Today I want to draw your attention to the report `The building blocks of Fintech 2.0` from Money 2020, which describes the future of fintech — its new version 2.0.

What is “fintech 2.0” according to researchers? On one hand, it seems as if this sounds like a rather superficial excuse for a news feed within the industry and a supposedly “deep look” at the problem. On the other hand, we are indeed on the verge of a stage where financial technology is becoming more and more connected with the economy. For example, Mastercard in Ukraine has published fresh data as part of MasterIndex, according to which 49% of Ukrainians are ready to completely abandon cash. The previous model was primarily focused on the digital distribution of existing products and services — and we see that the process is successful. But let’s try to speak one at a time.

What is fintech 2.0?

Fintech 0.0: The zero era of fintech lasted until about 2010, when no one used the Internet much (5.9%), and e-commerce was only about $62 billion. The average Internet user was a young American from the urban elite with a bank account and several credit cards.

Fintech 1.0: In the 2010s, there was a period of fintech 1.0, when the Internet penetrated the lives of 30% of the population, and e-commerce reached $349 billion.The average Internet user was an American or European from the middle class, who also had a bank account, but fewer cards.

Fintech 2.0: By 2021, when the era of fintech 2.0 begins, e-commerce has already become $3.6 trillion (or 4% of global GDP), and Internet penetration has reached 64%. At the dawn of Fintech 2.0, the average Internet user is a working class in Asia, where a mobile money account or digital wallet is the basic means of payment.

What processes gave rise to Fintech 1.0?

Prior to Fintech 1.0, technological innovation focused on adding value-added services to existing financial products. For example, online reward programs have been integrated into credit cards. Fintech 1.0 has opened up opportunities for non-financial companies. As a rule, the first startups positioned themselves as direct competitors of outdated solutions. However, the improved economy has allowed banks to gain strength, which has made it difficult for startups to scale. It was at this moment that both banks and fintech companies realized the value of cooperation with each other.

Among the technological innovations are API, 4G and the introduction of smartphones. Information trends have shaped approaches to the analysis of big data, predictive analytics, and in application trends the creation of marketplaces stands out.

Causes and shaping factors of Fintech 2.0

All this led to the fact that venture capitalists began to actively invest in fintech projects and in the period from 2008 to 2019 invested about $260 billion. This significantly expanded the market and increased its efficiency.

And now we come to the conclusion that the factors that influence the development of the Fintech 2.0 wave are being formed: pandemic; regulators as catalysts of change; 5G/IoT complements the already ubiquitous smartphones; API is no longer the only trend — cloud services and decentralized services are experiencing rapid development. All this leads to the fact that the information is already being analyzed in real time. The banking service itself becomes native. Fintech 2.0 will completely reimagine digital financial services.

It means that:

1. Technology will be used to create digital financial rails optimized for new use cases, not just to distribute existing services.

2. New products will have to carry simplified value propositions and disclose information through phone screens or speakers. The fine print will become obsolete.

3. Channels will adapt to consumer behavior, not vice versa.

4. The consumer’s permission and intention to use personal data will become more important than the data itself.

What blocks can the fintech of the future consist of according to the results of the report `The building blocks of Fintech 2.0`?

A: digital assets, including those issued by the central banks

In 3 years, 5 out of 10 largest economies will have their own digital currencies (CBDCs). The probability is 9/10.

B: next-level banking tech stack

In 3 years, the bank tech stacks will be mostly cloud-based, and in 5 years, a significant part of it will be open-source elements. The probability is 7/10.

C: e-commerce experience

In 5 years, personalized cross-platform digital algorithms will represent 20% of the market. At the same time, all e-commerce will almost double to $6.1 trillion within 5 years.

The probability is 5/10.

D: data

Data platforms will become as ubiquitous as Windows, Android, iOS, and so on. The probability is 7/10.

E: ecosystems

Companies will become ecosystems rather than fintech companies as they become critical elements of the entire economy. Within 5 years, 3 out of 10 top companies will be fintech companies. Such ecosystems will become one of the largest in the world in terms of capitalization. The probability is 7/10.

What exactly will be needed to succeed in the era of fintech 2.0?

Fintech 2.0 opens up opportunities for new products as well as for the fragmentation of existing ones. The foundation for leadership includes:

  1. New models of privacy, control and security
  2. Technological interfaces and container services
  3. Open source and industry partnerships

The report indicates that cash has ceased to be so actively used in circulation. In emerging markets, they declined between 2010 and 2020 from 90–100% to 70–80% (even to 41% in China). In developed countries, from 60–70% decreased to 30% and below (in Sweden — 9%). Therefore, all market participants will have to pay attention to fintech opportunities in 2021.

We are witnesses of radical changes in the field of e-commerce. The industry is transforming its operations and enabling a fundamental rethinking of digital financial services. Well, we are looking forward to the first patterns of the Fintech 2.0 model on the Ukrainian market and are ready to adapt them.

CEO of the international payment system LEO, the shareholder of IBOX Bank