Trends that will define the banking and finance industry in 2020.
The finance and banking sectors are dramatically different today compared to how they were a decade ago. Bureaucracy, long waiting times, and unhelpful customer support have slowly become a thing of the past and left room for digitalization and customer-oriented experiences. Powered by disruptive innovations like AI, FinTech, Blockchain, and machine learning, finance has entered a new era. In 2020, there are many interesting changes to expect and apart from the consolidation of last year’s trends, new innovations are already shaping up.
FinTech as the go-to business model
FinTech has had a meteoric ascension, to say the least. Emerging a small niche after the economic crisis, FinTech is now a solid industry in and of itself and experts valued it at more than $127 billion in 2018. In the following two years, FinTech is on track to exceed $309 billion and make a definitive impact on the finance industry and change the way business is done in this field. As of February 2019, there were nearly 6,000 startups in the Americas alone, and this number is expected to grow even more. At the same time, FinTech will also pick up speed in Europe, Asia, and the Middle East, creating a global environment that favors innovation. Given the popularity of FinTech startups and the record funding they continue to attract, we can expect FinTech to be one of the biggest and most lucrative business models in 2020.
Digital services will become the norm
A few years ago, the idea of using financial services without a trip to the local bank branch seemed impossible. Now, the trend is for banks and other financial institutions to close down more of their local branches, as most interactions take place online and trips to the bank are reserved for one-on-one consultations. Nowadays, 94% of consumers want to complete transactions online and, more than that, they want other services to be digitalized too. Companies have to respond to this demand and innovations have already begun. People no longer have to meet up with company representatives to get a loan because they can simply look up, compare, and receive online title loans. Besides, they don’t have to drive to an ATM to check their account balance, make money transfers, or set up a savings account because most financial institutions have some kind of mobile app in place.
Startups and banks will pave the path for collaboration
When FinTech emerged, it was a direct competitor to banks and well-established financial institutions. While the giants were struggling to cope with the effects of the recessions, disruptive startups were taking advantage of the latest tech innovations and offering customers the alternatives that they had been looking for years. Now, banks are starting to understand that FinTech isn’t just a passing trend and that, if they want to maintain their power on the market, they need to collaborate with them more. Since upgrading an entire bank’s IT infrastructure is a huge task, more banks are now acquiring FinTechs to smoothen the transition. So far, BBVA and Goldman Sachs are the most active when it comes to FinTech acquisitions and more banks are expected to join in on this trend in the upcoming months.
AI will play a bigger role
Artificial Intelligence (AI) has far-reaching applications in finance and banking and, for 2020, we can expect its influence to grow even more. This may not be that obvious to the average consumer, but financial services have become faster and more relevant thanks to AI. When you go online to make a loan and you receive the confirmation in less than 24 hours, that’s because AI allows lenders to calculate risk and take credit decisions faster than ever before. AI has also made possible apps that connect to the user’s bank account, analyze their spending habits, and suggest ways to save. And, needless to say, more companies will use chatbots, which have become more advanced and can handle routine customer interactions flawlessly. The good news is that Artificial Intelligence isn’t unique to FinTechs any more and that it has made its way into the portfolio of conventional service providers.
More focus on cybersecurity
Finance and banking have always been one of the favorite targets of hackers and now, with online transactions at an all-time high, cybersecurity and fraud detection will take center stage. In fact, financial institutions are 300 times more likely to become a target compared to other sectors. Fortunately, AI has been getting better and, according to a recent study, 63% of financial institutions agree that AI can prevent fraud before it happens. By using machine learning, fraud detection systems understand user behavior and, when a transaction is made, they can determine if the consumer was behind it or if there is fraudulent activity on their account. At present, the leading cause of security incidence is the user’s failure to follow the security protocol, so financial institutions are focusing their efforts towards making security measures easier to follow and implementing bulletproof threat detection systems. By 2023, companies in the financial sector are expected to invest more than 35% of their budget in cybersecurity.
Bringing a personalized approach to banking
For decades, financial institutions have been notoriously strict with their services. Loans, savings accounts, and financial services in general were one-size-fits-all and the focus fell on what was profitable for the bank, not relevant for the consumer. Thanks to FinTech and AI, personalization is emerging as a powerful trend, as providers are beginning to understand that profitability and personalization don’t exclude one another. On the contrary, more and more consumers use personalized banking as a differentiator when choosing between providers. What does this mean more specifically? Although every bank has its own version of personalized services, in general, it comes down to understanding customer needs, anticipating these needs, creating custom interfaces, and boosting communication with customers. Not only does personalization foster loyalty but, in the long run, experts estimate that banks can gain up to $300 million for every $100 billion.