What 2021 holds for fintech

There is no doubt 2020 has been tough for every indus­try, but with the eco­nom­ic fall­out of the coro­n­avirus pan­dem­ic still very much ongo­ing, how will that impact the future of fin­tech as we head into 2021?

Fin­tech has long been laud­ed for being at the heart of change with­in finance, dri­ving future think­ing through agile launch­es and thrive-or-fail advance­ments. It end­ed 2019 with high hopes, but progress and oppor­tu­ni­ties in many areas, such as trav­el, have been sti­fled, with fund­ing down or flat.

That is not to say some parts of the sec­tor haven’t suc­ceed­ed. For instance, those in the buy now, pay lat­er cred­it space saw huge fund­ing rounds; Klar­na raised $650 mil­lion and Affirm received $500 mil­lion, fuelled by demand from stuck-at-home con­sumers, look­ing to finance DIY projects, plus new fur­nish­ings and house­hold prod­ucts.

But will this gen­er­al belt-tight­en­ing con­tin­ue in 2021 and who will suf­fer the most? Well, accord­ing to a report by Fleish­man­Hillard Fish­burn, which has been devel­oped in con­junc­tion with Money20/20, sev­en in ten of the C‑suite fin­tech lead­ers spo­ken to think ear­ly-stage fin­tech star­tups will find it more dif­fi­cult to secure fund­ing going for­ward. Two-thirds also believe there will be a spike in merg­ers and acqui­si­tions, due to many fin­techs being cash crunched.

Open­ing the report, Clau­dia Bate, fin­tech lead at FHF, says: “Fund­ing has dried up as investors grow cau­tious, expan­sion plans have been shelved, and hyper-growth and unprof­itable busi­ness­es are feel­ing the strain.”

Con­cerns around prof­itabil­i­ty also cause Alex Red­dish, chief com­mer­cial offi­cer at Tribe Pay­ments, to believe invest­ment will be con­strained as goals change. He pre­dicts: “The bull run had to end some­time. As COVID-19 rolls on and the reces­sion deep­ens, investors will no longer be sat­is­fied with ‘growth’ and instead will be look­ing at hard num­bers: prof­itabil­i­ty, aver­age rev­enue per user, dis­count­ed cash flow, price-to-earn­ings ratio.

“We will see a shift away from paid cus­tomer acqui­si­tion, ‘moon shot’ ideas and unfo­cused diver­si­fi­ca­tion, where fin­techs rebun­dle a mul­ti­tude of ser­vices, towards spe­cialised and sus­tain­able offer­ings that can prove prof­itabil­i­ty.”  

Open Banking will drive traditional banks forward

One ben­e­fi­cia­ry of this pro­posed laser focus could be in now proven and accept­ed solu­tions, such as dig­i­tal pay­ments, through open bank­ing. These have seen a huge boost in 2020 because of COVID, both in their use but also, cru­cial­ly, in the con­fi­dence peo­ple now place in them.

And with the cost to the mer­chant of tak­ing pay­ment, for exam­ple through their own app, being low­er than through the tra­di­tion­al con­tact­less chip-and-pin card routes, Nick Cor­ri­g­an, UK and Ire­land man­ag­ing direc­tor and pres­i­dent of Glob­al Pay­ments, says the pace is quick­en­ing for small­er, every­day pay­ments using such means.

He explains: “While these entrenched pay­ment rails have a very impor­tant place, offer­ing pro­tec­tion for big­ger pur­chas­es like a TV or a hol­i­day, they aren’t need­ed for many con­sumer pur­chas­es. It’s unlike­ly you’re going to seek a refund and have to have a charge­back raised for a cup of cof­fee or an insur­ance renew­al, which is what these big net­works are so vital for facil­i­tat­ing. 

“When you take these types of cred­it and deb­it-card pur­chas­es, about 30 per cent of them could sit out­side of the typ­i­cal net­work ecosys­tem. This is why we’re see­ing banks quick­ly launch their open bank­ing ser­vices, specif­i­cal­ly for these types of sce­nar­ios. In 2021, open bank­ing is real­ly going to start doing what it was intend­ed to do: increase com­pe­ti­tion.”

