At SIS FinTech Strategy Consulting, we examine the global trends impacting the future of FinTech and Financial Services. Here are the top trends to watch in 2020.
1. Digital Payments
FinTech is no longer a US story. FinTech funding is now larger in Asia than in the North America and Europe.
China is the best digital currency model in the world. Cash has largely disappeared from China. WeChat and Ali pay are $5.5 trillion dollars. Because China leapfrogged credit cards… never caught on. It is a cashless society. There’s no interchange. You built a proprietary system. Two payment systems where everybody uses. China is allowing massive growth with limited oversight. Over 3 years, there has been massive adoption. The only mechanism to dissuade corruption without $50k without approval, yearly cap. If you want to move a lot of money around, you’ll need to get approval.
In the US you have Visa, American Express or Mastercard, which are the transaction holders. In China, Tencent and Alibaba are the entire stack. In the US, we have 500 apps. In China, there are far fewer apps. Customers go to 1 or 2 apps, and do everything in there.
FinTech innovation is happening in South East Asia. In India, there’s PayTM which is using public funds. Thailand got started earlier on digital payments earlier, but never achieved what China has done. A lot of it is cultural in Thailand, where people pay bills via 7/11 stores.
2. Customer Centricity
Customer centricity is a huge trend. Banks are now more than ever subject to competition from rising FinTech start ups and technology companies.
Banking is the third most visited type of app, after Social Media and Weather. Surveys show a vast majority of millennials believe online banking is better than going into the bank.
Surprisingly, large national banks are more customer centric, followed by regional banks, followed by overall, followed up by credit union and community bank.
Customer Centricity no longer means knowing your name at the local bank. What matters to more customers now is that the App works. Smaller financial institutions may suffer as a result of revolutionary changes in customer needs. Fewer people care about human interaction. So massive shifts are occurring from Credit Unions to the top large national bank.
3. Tech Skills Increasingly Dominate Financial Services
Much of the growth in Finance is emerging from Technology. Today’s business environment increasingly requires aligning your workforce for the new view of what customer centric is. Talented professionals increasingly have IT, Data Science, Programming and Algorithm backgrounds. What matters now is really good data and User Experience (UX).
Face to Face employees are becoming less common in the Financial Services job market. Analyst jobs are becoming less prominent. Top analysts may stay, but lower level analysts may be increasingly replaced by Robo-analysts. Robo Advisors ask a specific number of questions and have a finite number of decision made on it. Decision Making may increasingly rely on Robo advisors.
A significant number of banking jobs will be lost to AI and automation within the next 5 years. This loss is happening much faster than the loss in the manufacturing sector. Much faster. This can be a real social issue for societies and governments.
Increasingly, Computer Science majors are in high demand than traditional business degrees. Processing jobs are largely gone as there is a less of a need for manual check adjudicators anymore.
Tech companies increasingly need Just-In-Time hiring. This is in contrast to the traditional long hiring lead times. Hiring in financial services requires less planning ahead in advance. This is because timing is everything as companies become more technology-driven.
4. The Human Element in Financial Services
Where does Face-To-Face matter in today’s Financial Services? It’s the jobs that are less prone to automation. These include:
- M&A, which has a high degree of human analysis and dealmaking
- Consulting engagements
- Some capital raising on equity requiring story telling, qualitative analysis and relationships
- Product development and product management
However, there are very few roles that don’t have a significant amount of software and digital disruption.
5. Evolving FinTech Ecosystems and Competition
Ecosystems are evolving in Financial Services. There are 3 main constituencies in the ecosystem:
- Banks
- Fintechs
- VCs
There’s increasing “Co-opetition,” meaning cooperation and competition, where VCs are funding FinTechs which are working directly with banks.
6. Changing Strategic Priorities for Traditional Banks
Even traditional large banks are reconsidering their assumptions and priorities. Here are the new strategic priorities for Financial Institutions:
- Customer centricity
- Mobile first
- Deeply integrated
- World class technology
- Frictionless Digital Experiences
- Long-term strategic focus on growth
- Disciplined Strategy Execution
7. New Emerging Opportunities
Here are some of the opportunities that financial services companies are considering:
- Growth boards
- Startups Coaching
- Real time payment schemes
- Ripple and Blockchain
- InsurTech, Wearables and HealthTech
- Micro-payments
- AI, ML & NLP
- Robotic process automation (RPA)
- APIs (Between Financial and Tech companies)
- Consumer banks for Millennials like Goldman Sach’s Marcus and Chase’s FINN
8. Fee Compression and Digital Disruption
The FinTechs are removing the Fee-Based models of the past. This innovation is happening especially in Europe with players like Revolut and N26. Previously, people almost never change bank accounts. On average, they change it every 17 years. Usually with divorce, or marriage or moving. FinTech is changing that.
9. Hot FinTech Market Research Approaches
- The Kano Model
- NPS
- Customer Effort Score (CES)
- A/B Split test
