Fintech in 2020: 4 key trends
The only thing that is constant is change. This has never been more true than today. The degree of change and innovation we are currently experiencing in financial markets is unprecedented.
Pressures to innovate are high for financial institutions as customer demands increase in the digital age. People expect from their bank what they are used to as customers from fintech start-ups: faster, cheaper and more user-friendly experiences. Challenger banks such as Monzo, Revolut and Starling are free from burdensome legacy systems and able to build their services from the ground up centred around customer needs. The latest threat to banks is techfin: companies such as Google, Amazon and Apple which are entering the financial services market to serve the unbanked. This new level of competition forces financial institutions to rethink their business models and find new revenue streams.
Regulators have upped their game too. Many have started to adopt new technologies that drive efficiencies and transparency when collecting information and enforcing regulation. Pressures to comply with new regulation and reporting requirements installed after the financial crisis remain for existing and new market participants.
While there have been technological advancements in financial services over recent years, only a few tackle the underlying market infrastructure. The financial services industry has been built on technology, which today is at best dated and at worst, archaic.
It becomes increasingly clear that if we were to build the market infrastructure from scratch it wouldn’t look as it does now. Today’s solutions and transfer of value and ownership are risk-heavy, unintegrated and intransparent. It is time to rethink optimal ways of working starting with a blank sheet of paper.
In 2019, the term ‘fintech’ has reached the mainstream. In 2020, we see this trend accelerate. Technology will continue to drive financial services innovation and business models, while the following trends will particularly dominate the marketplace:
A revolution of automation
The fourth industrial revolution promises to be a revolution of automation. Big data is the unifying factor between emerging technologies. Firms increasingly see the value in leveraging machine learning (ML) and artificial intelligence (AI) to automate their systems and we expect this trend to continue in 2020. Additionally, blockchain will bring new efficiencies by putting an end to tedious manual reconciliation of ledgers and reduce duplicating efforts between entities and therefore cost. Data and how to use it will be a big differentiator for banks when it comes to smart ways of knowing more about your customers and having that single view.
An upgrade from old legacy systems
We have seen several technical outages by high street banks last year. The pressure to upgrade old technology is high. In 2020 we will see more banks switch to cloud-based applications such as banking-as-a-service platforms to improve efficiency and most importantly cut cost. Cloud technology enables better storage, computer power, management and analysis of big data. Hosted on servers such as AWS, Azure and Google Cloud, companies can easily integrate them with technologies such as blockchain.
Blockchain solving real business problems
Looking at the past year we can safely say that the blockchain hype has passed. We are still deeply in ‘crypto winter’, also known as the ‘trough of disillusionment’, a period of low activity in the Gartner Hype Cycle for Emerging Technologies. In 2019 we saw many blockchain and crypto funds close their doors waiting for institutional investor demand to kick in, while some luckier ones were acquired by bigger fish.
The good thing about the end of the hype is that companies actually started to build things – even if behind closed doors. Commentators stopped referring to blockchain as the silver bullet to all of mankind’s problems, and companies started developing applications that address real business problems – rather than a hammer-seeking nail!
For blockchain, Amara’s law will hold true also in 2020: We tend to overestimate the effect of a technology in the short run and underestimate the effect in the long run. Investment banks have been working on distributed ledger technology (DLT) for five years now. We’ve seen many proof-of-concepts and exploratory pilots over the years which showed that blockchain can solve specific inefficiencies, lower cost and drive data data protection. In 2020 we expect some of the previously announced projects to go live. A prominent example being Six Digital Exchange in Switzerland: a fully regulated end-to-end market infrastructure for digital assets.
According to a recent PWC report, by 2020, 77% of financial institutes are expected to adopt blockchain technology as part of an in-production process. However, widespread adoption will take time as some use cases require additional regulatory clarity. Misconception and mistrust of DLT remain and we need the ecosystem as a whole, including culture and mindsets, to evolve and mature. Technology is rarely the biggest limiting factor. Solid underlying frameworks such as Huski exist and are required to seamlessly integrate with existing IT infrastructure.
We believe blockchain will go on to become an integral part of financial services technology and infrastructure. It will eliminate inefficient processes across the entire lifecycle and transform capital markets to be more accessible, reliable and seamless – our mission at Qadre!
Cyber security and data privacy
We live in an increasingly digital and data-driven world. With that comes responsibility of how to protect against data breaches online. Cyber security is a top risk for financial institutions and a concern when updating to cloud technology and adopting internet of things (IOT) technology. For companies the question will be: How to balance customer convenience with the safety of their data? That’s when blockchain brings immense value to the financial services industry as a highly fraud-resistant and fully auditable system for any kind of transaction. The cryptographic security that blockchain brings is often overlooked. Blockchain will be adopted in financial services for security and management of identities – first for B2B and then for B2C customers.
Having worked in the financial services industry for almost a decade now and observing the speed of change today, it has become clear: innovation is not an option anymore. 2020 will be an interesting year for fintech with many lightning-speed changes, record-breaking investments and growth. Each financial institution responds to the trend in their own way. Many have opened innovation hubs, collaborate with fintechs and play with the idea to fully redesign existing architecture. Automation, cost-cutting, replacing legacy systems, enterprise blockchain and data privacy will certainly be on the corporate innovation agenda for financial institutions leading the digital transformation in 2020.
Original article published here