Financial services have become a lot more accessible, seamless, and user-friendly in the past decade due largely to the rise of innovative Fintech platforms throughout the world.
Traditional banking service providers have launched their own digital transformation strategies in order to remain competitive in a fast-evolving global economy. The socioeconomic environment has also changed considerably following the COVID-19 outbreak in early 2020.
Online Trading and Investing Becoming Increasingly Popular
Many more consumers and business organizations are engaging with all-digital platforms and services instead of visiting physical locations in order to prevent the further spread of COVID and its deadly variants. The pace of digital technology and Fintech adoption has also accelerated significantly during the Coronavirus pandemic. In addition to an increase in online payments in multi-trillion dollar economy nations such as China and India, we’re also seeing the emergence of many new trading and investing platforms.
People are spending more time at home or indoors so they might have more opportunities to explore online trading platforms such as Freetrade. While surveys have shown that many consumers lack basic financial education/literacy, it’s definitely not preventing them from trading via easy-to-use Fintech apps. Large Fintechs such as Revolut now offer a wide range of options to their clients, so they can gain exposure to gold/silver and crypto-assets.
Digital trading platforms like Robinhood (NASDAQ:HOOD) have experienced numerous challenges during the past 18 months, partly due to the overwhelming demand for trading services from clients. Despite facing many legal issues and complaints from customers, Robinhood continues to enhance its platform with the recent acquisition of Cove Markets, a cross-exchange trading platform that is designed to help investors manage their crypto accounts.
TradFi and DeFi to Form Foundation of Future Financial Ecosystem
What we’re seeing now is the emergence of a new financial ecosystem that’s based on traditional finance (TraFi) platforms and decentralized finance (DeFi) protocols. That’s why software apps like Revolut and Robinhood are allowing consumers to trade more traditional stocks as well as digital assets like Bitcoin (BTC), Ethereum (ETH), among many other virtual currencies.
Companies are also a lot more eager to allow retail traders to access many of the same investment opportunities that have previously been available mainly to institutional clients. Fintechs such as Bitpanda and alternative investment platforms like YieldStreet have developed an extensive range of services that enable retail customers to become active investors. This key Fintech trend is referred to as the democratization of financial and investment services.
The modern consumer and 21st-century investor is also more concerned about sustainability and making “greener” investments. The impact of climate change is being felt globally and many more organizations are becoming more responsible when it comes to minimizing the impact of their carbon footprint. For example, UK’s PensionBee has created customized plans that allow clients to create green investment and pension portfolios so that they can secure their own financial future and the prosperity of our planet.
Financial Inclusion Now a Key Priority
Financial inclusion has also become a key priority for many Fintechs, especially those operating in Southeast Asia. Even though we’re living in the 21st century, around 1.7 billion people in the world are still unbanked or financially underserved. Industry experts agree that this is largely due to a legacy banking system that’s not very friendly to consumers who don’t have an established credit history. It can still be quite challenging for many people to open bank accounts because they might not be able to provide the documentation needed by banks to offer basic financial services.
Sophisticated AI and machine learning algorithms are now being used to analyze consumers’ financial profiles so that their requirements can be met. Instead of relying on legacy infrastructure and outdated processes to determine a consumers’ creditworthiness, companies are looking for more innovative ways to assess applications. In addition to bringing more people into the formal economy, companies like Azimo, Wise (previously Transerwise), and Remitly are sharply focused on providing more affordable cross-border payments,
Remittances More Vital than Ever in Post-COVID World
In a post-COVID world, remittances have become even more critical to the survival and everyday lives of migrant workers and their families back home. Fintech firms are now competing to offer more affordable international payment options so that people can continue to make ends meet during these unprecedented times. Offering more affordable or flexible payment platforms has also been a key Fintech trend in a post-COVID environment.
