transactions which have grown from 10% to 60% of in-store purchases.
There is no doubt that we are heading toward a society where cash is used less. With the likes of Google Pay and Apple Pay, this type of transition is being made easier and easier, and it makes total sense.
As soon as the lockdown was eased, and customers were able to go to restaurants, shops and even bars, almost all venues were only accepting contactless payments. This has accelerated the move towards a cashless society. It’s believed that Sweden could be cashless by 2023 and, quite surprisingly, the US could be cashless by 2026.
As the payments industry adapts to keep up with demands, have you seen any changes in demand from merchants?
PM – It’s a really good question and it’s something that I am quite passionate about. The user experience is key. No matter if we are in a pandemic or in a normal situation, user experience has to be as fluid and frictionless as possible. With heightened demand and tightened scrutiny on how customers are spending money, user experience is critical.
For example, as customers fill up their baskets, you don’t want to give them the chance to reconsider their purchases. In essence, as a merchant, you need to make the checkout process as fluid and user-friendly as possible.
There is also the issue of payment security. If your checkout doesn’t inspire confidence, then the user will leave without making any purchase, and almost certainly won’t come back.
As a result of the Wirecard case, have merchants become more selective over choosing their payment providers?
PM – Yes, and it’s not necessarily been a good thing for the industry because there is now more scrutiny on payment providers. If a company the size of Wirecard can collapse in the way it did, what does that mean for the smaller, more exposed providers? This additional barrier to trust makes merchants more wary of partnering with payment providers.
In many ways, merchants are stuck between a rock and a hard place. In order to do business, they need to work with a payment provider and that means trusting them with pay-outs and a safe reliable payment system.
Other than a slick UX, safety and a broad variation of payment options, is there anything else that merchants look at when choosing a payment provider?
PM – Speed of implementation is absolutely vital. By that I mean building their online proposition. Usually, this takes months. But because of the shift to online, this now needs to be done inside a few weeks. This involves everything from the integration of gateways, to the payment processes and understanding the merchant’s demands and requirements. Both parties have had to readjust and streamline the processes involved.
As more offline businesses move online, there has been an increase in fraud: how are ECOMMPAY managing this?
PM – This is about education. For any business that has been operating mostly offline, there is a lot to take on. We now have to teach merchants what online fraud is and what processes we put in place to prevent it. We even have to educate them on the terminology of the industry.
I believe that the best way to be prepared for the current up-tick in criminals looking to exploit online merchants and their clients is to establish efficient fraud-prevention systems. This requires a two-part strategy: machine-learning fraud systems supplemented by good old-fashioned professional human overview.
The machine-learning system is there to detect and identify suspicious or fraudulent activity. The professional risk managers keep their beady eye on flagged transactions as well as on financial activities as a whole: machine technology will identify the majority of threats but it lacks the natural intuition and knack humans have for spotting certain kinds of malicious activities.
Some businesses have seen major growth during the pandemic. What kind of demand is there for expansion solutions from payment providers?
PM – In my opinion, the best time to take stock and realign your business is during a time of crisis, especially for eCommerce and digital services. Take a look at training for example: companies that had been providing offline lessons have been forced to offer online classes. Failure to do so could mean the end of their business.
If your business doesn’t deal in the movement of goods, and you haven’t looked at expanding internationally, then you might be missing a trick.
We have all made changes to our online behaviour; but what payment trends do you think will still be around, post-COVID-19?
PM – There are three trends that really stand out for me.
The first is people’s tendencies to shop online. We have seen a whole new demographic shopping online and I think that this trend will stick.
Following on from this we will also see a reduction in physical cash transactions: there will be far greater adoption of digital wallets and contactless payments.
The final trend, and it’s a real game-changer, is open banking. This is designed to make banks work harder for their customers through payment and data sharing.
According to figures recently released by the UK’s Open Banking Implementation Entity (OBIE), usage of open banking has grown exponentially in the last 9 months. This will allow businesses (and private individuals) to better understand their finances. It will be easier for third party apps to offer services and solutions to make your money work better for you.
What advice would you give to eCommerce businesses for 2021?
PM – Be agile. We have all seen how fast the landscape can change. You have to be flexible to make changes to your business strategy, operations and even markets. You will need to create resilience to your business and take an omnichannel approach that builds in technology to support and help you grow.
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Since the start of the Covid-19 pandemic, retailers, business leaders and consumers have all had more questions of than answers to what the “new normal” might look like. But as we approach the holiday shopping season with an unprecedented level of uncertainty, one thing rings true for the future of payments: businesses and consumers alike need to prepare for the continuing, swift shift to online and mobile payment models.
During the 2020 holiday period and beyond, the brands that excel will be those that actively look for ways to overcome new challenges by creating enjoyable, seamless experiences to engage customers across the channels they find most valuable. This includes prioritising a truly seamless experience and choices such as curbside pickup, no-contact delivery and expedited shipping at no additional cost.
