It is no secret that the rapid growth of fintech both in domestic and international markets owes much to its novelty as much as the support the sector receives from regulatory bodies.
But novelty is a volatile commodity, where it can wear off as quickly as it has gained momentum, and support fluctuates all the time depending on economic stability and governmental policies.
This begs the question: is fintech an overused buzzword, a passing trend that will be swept away by the next big thing, whatever that may be?
How popular is fintech globally?
We don’t think so. Fintech is massively popular. Based on the findings of the EY Global Fintech Adoption Index 2019, 96% of global consumers are aware of fintech-driven money transfer and payment services. This, according to the report, means 3 out of 4 consumers have used an alternative money transfer and payment service.
Global fintech deals reached USD22 billion for the first six months of 2019, compared with USD31.2 billion in the same period of 2018, according to Accenture analysis. This was achieved despite the lack of a giant transaction like Ant Financial’s USD14 billion fundraising in May 2018. Discounting that Ant deal, this would have meant a 28% rise in fintech investments globally, the analysis noted, with steep gains everywhere aside from China.
Fundraising gains in Asia Pacific, in particular, are astounding: Singapore’s USD453 million is quadruple the figure in that same period in 2018, while Australia (USD401 million) recorded a modest USD401 million, tripling the total investment value in 2018 down under.
This shows companies are paying attention to the fact that consumers are flocking to fintech services. And as we discover more about data-driven financial models, fintech services will evolve for the better.
As 2019 nears its end, here are 5 fintech trends that we think will power the payments industry through 2020.
1. Mobile financial services to get bigger and better
According to McKinsey, 80% of financial institutions in the world have formed a fintech partnership. What this means is fintech disruptors are gaining the financial and reputational backing they need to churn out more advanced APIs to service consumers, primarily through driving mobile financial services like wallets, payments, remittance and even P2P lending.
In this area, one key development for 2019 was the ambitious expansion of Ant Financial, the fintech arm of Chinese Internet giant Alibaba, into wider Asia, Europe and the US. First it powered Pakistan’s first blockchain-driven cross-border remittance service, then acquired London-based payments firm WorldFirst in a deal reported valued at USD700 million and signed a deal to allow the use of its e-commerce cash cow Alipay for transactions at thousands of local retail stores in the US.
Mobile financial services are poised to get bigger not only because of its convenience, but because big names are joining in the fun.
2. Blockchain remains a breakthrough technology that’s hard to harness
Fintech players have long touted the many advantages of blockchain. It is easy to see why: blockchain offers unrivalled security and transparency.
In the payments sector, this means a business model with an ideal blockchain core will have these advantages: distributed nodes / decentralisation means high availability, less downtime and guaranteed restore points; immutability means information integrity; and cryptography shuts off unwanted interference completely.
Ant Financial’s foray into Pakistan is but one of many more deals in blockchain-based remittance and payment, and we see no sign of that slowing down, especially when 53% of the respondents of Deloitte’s 2019 Global Blockchain Survey say that blockchain technology has become a critical priority for their organisations in 2019, a 10% increase over 2018.
With governments around the world offering more support in terms of regulatory frameworks for payments (Singapore, Canada, United Arab Emirates and Saudi Arabia), we anticipate another year of breakthroughs.
But application and widespread adoption will continue to be hindered by costs. Until blockchain tech is normalised and companies are willing to lay waste to budgets dedicated to upgrading existing infrastructure (blockchain requires a massive revamp, if not total), it will remain a technology with vast potential but of limited use.
3. Impact investments to see record growth
Impact investments, in a nutshell, are investments that generate not only financial returns, but also social and environmental impact. Fintech deals will be made for sustainability’s sake because global exposure will “force” local authorities to demand companies to prove that their countries are progressing sustainably.
This is supported by a global demographic shift to a younger, more green-friendly generation. By 2025, 3 out of 4 workers globally will be millennials, or those born between the early 1980s and the end of the 1990s. This exclusive group of 1.8 billion, about a quarter of the world’s population, will be an economic powerhouse in 2020, according to the World Data Lab, which forecasts that millennials will outspend other generations from 2020 to 2035.
Taking this into consideration, and the fact that “82% of the millennials surveyed agree that it is beneficial or highly beneficial for banks to offer banking services via a mobile device”¹, we predict a record growth for impact investments as fintech and incumbent financial services tap into the vast spending power of millennials and focus on meeting their preference for sustainability.
4. Watch out for digital-only “banks” from Asia
With fintech advancement breaking new ground every year, financial services are no longer being offered only at local physical banks. While certain trends emerge in recent years of banking branches continuing to be relevant, especially to the older generation, the rise of a young, vibrant generation has demanded financial solutions to be fully mobile.
We see Asia breaking through with digital banking being the top trending service in 2020. As it stands, 2019 is the preparation year: the Malaysian government announced, during the tabling of its annual budget, that applications for the country’s virtual banking framework will be open in the first half of 2020. What’s incredible is the interests shown by digital payment giants Grab and Boost, alongside at least 4 banks, before the announcement.
And then there’s the emergence of BigPay, AirAsia’s financial services arm, as a challenger “bank” by offering remittance on top of its retail payment solutions. It already provides many of the offerings given by banks, such as operating a prepaid credit card. And with Grab following suit by offering Asia’s first numberless card in Singapore, “offering exceptional security” through a tie-up with Mastercard, there will be another round of digital revolution of traditional mobile payments.
5. Implementation of AI, automation and voice technology to reach a plateau
This is admittedly a bold prediction on our part. After all, AI, automation and voice technology have always been a part of the fintech discourse. So how do we arrive at this conclusion?
The first reason is that the business world may not want faster cross-border payment if it comes at the cost of security and liquidity. After all, necessity drives the growth of technologies.
But it is the following second point we want to highlight. There is a huge challenge in “massive training data and difficulties generalising algorithms”, according to a McKinsey article. What this means is what works in healthcare, for example, may not work in fintech. There are also too many different regulations, cultures, languages to parse, and prioritisation will be a massive headache: How will AI react to the potential costs of a risky market vs cost of entry? How do we set up the system to recognise and find a way around deep-lying technical issues such as data-aided compliance being unreliable without human touch?
Add the disruption caused by the US-China tech war, with ongoing uncertainties in the tech scene (Huawei, AI and 5G services), and we dare say 2020 will see marked advancement in AI development, but implementation will hit a snag.
Ever since emerging trends in financial services sparked to life five years ago, fintech has enjoyed a boom like no other sector. We believe it will continue to gain traction, and navigate a sea of potential and challenges with great consumer, industrial and regulatory support.
¹ “What millennials expect from their bank”, Salesforce Research, 2015