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Top Trends for Fintech in 2021

Caren Schwannauer

Embedded Finance

 

We heard a lot of people predicting that with the use of open finance every company can (will) become a Fintech company in the future – while we can’t be 100% certain of this but we can be sure that we will see more use cases of embedded finance this year.

We have already seen great Embedded Finance Use cases with companies like Uber or Shopify. The new rollout of Google Pay in 2020 showed the potential of Embedded Finance and could be almost seen as a threat to already existing Fintechs.

 

Open Banking

 

Open Banking enables Embedded Finance. Open banking is still at it’s beginning and there is a lot of work to do on the integration side. Nevertheless we have seen an uptake of consumers using Open Banking products in 2020 which should continue in 2021.

 

 

 

 

With PSD2 being properly implemented and PSD3 on it’s way we will also (hopefully) see some great development on the integration side.

 

Sustainability

 

With the raise of companies taking on more corporate social responsibility and putting sustainable investments at core of their business strategy – such as challenger bank tomorrow and new players such as Sagefund or established player tapping into the fintech market such as Ecosia – we can expect more companies follow their lead.

 

Although we still call sustainability a ‘trend’ we can expect it to become a basic requirement.

 

More interesting to watch will be how sustainability is going to be implemented by different companies, what the consumers will define as sustainable and “how much” sustainability they actually want.

The ESG factors provide a guideline but gets critised often enough for not being actionable or specific enough. It will need more exchange between businesses and consumers to define sustainability.

 

Contactless Payments

 

Around for a while now, contactless payments got a big push forward in 2020 when all shops asked to pay contactless to avoid unnecessary contact. Even people in countries that are known for being cash-loving such as Germany started to use their card more often.

We probably won’t see people stepping away from cash completely and we will also see a bit of an uptake in cash-usage once we get back to a bit more normality but people will get used more to contactless payments and will feel more comfortable to tap their card or use mobile payments

 

Changes in supervisory of regulatory authorities

 

Especially for the German Fintech Scene Wirecard Scandal will result in regulatory changes. Wirecards opaque company structure made it more difficult to see through the criminal energy that runs through their systems.

Right now companies groups are not required to be overseen by German Watchdog Bafin – only the part that is actually dealing with financial services. In Wirecards case that was Wirecard Bank AG not Wirecard AG itself. Technically this makes sense, as the FS arm of a company group is the one heavily dealing with transactions.

But as we’ve seen the lack of observation can be used for fraudulent behaviour. One way to overcome this would be to completely oversee the whole company group as soon as they have an FS arm e.g. Bafin would need to oversee Daimler AG which has an FS arm called Mercedes Benz Bank as a whole and not only Mercedes Benz Bank.

This is a good idea in theory but it will result in an incredible amount of additional work and therefore it will be almost impossible to realize (if Bafin wants to work efficiently).


Regtech
 

On the “Trends for 20XX” list for a while now – the FinCen Files Leak made clear once again that RegTech can be a game changer for AML Compliance.

FinCen Files showed us how easy it is to launder money through the banks systems – not because banks are having lacks in their systems but because their systems operate so inefficient that it takes too long to identify, report and submit a suspicious transaction that it’s often too late to catch criminals and stop them.

 

Trading

 

Trading Apps have been called one of the biggest winners of 2020. Everybody sitting bored at home started at some point to try out Robinhood, Etoro or Trade Republic.

I’m not sure if this trend will continue but at least it broke the barrier and made the mass-market (those that not financial savy) aware that trading and investment is not something only rich guys in suits on wall street can do (sorry for the cliche).

That being said I expect (hope) that trading apps will put more value on financial education of their users and ethic behaviour. There were some tragic stories of (uneducated) trading app users last year which we shouldn’t have again in 2021.

 

Taxtech

 

A bit under the radar (mainly because taxes are not a very sexy topic) Taxtech is providing services to an industry that massively underserved. Taxes are still handled very manual and slow processes and there the is a need for digital and automated solutions.

There are players tapping into the market such as Taxfix (B2C), Taxdoo (B2B) Fintegra (B2B) and there will be more to come.

 

Financial Health on the rise

 

New years resolution: Save more money and handle finances better?

 

There is an app for that!

 

Fintechs like Cleo or Emma and newcomers like Rubarb or Yatta are helping consumers to support them with financial health/financial wellness. More players will come into that market and serve more niche groups and help consumers to achieve their financial goals.

 

Challenger banks growing up

 

Starling Bank broke even this year ๐Ÿš€ and Challenger banks like N26 changed their pricing model ๐Ÿค‘. After years of creating brand awareness Challenger Banks now need to double-check their profitability and find ways to make money (as Starling did).

A Freemium model is great to get sign ups but at the end of the day it won’t make you profitable. Let’s see with which ideas the challenger banks come up with in 2021.

 

Challenger banks are also growing up in terms of working environment

 

Maybe already a bit forgotten but N26 had a huge discussion around having a workers council and Revolut has been in the news for “pressuring their employers into leaving their jobs and taking salary cuts for cost-saving measures.

 

Long-working hours and sometimes underpaid positions is a bad stigma Start-ups carry around with themselves.

 

Being around for a few years now and employing thousands of people you can argue if companies like N26 or Revolut are still Start-ups.

 

Yet, when we step out of our Fintech/Start-up bubble most of the people would still see them as Start-ups. So with two Unicorns being in the news this year (at least my) hopes are high enough that the work environment within Startups changes.

 

Financial Inclusion and niche financial products

 

Offering financial services for a more niche group is something that we will see continuing in 2021 as well. We have seen this trend growing on the B2C challenger Bank side with companies such as insha or daylight, but also on the B2B challenger Bank side with companies such as Karat. 

Having a narrowed down target group can help new companies to get traction fast – therefore it’s likely that the Newcomers this year will take that approach.

 

From Lockdown to Shut down

 

For now we still don’t know how many businesses will have to stop operating due to Covid. Looking at Fintechs that have already left the market such as Monedo, Zeitgold or Joonko there are probably more to follow.

Those that have stretched out their runway a lot and need new funding now and also those that haven’t been affected directly, but indirectly because their clients got hit by Covid.

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