Digital wallets have well and truly arrived
According to a recent survey from Blackhawk Network, 88 per cent of shoppers surveyed across eight countries use a digital wallet of some kind. In the US, before the pandemic hit fewer than 38 per cent of Americans surveyed said they were using digital wallets to make purchases more or as often as the year before. As the economy began to reopen, that number has jumped to 55 per cent.
As Covid-19 reshapes our perception of digital payments, it won’t be enough for mobile wallets to merely store payment credentials. From cash to rewards and gift cards, mobile wallets must transition to host additional useable payment options across technology, retailers and buying experiences. Retailers and consumers alike are looking for more ways to unlock the value of the mobile payment experience to spend across a variety of situations, and redeem points and gift cards seamlessly across the shopping experience.
Changing consumer habits
But getting consumers to use their mobile wallets is just the first step, and in a post-pandemic world, our role is to continue to innovate. We must drive additional options across the payment, coupons, rebates and incentives spectrum into the mobile wallet to create the best experience for consumers. And we must do so in a way that does not overtask retailers’ existing operations. The biggest winners in the next phase of the payments race will be those able to best achieve the balance of providing choice and seamless experiences to consumers, while making it effortless for retailers.
Streamlining the purchasing process for digital and mobile shopping has become a must for retailers. One-click checkouts, incorporating technology to pre-populate shipping and payment information, will greatly reduce cart abandonment. Consumers value a checkout process that’s fast and easy.
“Gifting” will still have a major impact
Online and mobile shopping habits spread quickly when social distancing was introduced, and digital gifting emerged as a multigenerational lifeline – evident by unprecedented growth in recent months. For instance, based on Blackhawk Network’s partners’ sales data, gift cards sold directly from a restaurant or merchant’s own website since mid-March are up 92 per cent from 2019. And with US e-commerce sales expected to climb by 18 per cent this year, the rapid adoption of digital gift cards, or eGifts, is here to stay.
With mobile payments on the rise, it’s not just about consumers finding easy gift card options, it’s also about ensuring your brand is ready for those contactless payment opportunities, integrating gift card redemption and purchase into mobile wallets and online ordering in a seamless way.
At the start of the pandemic, omni-commerce solutions were a new thing for millions of consumers and businesses (especially small businesses). The pandemic has rapidly shifted people’s mindsets, needs and adoption habits in a way that experts were once predicting would take years. With many consumers trying omni-commerce solutions for the first time, they still maintain their existing expectations of the highest levels of service and functionality.
By Brett Narlinger, head of global commerce at Blackhawk Network
Fintech isn’t just a hip portmanteau anymore. It’s a category of start-ups and fast-growing companies that has disrupted markets and incumbent firms around the world, attracting more than $30 billion in funding every year for five straight years. But the upheaval of Covid-19 will test many fintech firms, which will be hit by a double-whammy of challenging economies and a drop in funding.
We don’t yet know the full impact Covid-19 and its associated containment measures will have on our economies. At Forrester, we are forecasting three different economic scenarios – best case, more damaging, and dangerous. The second scenario is most likely, and assumes that virus containment efforts to “flatten the curve” of infection have partial success but don’t prevent a flare-up of the virus in the autumn or winter. It also assumes that stabilisation programmes are unable to halt the downward drag from fearful consumers and shell-shocked businesses. In this scenario, we forecast that 60 per cent of fintechs will exit the market, either as outright failures or low-cost acquisitions by tech vendors or incumbent financial services firms.
Why such a high share? The last six months have given us ample evidence of the stark realities facing fintech firms. Covid-19 has challenged the business models of direct-to-consumer fintechs such as challenger banks and peer-to-peer lending platforms. Many fintechs operate on narrow margins, can’t sustain large marketing campaigns, and need scale to achieve profitability, so the key to survival is acquiring new customers efficiently. However, the uncertainty has dampened consumers’ appetite for change. For example, UK current account switching saw a massive drop in Q2 2020. Whereas in March 2020, 113,037 current account customers switched to a new provider, this fell to just 27,965 by June. Customers often use digital banks as secondary accounts, which impacts challengers’ profitability. For instance, only about 30 per cent of active Monzo users used the bank as their main account in 2019 (the bank measures this as customers who have monthly deposits of at least £1,000). Convincing them to switch will be even more difficult now.
More than half of UK online adults have cut back on spending
Many fintechs have also seen a sharp drop in revenue as a result of falling consumer spending and remittances, and an increase in defaults. Lockdowns, furlough or unemployment have curtailed spending dramatically, with up to a third of French, Italian and UK online adults delaying big-ticket purchases such as cars and holidays due to the ongoing uncertainty. More than half of UK online adults have cut back on all but necessary spending. But many fintechs are reliant on income from card transaction fees. And analysts are forecasting a global reduction of $100 billion in remittance, which impacts fintechs such as TransferWise that have built a business on international payments. Fintechs will also not be able to compete on price for much longer. For instance, the UK’s biggest peer-to-peer (P2P) lender, RateSetter, slashed the interest rates it offers to savers by half in preparation for a wave of loan defaults.
