Covid-19 has stirred and accelerated digital transformation of the financial services industry around the world. For the past two years, investments in technology have been primarily geared towards surviving and recovering from the pandemic. Banking businesses and fintech industries have spent their time digitizing core products and services to alleviate the losses of in-branch business and future-proof their organizations by expanding their digital presence.
The market is ready to move forward. Banks are emerging stronger by taking account of the tectonic shifts reconfiguring the global financial system: phenomenal growth in digitization, convergence of industries, fusion of technologies, proliferation of increasingly intertwined ecosystems, and the blurring of product constructs.
Diagram 1: Banking and Capital Markets Outlook 2022 (Deloitte Insights, 2021)
The advancing digitalization for recovery and sustainability has reinstated the role of finance to help economies gearing towards a more inclusive, resilient and sustainable future. While 2020 and 2021 have been majorly dominated by the challenges of transformation, experts are positively looking at 2022 as the stabilizing year in terms of new normal business activities.
“2021 is the year of transition. Barring any unexpected catastrophes, individuals, businesses, and society should start to look forward to shaping their futures rather than just grinding through the present.” – McKinsey & Company
The financial services community is dynamically transitioning and will continue to do so while the fintech industry provides strong support by leveraging cutting-edge technology to make financial transactions more engaging for customers across various channels.
Driven by the increasingly sophisticated financial needs of digital-ready customers with multiple mobile devices, the financial world is adapting its strategy to offer more remote services. By 2022, it’s expected that the fintech market value will reach $309.98 billion, more than twice its 2018 value of $127.66 billion.
As technologies and markets mature over the next 12 months, the following trends will create an environment for further innovation and the emergence of new business models in financial services. They create global opportunities for banks and fintechs to cooperate and extend their offerings globally in payments, lending, digital banking, instant credit and more.
Rise of Neobanks
A neobank also referred to as a cloud bank or challenger bank, offers various technologies intended to enable a streamlined experience for mobile and online banking. In addition to focusing on providing a better user experience than traditional banks for mobile and online banking, neobanks typically also offer more functionality in their banking solutions. This allows customers to perform all the same activities as they would at a traditional bank from the comfort of their own homes.
The neobank sector is expected to develop at a compound annual growth rate (CAGR) of 47.7% over the next eight years, valuing it at $30 billion or more in 2020. As the world’s population becomes more connected, digital banking is expected to overtake traditional financial services in 2022.
Cross Border E-Commerce
Cross border ecommerce is a phenomenon that has quietly gained huge momentum as customers purchase products from outside their borders. The past two years has seen distributed ecommerce on certain social networks and more recently conversational ecommerce has emerged as a contender for the future.
Due to the explosion of ecommerce, global transactions provide huge growth potential for small retail businesses. Experts predict a spike in cross-border ecommerce next year, while clients will expect an easy and secure payment solution. According to a study by Accenture, the total worldwide cross-border payment flow is expected to reach US$156 trillion by 2022, expanding at a CAGR of roughly 5% each year.
Diagram 2: Global Cross-Border Ecommerce Transaction Value (Accenture, 2020)
Fintech companies have been at the forefront of the open banking movement, using agility and speed to pioneer new user-centric services. Simultaneously, financial firms are getting digitized to meet customers’ expectations. Open banking is a technology-driven, API-enabled approach that will allow banks and other financial institutions to provide monetary services in a seamless manner using authenticated client data.
Open banking is growing at an exponential speed. Allied Market Research published a report, “Open Banking Market by Financial Services (Banking and Capital Markets, Payments, Digital Currencies, and Value Added Services) and Distribution Channel (Bank Channel, App market, Distributors, and Aggregators): Global Opportunity Analysis and Industry Forecast, 2019–2026”. According to the report, the global open banking market was pegged at $7.29 billion in 2018, and is expected to reach $43.15 billion by 2026, growing at a CAGR of 24.4% from 2019 to 2026.
Artificial Intelligence (AI) and Machine Learning (ML)
Artificial intelligence (AI) and machine learning (ML) are two computing concepts that are closely related but serve slightly different functions—AI solves tasks, while ML focuses on learning from data. In the coming years, both will be heavily employed by companies seeking to automate their services, deliver smarter solutions, and, in general, boost their capabilities as a company. Many financial services applications already use AI/ML for everything from fraud detection, lending approvals and AML screening to risk monitoring and investment predictions. Machine Learning is constantly evolving, and FinTech will continue to be one of the leading industries to benefit from the power of AI/ML.
Emergence of Banking-as-a-Service
Banking-as-a-Service (BaaS) platforms have gained significance in recent years as they are a cost-effective and efficient means of offering financial services based on open banking ideas. To develop innovative digital services, monetary institutions must use a service-oriented and composable/modular architecture approach. Conventional banks and financial corporations must go for BaaS as part of their digital transformation strategy. However, traditional financial institutions are expected to collaborate with the fintech sector to integrate BaaS services so that they can bring innovative technology in-house and improve their services. No doubt, BaaS will play a crucial part in the financial industry’s growth, as well as enabling companies to enhance consumers’ growing expectations.
Jumping on the Bandwagon with INFOPRO
There’s no question that banks must invest on the latest trends in order to stay relevant. However, it’s essential to tie the technology to the underlying needs of your business and upgrade intelligently based on strategy.
INFOPRO is here to help. Our insightful experts are standing by to assist you to create the proper planning according to your specific requirements, carry out market research and business analytics to make the most of your digital transformation.
We offer more than 50 products and solutions to suit every business model, shape and size. Contact us today for a free consultation.