Fintech trends of 2021: what is worth paying attention to in the new year

2020 has shed light on the weaknesses and gaps in the financial services. This, in turn, mainstreamed and accelerated the development of many trends that we’ve already discussed in the Pre-New Year’s blog. But some of the processes, I didn’t name last time, will become especially important in 2021from my personal perspective.

Seamless financial services (Embedded finance)

69% of customers would like to use all financial services online, according to a study conducted by Oracle in 2018. And we have today a lot of apps therefor in all areas: from payments to insurance, from loans to investments. However, such user experience is already non-unique. Customers want to be served “seamlessly”, without additional apps, and certainly without visiting branches. That is why banking out of banking apps has gained significant popularity in 2020 and provides great expectations for 2021.

The embedded finance tools enable a car rental company, for example, to offer car insurance during the rental process on the same platform, or to offer a loan directly on the website of an online store without any form. The trend is actively promoted by neobanks and fintech companies such as Bsurance, Stripe, Starling and others. The most shining examples in Ukraine are PrivatBank and monobank.

Merchants like Amazon, Uber, etc. effectively implement the described case. The financial services are becoming an integral part of non-financial products. Thuswise financial institutions receive new users and more data, while non-financial institutions increase their value and unique character. This trend was preceded by the development and formation of the BaaS model, which offers any business the full banking stack for its customers.

However, this trend is just emerging in Ukraine, as well as in many other countries. And even though we already have cases on that front, providers are still central, and the process isn’t as “seamless” as we wished it to be.

Changes in customer behaviour and the impact on the market development

For quite a while, the variety and convenience of fintech solutions forced banks and financial institutions to reconsider their attitude to user experience. If some time ago they set processes according to their own tasks, today the needs of users are at the head and are the driving force of the financial industry development.

Amid the pandemic, when even the WHO recommended using non-cash payment methods in order to avoid the spread of the coronavirus, the customers behaviour and habits have changed dramatically and will continue to change during this year. The level of popularity of various payment methods (contactless payments, e-wallets, online payments), financial literacy and people’s awareness of all kinds of fintech products has significantly increased.

Customers no longer have the patience to fill in information or for the tedious processes of uploading, printing and scanning documents. The higher the users’ awareness of the existing fintech opportunities, the higher the demand, and, accordingly, the faster the pace of development. In 2019, EY conducted a study, which revealed that the percentage of global consumer adoption was 64%, and 3 out of 4 global consumers used a money transfer and payments fintech service. I’m sure these figures are higher today. The customer in 2021 will be more active, engaged, but also much more exacting, that will significantly affect the market, its participants, regulation, versatility of products and services. And it’s worth consulting the maturing generation Z interests, which influence the development of a significant part of tech trends — banking in messengers, a voice assistant in financial products, etc.

Startups investing

According to CB Insights, in the third quarter of 2020 the venture capital invested in fintech startups amounted to $10.6 billion, which is on average equal to the results of the previous years. However, overall fintech deal volume dipped 24% year-over-year, totaling 451 global deals. Thus, 60% of all capital raised by financial technology startups came from just 25 mega-rounds (a deal worth more than $100 million), while smaller deals financing decreased by 16% compared to the second quarter of 2020. It’s the highest percentage share of fintech-giants investments since the second quarter of 2018, when Ant Financial raised a $14B round.

The similar trend was also in one of the world fintech centers — in the UK. In the first half of 2020, there was an increase of 22% in the funds invested into UK startups (£ 1.8 billion) compared to the second half of 2019. However, most of that amount was invested in just five companies — Revolut, Checkout.com, Starling Bank, Onfido and Thought Machine.

Perhaps in 2021, as the consequences of the 2020 events, it’ll be more difficult for fintech startups to raise capital in the early stages, as venture capitalists aim at the mature, “safe” and winning tech companies. However, it’s likely that the deals delayed in 2020 will be completed in 2021, and promising and currently necessary projects will receive support from venture investors, as, according to the data, there is $265 billion in the European venture capital market.

The priority areas will be medicine and health care, the recovery of the most affected sectors of the economy (solutions for SMEs), the distance education, the environmental protection, the new payment and investment methods.

Changes in the key players (IPS) positions in the payment market

Amid the pandemic and social distancing, the number of contactless and online payments has grown significantly, that has led to the tension concerning the transaction fees. In the coming years international payment systems are sure to retain their key positions, and acquiring banks will continue to play an indispensable role. However, business is now much more interested in alternative payment methods. At the same time, the popularity of e-wallets, cryptocurrencies has grown during the pandemic, and many governments are working on the introduction of digital currencies. Let’s see what will be the fintech products of 2021.

Recent world events have taught us to quickly find solutions to the most unexpected events. The ability to respond to tomorrow’s need depending on today’s events is a necessary skill in fintech 2021.

Генеральный директор ФК "Леогейминг Пей" Основатель компании LeoGaming