But it’s not just the direct-to-consumer fintechs that will struggle. Those that have relied on selling their technology to banks will also face a much tougher environment. The pandemic and recession will drive European tech spending down, with 2020 tech purchases dropping by 5 to 7 per cent from 2019, with a 4 to 6 per cent recovery in 2021. But longer and deeper recessions would cause 8 to 9 per cent decreases in tech spending in 2020 and little or no growth in 2021. Many banking CIOs will try to protect investment in digital technologies and automation but will be forced to cut down on other areas of tech spending.
Monzo and Revolut posted losses of more than £100 million for 2019
Most fintechs will not be able to tap investors to help them weather this storm. Even before Covid-19 struck, many were loss-making, with investors happy to bankroll them in hope of future returns. For instance, Monzo and Revolut posted losses of more than £100 million for 2019. These losses will only widen in 2020, with all fintechs struggling to secure the same level of investment. Fintech funding has been declining since just before 2020, with funding plateauing in Q2 and Q3 2020. Private financing decreased significantly after recent downturns in 2001 and 2009, and this time won’t be different. We expect an acceleration of existing trends: investors hedging their bets with late-stage rounds in established, even crowded sectors such as digital banks, digital lenders, and payment providers.
So what does it mean for the future of fintech? Only those that have market traction, are profitable, or have already secured a big funding round will survive the impact of Covid-19 and the upcoming consolidation. Acquisitions will rise as incumbents and surviving fintechs pick over the carcasses. But those that do survive will face reduced competition and will become market leaders.
Find out more about Forrester’s research content and its Predictions 2021 for the Financial Services industry here.
By Oliwia Berdak, Research Director, Forrester
The pandemic has forced us to take bigger steps towards a truly cashless society – but we were headed in that direction anyway. Before, most businesses were operating offline, and those businesses that applied e-commerce didn’t focus on intensifying the concept. It was just a means to an end. However, the pandemic came, our way of life changed, and the business environment changed with it. Businesses that were able to transition and fully perform online were on the winning end. Several fintech start-ups launched and thrived due to the demand for such services.
We have been pushed out of our comfort zone: e-commerce is the new normal, digital payment is on the rise, and shopping online, receiving payments and paying bills has never been faster. Whatever service you want is just a click away.
New trends in Digital Payments
Currently, the biggest payment trend is the use of digital and mobile wallets. They have made shopping a breeze. In terms of increased sales, mobile wallets have contributed significantly: from retailer-personalised applications to wallets from financial institutions, device manufactures and technology platforms. These wallets have also enhanced the security and safety of funds, and became essential for consumers transacting online.
How exciting would it be for your potential customers to reach you from their phones? HyperPay merchants can offer international and local mobile wallets as a payment method on their website or mobile app.
The future of payment is here, and fintech companies such as HyperPay in the Middle East are taking the lead in this innovative future.
Effortlessly Go Global
Running an international business is a dream that’s no longer impossible to achieve. However, not having a way to reach prospective international customers can be quite devastating. From the Middle East to other continents, you wish to connect faster in a less complicated way. As a business owner, you’ll need a payment service that allows your customers to pay using their currencies while you settle in your local currency. HyperPay still takes the lead in the MENA region by processing about 165 currencies.
Secure e-Bill Payments in seconds
As a merchant in a competitive market, you need a safe payment solution that appeals to your prospective customers or clients, a simple payment process, and a fast way to start accepting payment online.
With more and more consumers in the GCC choosing non-cash based payments, award-winning payment gateway Hyperpay was quick to provide an e-invoicing service, HyperBill.
HyperBill helps you generate an invoice in minutes and allow your customer to pay you in seconds within the same platform. Consequently, improving your sales conversion rate and helping you track customer invoices more efficiently. Through this product, HyperPay has helped several SMEs in the MENA region to grow and expand their market coverage, as well as easily transition their businesses online, by enabling convenient invoice generation and online payment.
Simpler Payout Process
With the rise of fast-growing multisided platforms and marketplaces in the region, connecting buyers and sellers, the need for a reliable payout solution increased. HyperPay addresses this challenge by introducing HyperSplits, a payout solution which enables platforms to receive a payment, split it and send it to the respective beneficiaries in a timely manner.
Since the launch of HyperSplits in Saudi Arabia, the service has helped multiple startups to automate the process of transferring funds and thus, grow the number of users on their platform and achieve exponential growth in record time.
Keep your customers and clients close
Today the easiest way to keep your customers close is through the smartphone business apps. Smartphones are the new wallets. What’s more, a high percentage of your customers are always close to this wallet.
