What awaits fintech in 2020?

Jan 23, 2020

2019 was a turbulent year that brought further development to one of the hottest markets. Highly anticipated PSD2 was awaited as a promise of final disruption. Though the threats to non-digitally focused incumbents are real, 2019 confirmed that the near future of banking is not primarily digital.

Neobanks – they won’t remain challangers forever

Revolut, N26, Monzo, and Starling have gotten lots of attention. But despite their role model apps, the actual numbers can’t confirm their business model. While most challenger bank users are just testing out the offers while holding onto their primary bank, the threat for incumbents persists (source).

When discussing the future of digital banking, we tend to turn to the British market. After the 2008 financial crisis, the UK created an ecosystem that made a lot of us green with envy. In fact, London is built around a thriving ecosystem of a supportive regulator, investors, and talents. Being the leader in the Fintech development, the UK is considered a trend-setter and as such, it certainly paves a way for other regions.

Having said so, it comes as no surprise that in 2019 the UK neobanks mapped out a road to growth starting with a boost in the marketing sector that’d focus on wide reach.

With continued offer expansion and brand awareness campaigns, neobanks can definitely target wider audience, which will also result in steering their communication towards more diverse clientele (including call centers and advisors) and get them a step closer to becoming ‘just a regular bank’ meaning, they’ll also have to face all the regulatory pressures. It is fair to expect that a new decades horizon brings first important M&A, that will merge the best of the two worlds.

More than a bank account

Neobanks have already spoiled us with quite intuitive transaction-based solutions. And in 2020 we expect them to go and expand further – into the field of wealth management services.

The services will cater beyond the silver-spooned part of the population. In fact, we can already witness micro-saving functionalities which serve as a starter of smart financial behavior with guiding and learning grounds for later.

Insurance, loans, and mortgages are the most binding products among bank consumers. Having said so, online lending is the first sign of digital disruption. According to 2019 PwC research, online lending primarily serves three groups: the underbanked, marginally creditworthy borrowers, and younger individuals who find non-bank alternatives appealing.

Thanks to young people, the use of marketplace lending has increased significantly. Lower interest rates and fees, as well as faster access to cash were identified as reasons why marketplace lending is on the rise with these generations, and by a wide margin. Furthermore, young people are two to three times more likely to trust an online lender than baby boomers, which, based on age, highlights the significant variance in trusting the financial industry. And let’s not forget, the borrowers who heavily rely on online lenders will begin to enter their peak borrowing years.

Digitally committed traditional banks are well equipped for the future of banking

After the economic crisis, bank returns reached the pre-crisis level. However, there is now a lot more equity than before the crisis, so the confidence in future value is weakening among investors.

Though a digital transformation is a pricey decision that impacts short-term revenues, researches show that the banks investing in innovation show promising predictions for future growth and, as such, are grabbing attention of investors.

Admittedly, bank executives are closely watching the banking forecast and over the last 5 years banks have actively been investing into digitalization of their services.

In assessing banking digital maturity, Accenture analyzed 161 banks from 20 countries and found that only 12% of banks are fully digitally committed to transform into a new bank, meaning they are investing every effort to transform into a digital bank. As such, those banks hold a firm position in remaining the customer’s bank of choice. The customers trust paired with innovative approach makes them well-equipped for the future of banking.

So, can neobanks take over the market?

There is no simple answer and the situation varies in different markets and different age groups.

Driven by younger generations (i.e. Millennials and Gen Z), mature markets of western and northern Europe certainly tend to embrace neobanking faster. But despite that, neobanks still lack brand awareness and while digital leaders may be the winners of innovation, they’re yet to win over the customers.

In fact, the disruption of banking is far from finished and though digitalization attempts don’t seem to directly affect business, the distance between digitally committed banks and those that neglect is widening and soon, there might come a time where digitalization is simply insurmountable.

‘The evolution of banking remains rooted in trust and relationship, but how this is achieved is changing.’

(PwC)
Matej Šošterič
Matej ŠošteričSales Director

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