In-house “ecosystems”, D2C, competition for end users, neobanking via messengers, solutions design for SMEs involving cryptocurrencies, upgrading of payment systems and cloud accounting. Those are the main global Fintech trends I have identified for 2021.
1 - Ecosystem creation
The year 2020 showed us that global corporations still focus on creating their own ecosystems. Yandex’s attempt to buy Tinkoff Bank is a vivid example: a major e-commerce platform is desperately in need of its own payment system to ensure “seamless” payments inside the company but a separate entity with relevant licenses is necessary to achieve that.
Advancing in the same direction, Amazon partnered with Goldman Sachs, gaining an opportunity to offer loans up to $1 million to select sellers. Thus we see the company is consistently building ecosystems around itself, also implementing financial products into those ecosystems.
This summer’s announcement of Stripe Treasury product, a banking-as-a-service API, also confirms the trend: with ST, Stripe clients can embed financial services into their businesses. QIWI’s QPlatform is one of the Russian cases worth mentioning.
2 - D2С (direct-to-client), or competition for end consumers
Large businesses are gradually giving up the services of intermediaries such as retailers, distributors and dealers. Without them, the business owner controls every stage of interactions with the customer, from initial contacts up to closing the deal. So the B2C format is losing ground, giving way to technology solutions designed to retain end users: loyalty programs, cashback, referral programs, subscriptions, instant payments and quick loans. The focus here is on the level of service and flexibility of P2P transaction charges, service comprehensiveness (payments and loans), security and ease of user experience (interface), and it is also about communication channels: as seen with Nubank (Brazil), the tendency is to move payments to messengers. The Brazilian neobank declared alliance with WhatsApp to implement payments within the application. This is likely one of the future global trends – own user base and an opportunity to make money transfers using the phone number lay the foundation for creating full-fledged banking based on social messengers. Besides, this is a way to get one’s own customers. Paytm from India, for instance, combines a bank and a store with over 24 product categories, offering comprehensive payment solutions to more than 8 million sellers.
3 - Designing solutions for SMEs involving cryptocurrencies
In fact, the latest trends and effects of the pandemic have shaped the demand for quick lending and advance payments in the form of cryptocurrency. Even today Fintech companies can grant their clients’ employees short-term loans as an advance on their salary. The Spanish startup Cobee operates in that field. And there is also an option to pay wages on demand: Fintech applications can be used to give employees more flexible access to their earnings.
It is evident that the infrastructure of most lenders is extremely outdated, and according to Forbes experts, the market will experience an influx of companies offering solutions to banks which enable interactions with Fintech players and clients. The cases of Stripe Treasury and QPlatform, as well as PayDay by Mail.ru are prominent examples of that.
4 - Payment systems upgrading and cloud accounting
The need to update payment systems has never been so relevant for traditional banks. According to Accenture estimates, a total of 2.7 trillion transactions worth $48 trillion will be made in the next decade with the use of cards and alternative payment solutions, not with cash. The transition to e-payments in Southeast Asia and Latin America with its more developed electronic payments market might be more abrupt than in Western Europe. The payments segment is becoming increasingly important during the Coronavirus crisis. As for neobanks, a great example to follow is, I believe, the Canadian digital bank Koho: unlike traditional banks, most transactions are charge-free. This is important since Canadians pay on the average larger bank fees than anyone in the world.
According to Cornerstone, a recruitment agency, small enterprises spend over $500 billion annually on business accounting, billing and bill settling, and also on accepting payments from third party providers. Many businesses would not mind getting accounting services from banks or financial companies which are already servicing them. My estimate is that we will see the growth of cloud accounting and systems enabling interactions with POS providers.
Summing up, I definitely note increasing investments in Fintech and process globalization in the industry – mergers, organization of ecosystems and know-how assimilation into traditional banking. With all those processes in the background, an increment of investments in the finance and technology sector and a rapid growth of this segment are inevitable.
5 - Global investment trends
The year 2020 was not eventful for the Fintech sector in terms of high-profile deals. Yandex’s purchase of Tinkoff Bank could have been the most prominent transaction but it did not go through. Even so, venture investments amounted to 20 billion US dollars, with almost 10 billion accounted for by North and South Americas, 6.7 billon by Asian projects and 4 by the EMEA (Europe, Middle East and Africa).
The following are the year’s major Fintech deals:
- A large-scale quarterly venture transaction by Gojek (Indonesia). Achievement: 3 billion dollars raised in investments and a status of the year’s sensation.
- Ranking second in terms of funding received is Grab, Gojek's competitor – 886 million dollars, with a palpable gap in investments.
- Coming third, Stripe operates in the Fintech field, designing solutions for electronic payment processing and acceptance. The company’s deal was worth 850 million dollars.
As for European cases, the largest volume of funding - $650 million – was raised by the Swedish Fintech project KLARNA (quick online shopping with installment plans). Even though the startup did not make the top 2020 with this amount of investment, it did acquire the status of the most expensive “unicorn” of Europe (surpassing Revolut with which KLARNA had tied previously), becoming one of the four top-value Fintech companies in the world.
At the year’s end, the overall recession is already obvious, and we all know why: as of midyear, total investments in the financial technology sector amounted to 25.6 billion dollars against 150.4 billion dollars over the whole year of 2019.