The fintech industry is one of the most visibly disruptive sectors since it can dramatically impact everyday consumers as well as the business of all sizes. It’s also potentially a highly regulated sector, with governments and regulators well aware of the need to both protect consumers and businesses, and to provide a fair, competitive environment for industry players.
At the same time, governments don’t always agree on how exactly to regulate this rapidly changing industry. Coupled with intense competition from traditional, established banks and financial services providers, along with constant technological developments, this makes for a volatile, exciting sector to watch.
So what do 2020 and the coming decade have in store for fintech and traditional banking and financial services?
The largest banks are products of consolidation starting in the 1980s, and they enjoy a dominant position to this day. In 2020 and onwards, fintech players could increasingly push for a level playing field to prevent banks from taking advantage of their size and market share to crush rather than compete fairly with new market entrants.
The banking sector could see governments introducing stricter regulatory measures to ensure a more equitable competitive environment for fintech players. Although these players are already starting to make inroads in terms of gaining market share, existing traditional players can still have significant leverage.
Examples such as preventing bank customers from sharing bank details with fintech competitors by warning them of a security risk highlight how traditional players could be potentially be depriving fintech newcomers of a level playing field.
Challenger banks are typically established institutions (usually specialists or midsize firms) seeking to compete with traditional banks. Neobanks, on the other hand, are usually newer, completely online or mobile providers.
Both types of banks challenge the traditional banking system, providing a variety of accounts, payments, cards, loan products, and share trading and investment options. In a low-interest-rate environment, neobanks and challenger banks might concentrate on higher savings rates, lower fees and charges, and responsive, convenient services and products.
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These new players could continue attracting large venture capital investments as they focus on delivering services through mobile and internet technologies. Their disruptive influence could ultimately be similar to the impact of low-cost operators on the airline industry.
Fintech could start truly shaping the trading and investment segment in the coming years. In 2020 and onwards, more low-cost stock trading and investment offerings could be made available by fintech players. This could lead to new players seizing a large percentage of the market or motivate the traditional wealth management segment to change their offerings.
For example, Robo-advisors haven’t yet lived up to predictions of gaining significant market share, but they have driven innovative tech tools for investing that is now used across the wealth management industry.
With the availability of passive investment and intense competition on fees, free share trading and self-help technology for low-cost investment plans could become standard offerings.
A study revealed that 44% of over-55s are partaking in the sharing economy, which has led to the accelerated adoption of P2P lending — transferring wealth from investors to millennials. Therefore, the 2020s could bring with it the acceleration of alternative lending solutions like peer-to-peer (P2P) lending. In the aftermath of the global financial crisis when banks tightened their lending criteria and consumer distrust of traditional lenders grew, P2P lending gained a foothold in the fragmented global lending market.
The sophisticated credit assessment processes, lower operating costs and fees, and generous potential returns for lenders may continue to drive the success of P2P lending platforms. These fintech players service consumers as well as SMEs, and they could broaden their offerings from short-term loans to long-term debt solutions like mortgages and student loans.
Technological advancements play a core role in transforming and disrupting traditional banking and financial services, but demand and regulatory forces can also have a substantial impact on where the fintech sector is heading.
Other trends like the 5G rollout around the world and Wi-Fi 6, leading to an ultra-fast and stable internet, could see the fintech sector establishing new real-time delivery models and taking advantage of novel opportunities for monetization.
What’s clear is the coming decade will probably bring with it exciting new opportunities for both fintech and existing players to innovate and broaden their offerings well beyond traditional financial services.