Imagine what having your business on a mobile app and a responsive payment gateway integrated with it could translate to? More sales.
Offer more payment options
Successful online businesses fully understand that in order to convert more sales, you need to have several payment options at checkout that will be appealing to all of your target customers.
Hyperpay stays ahead in this aspect, having enabled the activation of every payment method. Be it Visa, MasterCard or American Express, Apple Pay or STC Pay in Saudi Arabia as well as the Kingdom’s highly preferred local debit card, Mada, Hyperpay has got merchants covered.
Did you know that a high number of potential sales are lost through redirecting? It’s a possibility that when a buyer is taken through different pages to make a payment, they lose interest. On the other hand, providing a checkout page that allows a fast payment within the same page enables more impulsive spending, and more sales. HyperPay has helped businesses grow by providing this feature.
Enable subscriptions so that automatic payments are made periodically as you deliver goods at your customers’ doorsteps or renew service memberships. This is the best way to ensure customer loyalty.
HyperPay’s payment solutions tailored to subscription-based business models make recurring billing a frictionless process for both merchants and their customers. You can easily accept recurring payments and manage customer subscriptions, store card numbers securely and win the loyalty of your customers.
The business environment is rapidly evolving, and HyperPay is at the forefront of it. HyperPay helps businesses keep up with the evolving market by offering a complete, fully-featured payment solution.
by Viva Wallet
Covid-19 has been a wake-up call for European businesses. Across the continent, no matter the size of the company or complexity of the economy, lockdowns have transformed how Europeans make and receive payments; it is now a much more digital world.
Not everyone was prepared to make this transition. For businesses with a digital transformation plan in place, the time to act was there and then. For those without one, it was sink or swim. In the latter case, this often meant an overnight scrabble to integrate with digital payments pipelines, a task many businesses were not capable of handling in-house.
In March, the pan-European neobank Viva Wallet was uniquely able to help countless businesses to fast track a digital overhaul that began playing out across the continent. With a group of engineers at its core, Viva Wallet provided a nimble response to the sudden demand for a contactless, frictionless payments system across Europe.
This included the rapid deployment of both card acceptance hardware in the form of Android card terminals, as well as software, namely Viva Wallet’s point of sale app for Android. Indeed, through the POS app, Viva Wallet was able to enable the total digitalisation of payments, for even the smallest of businesses that do not even have a physical office. That the Viva Wallet app comes free-of-charge with no monthly fees, as well as the instant ability to use a digital banking card, made it the ideal tool to adopt for businesses as diverse as individual taxi drivers to small legal firms, and it arrived just at the right moment.
“Digital payments emerged as the kiss of life for both small and big companies who suddenly needed even more digital tools and faster onboarding to new digital payment services,” says Haris Karonis, Viva Wallet’s Founder and CEO.
Viva Wallet’s mix of pan-European neobank services and digital state-of-mind made it an ideal candidate for filling the online payments gap that the pandemic so painfully exposed.
Today, Viva Wallet has a footprint in 23 European countries and a network of more than 100,000 merchants. Through Viva Wallet’s “bank in a box” service, merchants can instantly accept international and local card schemes, both at their premises and online, and get a local IBAN account as well as a local BIN business debit card through a single vendor, which makes merchants’ lives easier and costs fully transparent. Not only that, Viva Wallet is offering merchants a true 0 per cent cost for card acceptance if they actively combine the use of both its card acceptance services and the issued business card!
The ability to seamlessly manage local and international payments has become one of the biggest reasons why Viva Wallet reports that its merchant base is experiencing double-digit growth today.
“Being fully localised offers tremendous benefits to merchants in terms of complying with local regulatory requirements,” says Karonis. “The availability of local IBAN accounts also permits expansion to add-on services, such as the availability of merchant cash advance, which will be the next step of our service offering.”
Uniting Europe under one digital payments umbrella
Viva Wallet’s founding mission strikes at the heart of one of the biggest dilemmas facing the European Union today. How can the EU unite a fragmented group of 27 distinct economies with unique cultures, languages and histories?
Indeed, the process of building a frictionless digital payments network has transformed Viva Wallet from a start-up to an international fintech.
Founded as a payment provider in 2011, and with a history as a software house from as early as 2000, Viva Wallet’s story is an odyssey through which the founders began to discover the operational complexities that needed to be overcome in building a digital payments network that worked in markets as distinct as Brussels and London.
“Our biggest challenge was to break the local country payment silos by setting up local physical branches in each country and become an active participant in each local payment system,” recalls Karonis.
“It was a burdensome and costly investment process but, in the end, this offered Viva Wallet the unique advantage of providing a pan-European payments service with fully localised implementations,” he adds.
New EU open banking regulations have helped pave the way for Viva Wallet’s frictionless payments system. But as Karonis and his team found out, the idiosyncrasies of European economies can be far more enduring.