Instead of using traditional credit cards, which may have really high-interest rates, consumers are now presented with interest-free payment plans. These so-called Buy Now, Pay Later (BNPL) services allow people to break a single payment into more manageable installments (around 4 smaller payments due at different times). Fintechs such as Affirm and Klarna have become quite popular because they allow consumers to buy what they want, without having to pay the full amount upfront for their purchases.
Although BNPL firms have been criticized for encouraging irresponsible spending and hiding many details (terms/conditions) in fine print, these pay-over-time service providers are being widely used across the globe. Early (or earned) wage access providers have also become quite popular because many people might not have enough savings to cover expenses in these uncertain times during which many have lost their jobs or seen their incomes drastically reduced.
Gig Worker or Freelance Economy on the Rise
The gig worker or freelance economy is also on the rise because many professionals may be looking to supplement their income or keep things going after they were laid off from their regular job following the COVID outbreak. Many more Fintechs like Branch are now providing ways for workers to get paid in a frictionless manner.
The insurance industry is also undergoing a transformative change so that more consumers and businesses can access the services they need. Rnwl, a platform planning to transform/improve the current buying and managing insurance process, recently secured substantial funding via its Seedrs crowdfunding campaign.
UNest, an app that aims to empower parents to invest and save for their kids’ future, and Avibra, a provider of personal well-being, risk, and protection solutions, announced a partnership that provides families access to services such as no-cost life insurance policy as well as a 15% discount on Avibra’s Dollar Benefits Store.
The partnership between the two firms “democratizes access to new ways for families to get their finances and well-being on track and live their best lives.”
Embedded Finance and Insurance Becoming More Widely-Adopted
As covered, NEXT Insurance, the digital Insurtech firm transforming small business insurance, had announced the availability of NEXT Connect, a trusted embedded insurance solution for small business software ecosystems in the US. In addition to embedding Insurtech services, we’re also seeing a more general trend towards embedded finance.
MoneyLion Inc. (NYSE: ML), the digital financial platform, announced in December 2021 that it had agreed to acquire Even Financial Inc., the embedded finance marketplace, in order to “accelerate its mission of providing financial access and advice to hardworking Americans.”
While the US and the UK (among other leading European nations like France and Germany) remain at the forefront of innovation and have acquired the largest amount of funding, countries in Latin America (LatAm) have also seen the rise of many Fintech platforms.
As reported last year, Nu Holdings or Nubank, began trading on the New York Stock Exchange on December 8, 2021 under the ticker symbol “NU”. Nubank, based in Brazil, is one of the most successful digital banks in the world. The pricing gives Nubank a valuation of over $40 billion. The company will raise about $2.6 billion.
Nubank will simultaneously float its shares on the São Paulo Stock Exchange (B3) under the ticker symbol “NUBR33.” According to the Fintech firm, entering the Stock Exchange was “never a goal in itself.” The firm explained in a blog post that Nubank’s IPO is “a natural step” in their ongoing development, and serves as a way to “increase the impact that Nu can have on people’s lives.”
Democratization of Financial Services in LatAm and Globally
With its IPO, Nubank plans to acquire funds and also work cooperatively with new investors. This can enable projects to make them “increasingly complete” and achieve their goals. Nubank confirmed that they intend to democratize access to financial services, by offering products and services that “really help people.” Company co-founder and CEO David Velez has noted that there are 200 million people in Latin America that are “not banked.”
Of course, there are many other LatAm Fintechs that are offering innovative services to enable greater financial inclusion. As covered recently, C6 Bank‘s automatic-payment system is reportedly one of the fastest growing online platforms in Brazil.
The C6 Bank began offering financial services in August 2019. The digital banking platform has introduced C6 tag, which has helped with accelerating growth for the firm. In around 2 years, C6 Bank’s toll tag has reached 13% market share.
As mentioned in an update by C6 Bank, two companies in Brazil have explored this market. The first to provide the toll tag service began operating back in 2000. With several dealerships as partners, it was the only service provider in this field for 11 years. In 2011, a change in legislation allowed for the entry of companies from other areas. That’s when the first competitor entered the market.