Anoth­er, per­haps unex­pect­ed, use for open bank­ing in the future of fin­tech could be for social good, espe­cial­ly giv­en the num­ber of finan­cial­ly vul­ner­a­ble peo­ple looks set to rise due to unem­ploy­ment and reces­sion. Not-for-prof­it lender Fair for You’s Sarah Gar­diner says: “We use open bank­ing to enable low-income fam­i­lies who meet our afford­abil­i­ty checks, but who can’t access main­stream cred­it, to buy essen­tial house­hold items with eth­i­cal cred­it. As you’d expect, we’ve seen a sub­stan­tial increase in appli­ca­tions for afford­able loans dur­ing the pan­dem­ic.

“We will keep serv­ing more cus­tomers with dig­ni­ty in 2021, with our only lim­it­ing fac­tor being lev­els of addi­tion­al invest­ment. We’re thank­ful to the UK’s lead­ing social investors for invest­ing mil­lions into us this year and are now seek­ing an addi­tion­al £10 mil­lion in debt fund­ing to con­tin­ue to help vul­ner­a­ble fam­i­lies nav­i­gate the chal­lenges of Brex­it and the pan­dem­ic.”

Global business and fintech can thrive together

In the year ahead we will also see tech­nol­o­gy brands ramp up their own future of fin­tech plays, for exam­ple Ama­zon Pay will be joined by Google offer­ing its bank account as well as the rise of the Apple Card. All could offer oppor­tu­ni­ties for small­er fin­tech play­ers to cap­ture the atten­tion of these big, mon­ey-laden beasts with their own inno­va­tions.

Hav­ing such huge con­sumer names rais­ing fin­tech’s pro­file will also help to grow use of the ewal­let, some­thing many experts pre­dict will be the big future of fin­tech talk­ing point for 2021 among retail­ers and cus­tomers.

Jane Logi­no­va, co-founder of Radar Pay­ments, believes this will be embold­ened by retail­ers embrac­ing new pay­ment meth­ods and it could also be boost­ed by one of 2021’s sur­prise suc­cess­es, the QR (quick response) code, which gained promi­nence due to the influ­ence of COVID track­ing-and-trac­ing apps.

She says: “Unlike card trans­ac­tions which require mer­chants to invest in cost­ly and com­plex point-of-sale ter­mi­nals, QR codes are cheap to deploy and easy to use. Cur­rent­ly, the QR code pay­ment solu­tions avail­able require an app, for exam­ple devel­oped by a retail­er, that can only be used in its stores. In devel­oped mar­kets, lever­ag­ing pop­u­lar dig­i­tal wal­lets already on con­sumer smart­phones, such as Apple Pay, Sam­sung Pay and Google Pay, will make QR codes more acces­si­ble. They will con­tin­ue to emerge as an impor­tant pay­ment method in 2021.”

Brad Hyett, chief exec­u­tive of phos, agrees on the impor­tance of ewal­lets to the future of fin­tech, say­ing they prove con­tact­less is here to stay. “The launch and pro­lif­er­a­tion of ewal­lets has been build­ing in 2020, but this trend will real­ly take prece­dence in the world of pay­ments in 2021,” he says. “The glob­al mobile wal­lets indus­try is pre­dict­ed to jump by almost 50 per cent, to reach a val­ue of $1.47 tril­lion amid the COVID-19 pan­dem­ic, with more than 1.7 bil­lion peo­ple using mobile wal­lets by 2024. 

“While most of us will be famil­iar with Apple Pay and Google Pay, these won’t be the only touch­points that peo­ple have with ewal­lets either. Increas­ing num­bers of com­pa­nies are devel­op­ing their own solu­tions to direct­ly serve the needs of their cus­tomers.

“The major­i­ty of smart­phones in use today can native­ly offer this kind of tech­nol­o­gy, so cus­tomers can pay on a web­site, a mobile app or phys­i­cal­ly in-store. But the cru­cial point is all these sce­nar­ios are con­tact­less and cash­less, and so respond to the chang­ing demands we have seen for these kinds of pay­ment options.”