“The SEPA (Single Euro Payments Area) and PSD2 regulations, where applicable, reduced the need for multiple integrations and permitted faster country set-up,” says Karonis. “However, local regulations have not followed the same path of alignment in all their payments-related aspects, so there are still considerable barriers to entry for all European countries.”
Still, despite the challenging nature of its task, Viva Wallet continues to project further European expansion this year. Today, Viva Wallet has set up physical branches in 23 European countries and plans to increase those offices to include more.
The continued expansion of such an extensive pan-European payments network would be unfathomable without the company’s all-digital ethos, which has provided the invaluable democratic access to merchants of all sizes that was needed to work across such a diverse payments landscape.
“The main strategy that has facilitated merchant growth is that Viva Wallet’s main service is focused at the state-of-the-art cloud-based infrastructure, as well as to the physical hardware – that is, card-present transactions at card terminals – and e-commerce payments realms by design, without making a distinction between the two,” says Karonis. “This has permitted merchants of all sizes and market segments to adopt Viva Wallet payment services with ease while equally benefiting from digital-only onboarding.”
Since Viva Wallet operates both like a start-up and an international company, its merchants quickly find that they too can operate using the best of both worlds. This includes a digital wallet application programming interface (API) for developers, a corporate expense card programme, and many customisable services, such as the installation of unattended physical payment terminals.
“We have created a scalable state-of-the-art payment infrastructure, built entirely over Microsoft Azure, as well as an innovative card acceptance system, and introducing instantly activated Android card terminals and smartphone card acceptance,” says Makis Antypas, Co-Founder and CIO of Viva Wallet. “This allows for ease of set-up and the use of a complete bundle of payments, all with access to our local branches that are set up under the local regulatory framework, wherever you are located in Europe.”
Taking a step back, it is easy to see that what Viva Wallet has created is a neobank system for merchants that has only just started to make its mark.
Most CEOs of the early 2000s bequeathed to their successors the same business model that they inherited from their predecessors. But when the CEOs of the following decade grappled with their biggest challenge – namely, how to stay relevant amid rapid change and uncertainty – the business model was often at the heart of the problem – and digitisation, invariably, at the heart of the solution.
Covid-19 has merely pushed this situation into overdrive. As the pandemic creates recessionary conditions with diving interest rates and rising credit losses, banks are searching for a model that will enable them to respond to the crisis today, recover from it in time, and build back a healthy business in the future. Evidence – such as the changing composition of the S&P 500 and similar leaderboards in recent years – strongly suggests that that model is overwhelmingly digital, and more often than not, is a digital platform. This is bad news for banks lagging on the digital front: not only have they already lost out, they’ll also find it extremely difficult to stage a comeback through the pandemic. On the other hand, the digitally evolved banks will widen the gap on competitors as they recover faster and better from the crisis.
Without exception, the banks we have spoken to say they are experiencing a sharp acceleration in digital adoption across customer segments. Customers are not only banking more on digital channels but also consuming more products digitally. Once the dust settles on Covid, customers may partially revert to physical banking, but a total return to how things were isn’t going to happen. In the meantime, the industry is responding to the demand for digital banking by digitising as much of the lifecycle, from onboarding to sales to service to engagement, as possible. The progressive banks are going a step further to recast their business into new digital models.
Banking business model options
A business model change may be approached at three levels – value creation, value delivery and value capture. By and large, the traditional universal bank is built on a pipeline model where the bank does everything, from manufacturing to selling to distributing, on its own, using in-house resources. This vertically integrated pipeline business model is breaking apart, giving way to fragmenting value chains and platform business models. Here, “business model” is an umbrella term covering customer focus or segment, distribution channels, products and services, ecosystem approach, the business applications landscape, operating models, and workforces (people and competencies). All of them are reshaping the banking business model to a greater or lesser extent.
Since the choices are finite, each bank needs to pick the one that is most relevant to its context and, importantly, that provides a clear point of differentiation in a commoditised market. Broadly, a traditional bank can choose to focus on a particular area within its existing model, or evolve the entire model into something new. Note that there would be some overlap between the two tracks.
Excel in a chosen area
If a bank does not wish to exit this model altogether, it can still make changes by choosing to focus on a particular area to excel in. For such a bank, the choices are to become:
• A scale leader through organic growth or strategic acquisition
• A value leader that leverages deep automation to be the most cost-efficient player in the market
• A customer experience leader providing personalised experiences at scale
• A product or service leader excelling in its niche
• A segment player serving a select set of customer segments or communities
Assume a significant role in the value chain
When a bank decides to evolve the pipeline business model to a platform business, where it relies on a vast ecosystem of partners to ply its trade, it can morph into:
• A manufacturing bank making best-in-class products that can also be white-labeled and sold to ecosystem partners – for example, Marcus by Goldman Sachs
• A value aggregator that curates best-in-class financial and non-financial products to fulfil more than just banking needs – such as Paytm in India and Starling Bank in the UK
• A distributor that only acquires and serves customers without assuming any middle and back office burdens – such as Moven and N26 in the US, and BankOpen in India
As mentioned earlier, there is often some overlap between the two approaches: for instance, a manufacturing bank can also be a cost-efficient value leader. Also, most incumbent banks will likely pursue different options in different business segments. And while each bank will chart its own path based on its unique circumstances, because of Covid, all banks, without exception, will feel the need to expedite transformation to survive the next normal.
