Trends that will influence FinTech in 2020

By Bruno Macedo, FinTech specialist, five°degrees.

As we enter the final two working weeks of December it is useful to reflect on what the emerging trends in financial technology will be for 2020, as a way for banks and financial institutions to prepare for the opportunities and challenges that lay ahead.

Regulation will continue to dominate the banking and finance landscape of 2020. With the introduction of PSD2 earlier this year banks will be required to be regulatory compliant or risk facing heavy fines. Due to delays of implementation, the European Banking Authority has already allowed for a time extension of the strong customer authentication (SCA). Banks must ensure they give themselves enough time to become compliant and future-proof their operations to navigate regulatory issues.

PSD3 is soon to follow, which could eliminate fragmentation by including a more precise and concrete specification of API standards, directory services and infrastructure. Therefore, it is essential that banks get the basics right before attempting to jump additional hurdles.

Overcoming regulatory challenges needs a robust and flexible strategy, operational and infrastructure change, a comprehensive assessment of risk, and seamless execution. To align with regulation, banks must facilitate digital transformation across their entire business ecosystem.

The need to become fully digitalised, secure, and regulatory compliant will result in an uptake of cloud native solutions, making it easier for banks to have visibility to customer and business data on a single interface.

Smart collaborations between FinTechs, payment providers, banking institutions and non-banking entities will continue to thrive.

For some time, FinTechs were seen by banks as direct competitors because they were targeting the same market segment. Fintechs differentiated themselves in their closeness to the client needs, the technology they used, and their size, cost, flexibility and speed. It was a big departure from the traditional banking approach, and it was hard for banks to adjust to this new consumer-driven and technology-based competition.

As a way of banks keeping themselves competitive they will form greater collaborations with FinTechs and third party ecosystems to deliver a seamless experience for end-users and a wider array of services via ‘Open Banking.’

Smart collaborations between FinTechs and corporates in 2020 will become the new norm, provisioned by ‘Open Banking.’ This makes it possible to integrate a whole host of services such as digital lending, blockchain, video chat, mobile wallets, cognitive services, AI, machine learning and data analytics with existing traditional offerings as one complete end-to-end solution – all accessible within the cloud.

Digital lending will keep traditional banking and financial institutions competitive, offering a far more unified, flexible and efficient approach specifically when working with the SME market. By teaming up with FinTech providers, banks can offer multi-channel, self-service digital lending and leasing products, with loan processing and collection, screening, credit scoring and underwriting all offered as a single end-to-end process. This will speed up the time it takes for banks to approve loans and onboarding processes, enhancing the experience for small and medium businesses, who previously had to wait weeks or months for a decision to be made.

Cloud native solutions will increasingly be used by traditional banks as they realise the huge benefits of migrating their core systems to the cloud. Banks such as Lloyds Banking Group are already considering it with their investment in a cloud-native, core banking solution.

For banks to embrace the benefits of the cloud fully they need to make a cultural shift as well as a technological one as a way of becoming truly phygital.