The pandemic emphasised the importance of fintech, helping provide access to financial services during the toughest times when people needed them the most, especially in emerging markets. Over the years, fintech has blossomed and evolved through many significant stages starting twenty years ago.
It all started in 2000. A time which represented the dot.com boom, and before fintech was a thing. We at Money20/20 refer to this period as Fintech 0.0 — a time when internet connectivity and monetary transaction accounts were still limited to the upper echelons of society.
During this time, technology innovation tended to focus on adding complementary services to existing financial products, such as internet-based rewards programmes being integrated into credit cards. In the years to come, after the global financial crisis, internet penetration blossomed from 30% to 60% – driven mainly by countries such as China and India, and new opportunities opened up for non-financial brands.
Early start-ups during this era, known to us as Fintech 1.0, positioned themselves as direct competitors to legacy solutions. They unbundled banking products and services to provide a more accessible offering to consumers, focusing more on being really good at one thing with one primary offering while providing a seamless and beautiful customer experience. However, the improving economy and broader technical advances enabled banks to build out their products and offerings, shining light on the challenges many start-ups had with scaling. It was at this point that both banks and fintech companies recognised the synergistic opportunity around partnership, most often with distribution agreements.
Today, there is a new story to tell. Just as the last downturn triggered the first era of fintech, the pandemic and accelerated (somewhat forced) adoption to digital triggered a new one, which we have called in our latest report, ‘Fintech 2.0’.
Money20/20 has the privilege of being privy to numerous conversations with leaders across all areas of the industry, seeing these changes happen over a decade plus across our stages, in private conversations with CEOs, and beyond. These conversations have allowed us to deduce which drivers are, and will continue, to impact the fintech industry in the coming years, and in turn determine our predictions.
With these drivers in play, we predict that the building blocks which will go on to establish Fintech 2.0 over the next three to five years will include:
1. Assets & central bank digital currencies will be used worldwide
There is an ever-growing focus on Central Bank Digital Currencies (CBDCs) across the globe. According to the World Economic Forum, more than 40 central banks worldwide are experimenting with blockchain technology. Within the next three years, we predict that five of the ten largest economies will have CBDCs in the market. They will be able to complement currencies in circulation, enable diversified payment formats, and allow for the exchange of tokens in central bank money.
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2. Banking technology stacks must be cloud based to keep up
Banking has the chance to break out of its physical constraints and become more of a pervasive and embedded service. We have entered a world where computing at the edge is as important, if not more important than the centre. Cloud-based systems are the workhorses of big tech, and banks will need to move in this direction to keep pace with capabilities, efficiencies, and expectations.
Therefore, banking technology stacks will become predominantly cloud-based, with significant elements of core processing being open-source based.
3. Commerce experiences to change with fintech
By 2026, global eCommerce sales will reach over $6 trillion. In the next era, personalised cross-platform digital algorithms or Super-agents will go on to represent 20% of retail commerce transactions. Digital agents will use AI, predictive analysis, web bots, IoT to determine consumer behaviours, purchasing decisions and drive action.
4. From big data to good data
The business usage of data started with initial data projects being haphazard and overly depending upon chance. Computers enabled the cultivation of small-scale data, moving on to rudimentary analytics, then to AI and Big data today. Looking ahead, we predict there will be a shift from big data to good data, driven by consumer desire for control, regulatory desire for safety and business desire for ROI.
Access to good data will drive the greatest value creation in the ecosystem.
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5. Fintech ecosystem to become more critical part of economy
Last but not least, every company will not be a fintech company, but the ecosystem will expand dramatically as it becomes a more critical part of the economy. Within five years, fintech companies will take three of the top ten slots of the most valuable companies in the world.
There has been a seismic shift in our industry and the next era of fintech is here to stay. It is going to move the needle for the sector in ways we haven’t seen before.