For more information, please visit our website here: www.finacle.com
TSB Bank, a major UK operator owned by Spanish banking group Banco de Sabadell, is closing one-third of its branches. This means that 164 out of 475 sites will close, with a loss of 960 jobs – in addition to the 82 branches that were already earmarked for closure last November (65 of which are now closed).
To many industry insiders, this will come as no surprise. There has been a general shift towards digital banking since the global financial crisis of 2007-2009. This has spawned new digital-only challengers such as Monzo, Revolut and Marcus.
The trend has gathered further traction during the COVID-19 pandemic as people have become more accustomed to banking online. Over the summer we have also seen the Cooperative Bank and NatWest cutting jobs and branches, while JP Morgan announced it was launching a UK digital bank in 2021.
At the same time, TSB has had to weather problems of its own making. Originally known as the Trustee Savings Bank, it was formed from the gradual amalgamation of many local trustee savings banks in the 1970s and 1980s. The banks disappeared after the group was bought by Lloyds Bank in 1995, surviving only in the group name Lloyds TSB.
The government ended up taking a significant stake in Lloyds after its 2009 merger with beleaguered HBOS, which led to such severe problems that then CEO, António Horta-Osório, was diagnosed with stress-induced insomnia and signed off work in 2011. The European Commission then decided that the government rescue amounted to state aid, forcing Lloyds to rebrand 632 branches as TSB and float them on the stock market in 2014.
New dawn fades
TSB was acquired by Banco de Sabadell the following year, and it was hoped that this would herald a new era for the bank. But unfortunately disaster struck in April 2018 with major IT issues that lasted several weeks.
An estimated 1.9 million customers were affected by incorrect transactions, disappearing mortgages, being locked out of accounts or given access to other customers’ accounts, and a non-responsive banking app. The issues apparently stemmed from difficulties moving customer records to a new platform designed by Banco de Sabadell. This long-planned migration was meant to increase efficiency and improve the digital experiences of customers, but it quickly became apparent that the bank had severely underestimated the complexity and risks involved.
The bank was hit by reputation-damning independent reports, including one it commissioned itself from law firm Slaughter and May, which pointed to management failures and said that the TSB board lacked “common sense”. CEO Paul Pester was forced to apologise publicly and subsequently stepped down (his replacement, Debbie Crosbie, has a background in digital banking).
The IT disaster cost the bank approximately £330 million and thousands of customers, and was followed by further glitches in subsequent months. Like all UK banks, TSB is also having to cope with tighter profit margins as a result of ultra-low interest rates, and an increasing number of defaults on its loan portfolio a result of the pandemic. The bank has had to increase its provisions for loan losses, with more defaults expected over the final quarter of the year. And then there is digital banking.
TSB remains a very important lender in the UK, yet very domestically focused. Its customer base of five million is way behind the likes of HSBC (40 million) Lloyds (30 million), Barclays (24 million) and NatWest (12.5 million). It also has a lower share of the current account market than it arguably should for a customer base of its size.
TSB looks able to weather the storm brought on by COVID-19 and to remain a key lender in the UK. But competition for consumer deposits and to provide consumers’ main current and savings accounts has intensified in recent years, partly thanks to the digital “challenger banks” and new competitors on other fronts, such as peer-to-peer lending platforms Zopa and Funding Circle.
Of course, all traditional banks face these challenges. They still dominate most areas of consumer banking, and enjoy much more customer loyalty than the challengers, but they are coming under more pressure all the time. This is especially true with younger customers, with surveys such as this one by Crealogix showing one in four under-37s choosing digital-only banks – and that was nearly two years ago. The obvious question is whether traditional banks may become obsolete to some degree.
The trend towards digital banking is likely to have far-reaching implications for customer experience, staff levels and financial regulations. The wave of branch closures will save banks money but it is likely to encourage more customers to evaluate their options. Some who were previously loyal may now decide to switch to a digital-only provider.
It will not help the traditional banks that many have poor customer satisfaction scores compared to the digital challengers. In some cases this will partly still be linked to the global financial crisis, while TSB customers will not have forgotten the IT fiasco of 2018.
To stay competitive, these banks are under pressure to quickly evolve their offerings in the face of digital rivals whose services tend to be reliable, flexible and responsive. The future is bright and digital, but only for those who can keep up.