Even after the competitor began offering services, the market continued, until 2019, to be very focused on the original brand, which accounted for over 90% of sales. Consumers were required to have a credit card to use these services. The toll or parking fee – in addition to the usage fees – was found on the invoice, the C6 Bank team noted.
Max Gutierrez, Head of Products and Individual at C6 Bank, revealed:
“There are millions of people in Brazil without a credit card who use toll roads and parking lots.”
C6 Bank’s idea of offering the product to customers came from realizing that: a “tag” that was free and debited from a checking account, without “the need for a card.” The C6 Tag works “like a car debit card,” the firm explained.
In an interview with Crowdfund Insider (in August 2021), Ximena Alemán, Co-CEO at Prometeo, the Latin American Fintech firm that’s leading Open Banking adoption throughout the region, had shared key industry insights.
Alemán had noted that the Latin American region is “still in the initial stage of developing its financial services and products.” She explained that LATAM is home to over 600 million people and “almost six trillion dollars of GDP per year, which makes Latin America one of the largest economies in the world.”
She pointed out that it is “important to realize that [their] economy has many problems, including many related to advances in basic infrastructure (banks, hospitals, etc).” At the same time, as Sequoia indicates, “the penetration of e-commerce is only at 6%, mainly due to a lack of access to online payments,” Alemán told CI.
As reported by the World Bank, in Latin America “about half of the population does not have access to any financial product.” Alemán also mentioned that financial exclusion, under-banking, and unbanking are “problems that affect all companies to varying degrees: large corporations, medium-sized companies, and especially micro-companies.”
“Taking all of this into consideration, we are working to build a technological infrastructure that –hand in hand with the possibilities offered by Open Banking– facilitates and promotes access to financial information. The goal is to make this information the raw material for innovation in services and products that do not depend strictly on the banking operation.”
Fintech Adoption in MENA Region Remained Steady in 2021
In addition to greater Fintech adoption in Latin America, countries like Turkey have reported solid growth due to considerable investments and a progressive financial services ecosystem. The MENA region also continued to attract considerable capital in 2021 with countries such as Bahrain, Kuwait, Oman, Saudi Arabia, the United Arab Emirates (UAE), and Qatar launching many new Fintech platforms focused on supporting digital commerce.
Cryptocurrency adoption is also on the rise in the Middle East. As reported recently, Bitrefill says that it’s now possible to “live on crypto” in Saudi Arabia and Qatar.
As covered, Saudi-headquartered Arab National Bank has reportedly signed on US-based open-source software provider Red Hat, Inc., for the latter’s open hybrid Cloud technologies.
As mentioned in the announcement, the Arab National Bank is planning to enhance its capabilities in virtual banking, open finance and customer engagement by leveraging Red Hat’s solutions.
In December of last year, the Arab Monetary Fund entered an MoU with Mastercard to facilitate the growth of payments in the region. Also in December, virtual payments solution provider Arab Financial Services said that it intends to acquire $98 million in capital in order to support its revenue growth and strategic expansion efforts.
As reported in November 2021, GCC-headquartered early-stage VC company VentureSouq had introduced a $50 million MENA region Fintech Fund I. As mentioned in the announcement, the MENA Fintech Fund I is the first sector-wide Fintech-focused fund to be introduced across the Middle East area and Pakistan.
Financial Services Platforms Now Well-Prepared to Support Safe Digital Transactions
In 2022, we should expect most of these Fintech trends to continue as consumer behavior keeps changing due to COVID-19 and its deadly variants like Omicron – which have led to many people completing everyday tasks online or via digital-only channels. Fintechs and even traditional banking services providers are well-prepared to provide contactless payment options and other convenient (and safe) ways to perform digital transactions.
The modern, 21st-century consumer is becoming a lot more tech-savvy, especially the Gen Z and Millennials. Older consumers are also more eager to explore online platforms in the “new normal.”