Top 5 Technology Trends That Will Shape FinTech Sector in 2021

As technology evolves at an exponential rate, the FinTech sector is hurtling along at breakneck speed. Amid the growing bonhomie between financial services and technology, industry insiders have dubbed 2021 as “the year of the value chain disruption” powered by technologies such as Artificial Intelligence (AI), blockchain, Robotic Process Automation (RPA), etc.

Although disruptions by technology in the financial services value chain have been in the works for a while now, the spotlight would be more on such activities making value chain disruption in FinTech even more profound in 2021. Digital wallets are on the boom, as countries across the globe scramble to set national regulatory standards. Let’s take a look at how technology will shape the FinTech and banking sector in 2021. 
 

1. Digital-Only or Neo-Banks
   
   Digital-only or neo-banks build retail banking experiences from scratch and exist only in the virtual world. Digital-only banks offer financial services such as global payments, P2P transfers, and trading in cryptocurrencies like Bitcoin and Ethereum. Neo-banks such as Varo, Chime, and Aspiration are already operating in the US. According to reports, UK-based Monzo and Revolut plan to foray into the US market soon. 

   The biggest thing going for digital-only banks is that there’s no need to visit a brick-and-mortar branch, stand in long ques, or indulge in agonizing paperwork. According to CACI, consumer visits to the bank branch will drop by 36% between 2017 and 2022, with mobile transactions to rise by 121% in the said period. The research predicts that customers will visit a bank branch only four times a year by 2022. The average customer visited a bank branch seven times per year in 2017, informs the report.
    

   Among the top draws of digital-only banks are snick-a-pic payments, real-time analytics, resetting pins from your home’s convenience, and frictionless expense management, which continue to entice the Millenials. However, these conveniences come with a few riders. According to Cyber Security Statistics by FinancesOnline, financial fraud is globally the leading internet crime. Although digital-only banking services offer affordability and convenience, they are susceptible to risks with financial fraudsters lurking over the internet. 
    

   Furthermore, banking involves many physical touchpoints, as trust is a significant factor. What happens in case a customer runs into trouble with a transaction? Visiting a physical brick-and-mortar branch is the only solution in such a scenario. Phygital banking is a business model that offers a mid-way approach wherein physical and digital banking collide to deliver enhanced customer experiences. 
    

2. Global Financial Services Make-Over with Blockchain
   
   The US is leading the world in blockchain usage, ensuring its widespread adoption across all quadrants. According to Statista, Blockchain.com had 63 million wallet users as of December 2020. Blockchain technology remains on the path of completely changing the face of financial services worldwide, owing to its genuinely global outreach and highly-affordable processing fees. In the US market, next-gen blockchain companies are on the road to improving cost and functioning of core infrastructure by focusing on specific use cases. Blockstream, R3, and Symbiont provide general solutions, Securitize and Global Debt Registry focus on capital markets, and ConsenSys and The Interface Financial Group target supply chain finance. 
    
3. Bank-as-a-Service (BaaS)
   
   All banks need to build an infrastructure or partnerships to support basic functionalities such as storing money, payment processing, and remittances. New-age banks have turned this idea into a product. Bank-as-a-Service (BaaS) is a FinTech innovation and end-to-end process that empowers FinTech companies and third-party organizations to connect with a bank’s system through APIs. BaaS helps financial services companies build their services on a bank’s regulated infrastructure while enabling open banking services. 
   
   Many US-based banks empower neo-banks to gain access to cost-effective deposits and rich revenue sources in the process. For example, Cambr and SynapseFi build API platforms for digital-only banks. Similarly, Prime Bells sells BaaS enablement software to various banks. Green Dot, The Bankcorp Bank, and BBVA Open Platform have all launched their own BaaS platforms.
   
    
4. AI a Must for Financial Institutions
   
   Among the first to embrace Artificial Intelligence (AI), the sector continues to witness a much wider AI adoption with banks fine-tuning their AI strategies. According to projections AI will help banks reduce their operational costs by 22% around 2030, leading to savings of around $1 trillion. AI is poised to equip financial institutions with the capabilities to deal with the growing menace of cybercrime and financial frauds. AI is already commonplace in the financial services industry for providing customer support services by leveraging chatbots and other smart systems. Some popular AI-driven customer service software includes Zendesk, LiveAgent, Freshdesk, Vision Helpdesk, among others. 
    
5. Wildcard Entry of Tech Companies in Financial Services
   
   Modern banks are a combination of data and technology companies. There is a stark similarity between banking and software engineering processes and fundamental concepts such as transaction tracking, ledgering, and predictive modelling. Following suit to their East Asian counterparts, several American digital-first tech companies have forayed into financial services and banking. 
   
   By launching Apple Card in collaboration with Goldman Sachs, Apple Inc. has reinvented the credit card ushering a new phase of branded FinTech experiences. By introducing shopping on Instagram and testing payments on WhatsApp, Facebook has already signalled its entry into the financial services space. 

   Financial Sector in 2021 and Beyond: Embracing Disruption

   Technology is fast disrupting the entire business value chain in the financial services space reshaping the role, models, and competitive environment for financial institutions and the markets and communities that they serve. As the dust settles post-crisis, regulatory frameworks have fallen into place globally, with financial institutions reshaping their business models accordingly. 
   
   It has become abundantly clear that digital innovation’s accelerating pace is the most creative force and the most destructive one in the present time’s financial services ecosystem. As per the Subject Matter Experts (SMEs), these emerging technology trends shall continue to drive FinTech innovation in 2021 and beyond.