An interesting report issued by PWC[1] identifies the top 10 trends in Financial Service Technology leading to business evolution until 2020 and beyond. Understanding the trends that are shaping the industry is a crucial step in predicting in which areas the most promising FinTech startups will compete.
Startups, indeed, have the ability to implement a lean approach, and to leverage on the new trends with a unique dynamism that is unknown to traditional financial players.
Let’s have a look at the trends identified as game changers of the financial service industry:
It is not surprising to discover that the first force embracing disruption relates to FinTech, where disruptive companies—mainly startups—operate. The reason for the success of FinTech companies lies mainly in the ability to provide a better customer experience at a more convenient price.
The sharing economy already revolutionized accommodation and transportation, but the question now is figuring out what will be the Airbnb or Uber of FinTech. The most obvious suspects are startups offering peer-to-peer services in order to decentralize asset ownership. The spectrum of applications spreads from personal financing, to student debt, to equity crowdfunding
The belief of PWC is that “the use of the blockchain ‘public ledger’ will go on to become an integral part of financial institutions’ technology and operational infrastructure.” While the advantages behind the ledger technology are unlimited, it is two aspects in particular that make it so disruptive: cost reduction and applicability to all the areas of the financial services—from payments to contractual agreements.
This is the broad area, which ranges from customer experience and operational efficiency to big data and analytics. In FinTech, the most successful deployment observed so far relates to the “digital wallet” that offers fast, secure, and low-cost methods to use, store and send money over the Internet. Many startups have entered the area and, while we are still waiting to discover the next unicorn in this sector, “banks want greater control over alternative channels” and we should expect big acquisition in this field.
Knowing your customer is the key to anticipating their needs and to shaping your revenue model to match their purchasing desire. An analogous example of this idea in practice is airlines, as the best-performing companies generated higher revenues in ancillary revenues than in ticket sales. Why should financial services be strangers to that practice? Many of these institutions are already using AI to develop personalized offers, but the opportunities ahead seem much wider than what is currently on the market.
AI in the financial sector is mainly about addressing key pressure points and reducing costs, while mitigating risks. It is about robotic experience replacing human work, while reducing costs. It is not a novelty in the banking industry, as the ATM represents the most widely spread implementation. Many more deployments will see the light in the coming years and robotics implementation has the possibility to become a credible alternative to offshoring.
Again, another niche where FinTech startups play the role of disruptors. While nowadays many financial players adopt SaaS solutions for non-core business activities, “by 2020, core service infrastructures in areas such as consumer payments, credit scoring, and statements and billings for asset managers’ basic current account functions will be well on the way to becoming utilities.”
Cybersecurity has already been one of the biggest threats facing financial institutions in recent years. The Internet of Things (IoT) is expected to increase this risk, as the proliferation of physical objects (devices, cars, houses, wearables) containing sensors and the ability to communicate increased the vulnerability risk.
Demographic and GDP growth will always put Asian customers and companies at the center of focus regarding financial services. Asian-Pacific countries, which possess the world’s largest middle class growth, will also see the largest demand for technology-driven innovation.
It is a very busy time for financial regulators. They are closely following the development in the industry, while also anticipating problems. When it comes to startups, it is quite obvious that regulation has historically been a barrier to entering the industry. However, now a full understanding of the current and future legal framework could lead a startup to be a massive disruptor in the industry.
[1] https://www.pwc.com/gx/en/financial-services/assets/pdf/technology2020-and-beyond.pdf