The financial services sector is evolving rapidly, with a growing number of new entrants in the form of fintech start-ups and tech giants disrupting the status quo. Many fintech companies compete with established financial players, while other business-to-business fintech firms look for collaboration opportunities. Running a successful bank, insurance company or asset manager has never been harder, with so many competing financial and non-financial targets to be met in a highly regulated environment – and many strategic options for strengthening an institution’s competitive position exist.
On top of this, decreasing trade flows have already reduced the economic outlook due to the coronavirus pandemic, led to a capital markets crash not seen since the last financial crisis and the risk of a global recession becoming more likely.
At a time of crisis leadership matters. What all financial organisations have in common now is that corporate governance and the role of their boards becomes more important, especially in today’s world, with pressure on profit margins, faster market cycles, constantly changing customer demands and complex and costly compliance and regulatory environments.
A well-rounded and diverse board offers not only relationships, expertise and credibility but can also fill important knowledge gaps and add strategic insights to complement the executive team with broader customer understanding and financial technology know-how. It’s crucially important today that boards understand the potential applications of fintech innovation and have experience in deploying new business models and agile working practices to transform organisational cultures if required.
The Institute of Directors summarises the goals of boards as follows:
• Establishing vision, mission and values
• Setting strategy and structure
• Delegating to management
• Exercising accountability to shareholders and being responsible to relevant stakeholders
When everything around you changes – as we can see in finance today, and accelerated even further by the spread of Covid-19 – establishing the vision, mission and setting the corporate strategy becomes much harder. This is true for both fintech companies and incumbents but in different ways. While fintech companies often have strong technology understanding thanks to their founders and their executive team, they might need to complement that with more commercial, financial or compliance and regulatory know-how. On the other hand, established financial institutions often want to complement their existing ranks with financial technology expertise, to better understand the strategic options ahead. Both have shifted towards remote working models so that employees don’t have to commute and can self-isolate if required.
In terms of gender diversity among their senior executives and board members both have a lot to improve.
Heidrick & Struggles published a report, Closing the Gaps in Fintech Boards, last year, which analysed fintech companies from early stage start-ups to late stage pre-IPO growth companies. It concluded that among fintechs there is a strong demand, but only limited talent pool, for “operational leaders-turned investors […] The value these individuals bring comes from extensive operating experience – often in CEO, general manager (GM), or chief financial officer (CFO) roles. More recently, many of these individuals become active investors in fintech. This talent pool is relatively new in financial services and fintech.”
The same report explained that 50 per cent of later-stage growth companies have at least one woman on their boards. In other words, 50 per cent have an all-male board. This lack of diversity, not only among the established financial services sector but also in the new fintech sector, is a big concern. According to The Harvard Law School Forum on Corporate Governance’s 2019 report, Views from the Steering Room: A Comparative Perspective on Bank Board Practises, “an appropriate mix of professional backgrounds and profiles enable boards to consider strategic matters from various angles – including the angel of clients; to think out of the box; and to avoid groupthink. In other words, diversity is good – not only gender but also skillset and cultural diversity.”
So how can financial institutions help themselves to become more diverse and more knowledgeable about financial technology and changing market dynamics, in order to be able to respond responsibly and creatively to the coronavirus challenge and develop scenario plans depending on various possible economic outlooks?
The answer to the first question is easy – hire more women and non-white board members to add a diverse skillset to your boards and leadership teams. The 30 Per Cent Club has done a great job in promoting board diversity. Its vision is that “gender balance on boards and in senior management not only encourages better leadership and governance, but diversity further contributes to better all-round board performance, and ultimately increased corporate performance for both companies and their shareholders.”
A diverse board will be better prepared to deal with a global economic slowdown and the resulting uncertain economic future – things we are all currently facing.
In terms of fintech knowledge, the Fintech Circle Institute runs fintech masterclasses for leading financial institutions. The classes look at the market in a holistic way, centred on the idea of the “Fintech Cube”…
When we analyse new fintech companies, we always ask the following three questions to determine the competitive landscape the start-up operates in:
• Which financial sub-sector is the start-up working in? (For example, retail or commercial banking, capital markets, asset management, insurance)
• Which business model does it use? (For example, business-to-consumer, business-to-business, business-to-business-to-consumer, platform, peer-to-peer lending, crowd-funding)
• Which technologies does it deploy?
Equally, when developing an innovation strategy for a corporate, it is important to stay client focused – for example, ask yourself where the biggest value opportunities for customers and end-users are, or what the overall value framework is. The client demand normally determines the first. Then, optimum business model and technologies must be designed and selected to provide the best overall solution to create value for the client.
