Even prior to 2020, the fintech industry was moving forward at a rapid pace thanks to an increasing reliance on digital platforms, both for professional and personal use. However, following the onset of the global coronavirus pandemic earlier this year, financial technology solutions have become even more important in the daily lives of businesses and individuals.
As a result, certain fintech trends have emerged in 2020 that offer insight into what the future of the industry may hold. So, as 2021 approaches, here are three of the top fintech trends of 2020.
1. Perceptions of Fintech Are Shifting
Fintech services across the industry have seen large increases of users and transactions since March. This is when nationwide lockdowns were imposed in response to the spread of the coronavirus. Pre-pandemic, businesses and consumers saw fintech services like digital banking, contactless payments, online transactions, and mobile- and app-powered delivery services were seen as convenient alternatives to traditional methods.
Over the past few months, however, those same fintech solutions have become necessities. Individuals and businesses were forced to adopt digital financial platforms due to circumstances. However, the perception and understanding of such fintech services has experienced a clear shift as a result. It is likely that this will result in permanent adoption of these tools when ‘normal’ life resumes.
This hypothesis is supported by a survey conducted by SYKES. It found that among 3,000 American adults, 37 percent will make more online purchases than they did before the pandemic; 12 percent said they would only use contactless payments in the future; 16 percent said they were using personal finance and budget apps for the first time following the pandemic; and 11 percent said they were using mobile banking apps for the first time.
This trend is causing many companies—particularly brick and mortar operations—that did not have a digital presence to add fintech elements to their businesses in an attempt to survive during the economic downturn.
2. Alternative Assets Are Increasing in Popularity
The potential of financial catastrophe due to the COVID-19 pandemic prompted governments around the world to introduce a number of emergency economic measures, quantitative easing being chief among them.
With central governments printing more money, investors have been looking for safe-haven asset opportunities to hedge against the risk of inflation. This has resulted in a surge in the value of gold. The precious metal hit a record-high of more than $2,000 an ounce in early August 2020. Major cryptocurrencies also reached heights not seen in recent years.
“As decentralized finance products and fintech solutions boom, gold-backed tokens are understandably popular this year because they combine the best of both worlds—gold and ‘digital gold,’” Brian Hankey, co-founder of gold-backed asset issuer CACHE, told Finance Magnates.
While much more volatile than gold, bitcoin has risen to hover around the $11,000 mark, holding above $10,000 for more than two weeks. Bitcoin’s surge in value—to its highest value for more than a year—offers an indication of where investors are seeking alternative assets during this time of economic uncertainty.
3. Challenger and Neobanks Are Continuing to Disrupt the Industry
In recent years, the finance and banking sectors have seen a rapid rise in digital and mobile-first financial institutions that operate without physical branches. These have become widely known as Challenger Banks and Neobanks and, accelerated by the pandemic, 2020 has seen them continue to make their presence felt. Neobanks such as Revolut, Monzo, Nubank, and SoFi have become recognized players in the sector, and many startups have secured multi-million dollar first-round funding.
The projected growth of Neo- and Challenger Banks is a strong indication that the digital banking trend is expected to continue. According to forecasts from Allied Market Research, these banks will reach a market size of $471 billion by 2027, with a compound annual growth rate of 48.1 percent from 2020 to 2027. Currently, digital wealth managers from Neo- and Challenger Banks hold a modest $100 billion of the $60 trillion market, but that is projected to grow to $16 trillion by 2025.
This growing threat to traditional banks can be primarily attributed to the continued shrinking of fees. Neobanks are able to offer the same services as brick-and-mortar financial institutions at a fraction of the cost, thanks to their comparatively small overheads.
Could Neo- and Challenger Banks eventually cause the downfall of traditional banks and lenders? That would be extremely unlikely. However, they have disrupted the market and forced established firms to launch similar digital-focused services. Goldman Sachs, for instance, responded to the disruption by launching its digital-only challenger brand, Marcus, in 2016.
As banking, lending, and investments become increasingly digitalized and the options for low- or zero-fee services become more readily available, Neo- and Challenger Banks will only grow in prominence, as 2020 has already indicated.