Fintech skills and diversity for finance boards are invaluable both short- and long-term, as the competitive environment for financial institutions changes rapidly, and having the brightest minds at the boardroom table to prepare for a global slowdown or recession becomes more crucial. New skills and strategies can be better implemented by a board that has already put gender, skillset and cultural diversity at the forefront.
by Susanne Chishti, CEO FINTECH Circle & FINTECH Circle Institute
The banking industry is experiencing a tremendous wave of innovation, with new technologies impacting legacy banking models and consumer expectations, changes in the way financial institutions engage with consumers across their financial lifecycle, and fintechs making banking customer-centric.
So what are some of the most important trends to watch in 2020?
Bigtechs play it big
2019 was sure to bring optimism and excitement to bigtechs. It was mostly about laying groundwork and was a year of growth. Apple announced a credit card created in partnership with Goldman Sachs. Facebook announced Facebook Pay, available on Messenger, Instagram, WhatsApp and Facebook itself. Uber announced a new division called Uber Money, which includes a digital wallet and upgraded debit and credit cards.
For 2020, Google plans to offer “smart checking” accounts to US customers in conjunction with Citigroup and the Stanford Federal Credit Union. Facebook, meanwhile, is continuing its plans to introduce its digital currency Libra, which is designed to make global payments cheaper and faster.
Do not ignore Gen-Z
2020 brings a new generational priority: Generation Z customers.
Gen-Z customers have a new set of priorities and preferences. Born between 1996 and 2010, the generation expects digital experiences to be cool, awesome, and immersive. They are more interested in digital payments products, especially ones that offer multiple touch points and personalised interfaces.
Finding fresh niches, modernising the processes and exploring new digital avenues for communicating with customers are just some areas where banks can start. A number of fintechs are already rolling out mobile banking, credit apps and financial literacy tools that help Gen-Z to manage money and save for the future.
It’s a real-time thing
Customer expectations always include speed, convenience and transparency. Both end-consumers on one side, and banks on the other, are vehicles for innovation when it comes to real-time payments, as consumers demand that the products and services they interact with trigger a near-instantaneous response. A sure trend for this year will be a shift from real-time payments being a new trend, to being an expected element of the status quo.
Moreover, banks have a winning chance at this game only if they create competitive environments for real-time payments to strive in, adhering to such corporate policies and focusing on rejuvenating their systems so that instant payments cease to be primarily the preserve of neobanks and fintechs.
Services such as request to payment (RtP) are aimed at enriching the payments landscape. In the UK, Mastercard will launch its RtP solution, which enables consumers and businesses to receive payment requests and view bills and pay with real-time payments or card.
Moreover, EBA CLEARING has announced the development of pan-European request to payment infrastructure solution. Its delivery is supported and funded by 26 financial institutions from 11 countries, to go live in 2020.
Cyber-security is no joke, folks
With cyber-threats continuously evolving and becoming progressively more sophisticated, organisations are becoming increasingly aware of the threat of cyber-crimes and the importance of cyber-security.
Making sure the privacy and security of personal data is safeguarded continues to pose several challenges, considering that data breaches are almost daily news. In 2020, data breaches, a shortage in cyber-security talent and changes in data privacy regulations will remain top technology trends in banking.
Artificial intelligence is the talk of the town
Customer experience is a competitive driver of growth. Artificial intelligence (AI) can be helpful and deployed to deliver a better and more convenient customer experience, resulting in greater satisfaction and competitive differentiation.
In order to develop a successful customer experience strategy, you need to start by having a clear vision, then understand and relate to your customers. In this context, leveraging AI can help accelerate this in-depth level of comprehension of the market.
To read The Paypers’ 2020 Global Open Banking Report, click here
Oana Ifrim, Senior Editor, The Paypers
Discovering vital new strategies for improving debt collection in the pandemic.
Debt collectors are putting out a raging wildfire of delinquencies caused by Covid-19. Planning under these circumstances is difficult, but it’s still important. I would like to propose a phased approach to collections in the current crisis, with three phases for collection operations post-Covid:
In all three phases, an omnichannel communications platform can help you engage effectively with customers to optimise their journey through recovery and rehabilitation.
The first step is to integrate and orchestrate the channels available to the organisation – email, SMS, WhatsApp, mobile apps, voice – to help with responses to payment holiday requests and a change in payment plans. By “orchestrate”, we mean that you can reach out to a customer throughout a day, on differential channels, and when the customer choses to respond they can take a customer journey using the most appropriate channels for different steps of that journey, again seamlessly and confidently.
Having an automated, centralised view and co-ordination of the customer interactions will help you offer the right payment plan through the right channel for each customer, as well as keep in touch with them during the crisis to gather information or offer advice. Self-service payment terms will reduce operational costs and help your contact centre team focus on customers who need human interaction to deal with their financial difficulties.
Challenging your operating model is critical in today’s environment. This is the time to adopt the technologies used widely in other parts of your bank. In a crisis, collections must lead!
For more information on managing debt collection in the current crisis, visit the FICO Blog.
Learn more about how analytics can help debt collectors manage through the COVID-19 debt tsunami: fico.com/covid-collections