People need objectives, lighthouses that guide us and round numbers are always a good anchor. That is why 2020 is a huge container of milestones at all levels, also in the Fintech industry, and 2019 is the last year to confirm that that have been reached (or not). Twelve exciting months lie ahead of us in which we will take part in an interesting race, not without obstacles, but definitely filled with great excitement, which will highlight, above all, the eagerness to standardize and regulate the great explosion of open banking in which we have found ourselves immersed since around five years ago.
After some years of many innovations in payments, automation and open data, the market has already decreed the need to regulate the whole plethora of options and services. It is the necessary toll to take the leap from the early adopters to the global mass market, something that will happen in a very fast and spectacular way due to the volume of customers in the regions that less traditionally use banking services: Latin America and, above all, Africa.
It’s therefore a great year for the ‘Regtech’ leg of this industry, a key sector that opens this list of trends:
1. The year of ‘Regtech’
It is estimated that around 15% of the workforce of the entire financial industry as a whole is engaged in ‘Compliance’ tasks. This percentage would end up increasing considerably due to the surge in the regulatory eagerness of institutions, if it were not for the growing number of ‘Regtech’ solutions that allow large financial institutions to implement technology instead of hiring more employees for these tasks. From regulatory reports, compliance verifications, risk management, transaction monitoring to the ‘Know-Your-Customer’ (KYC) or ‘Anti-Money Laundering’ (AML) field, there is already a whole plethora of startups and companies of all kinds that offer technological solutions to reduce costs and times. Services that also offer a return on investment (ROI) that for large entities can occur in a matter of months from their adoption. An example: Rabobank, a large bank based in the Netherlands, made its ‘Compliance’ team implement a ‘Regtech’ risk management solution that reduced compliance controls from fifteen to three minutes. Some experts predict that investment in ‘Regtech’ in the financial services sector will increase by -not a misprint- 500% by 2020, increasing from $10.6 billion in 2017 to more than $53 billion in 2020.
2. Automation and RPA
Robotic Process Automation (RPA) is actually a software that handles repetitive human processes using the same application interface as a human, but eliminating human inefficiencies. For example, a robot could perform a data entry task using Microsoft Excel (or any other) and the company’s CRM software. As with the ‘Regtech’ software that we have just seen, they have a very early ROI (between only 3 and 8 months, as it was concluded in the Fintech Symposium 2018) and this is why mass adoption is expected. RPA will help banks increase efficiency and eliminate wasted time, especially when it comes to tedious and easily repeatable tasks.
3. Conversational banking
Let’s start this section with three pieces of shattering data: 64% of people prefer to send messages over calling or writing emails; 64% is more willing to buy or hire a service if they have previously chatted with the brand and -heed this- 80% is willing to do so. These are figures from a study carried out by Accenture in relation to CUI, ‘Conversational User Interfaces’, which according to this consultant, have come to stay and explode during 2019 thanks to three clearly consolidated trends: People prefer it (as we have already seen); Artificial Intelligence (the engine of all CUI) is already mature enough for the ‘Business to Customer’ (B2C) and satisfies the so-called ‘liquid expectations’ – with Bauman’s permission – of the new users of open banking services, accustomed to demand and enjoy products and services without the rigidity of yesteryear.
At the end of the day, a word-based interface is modulable in real time, unlike traditional graphical interfaces, which need design, development and implementation. There are also voices, never better said, that say the next step of CUIs is that they are by voice and we’re now talking about Voice Banking.
4. Larger population using banking services
If something is always required from a new technology is that it has to break gaps and be as accessible as possible. The Fintech industry movers and shakers are getting more and more people from all over the world to have access to banking services, something that is not a serious problem in countries like Spain, but in others like the United Kingdom, where more than 1.5 million adults do not have any banking product, not even an account or a card.
Not using banking services, beyond the cases in which it is a legitimate personal option, can mean the difference between being able to receive health, education or other basic services or not receiving them. In large areas such as Latin America and, above all, Africa, financial inclusion was always very low, but for some years now, thanks to cell phones, this has begun to change. In sub-Saharan Africa, for example, in just three years the number of people with mobile payment accounts doubled, according to the World Bank. In 2017 more than $1 billion in mobile payments per day were already processed worldwide. Experts predict that this figure will grow by 60% by 2020 and will do so by 75% in Latin America and Africa, opening the door to digital banking for millions of people in these areas.
5. Decline of physical money
In Sweden, only 1% of transactions were made with cash in 2016. Some businesses do not accept payment in cash point blank and more than half claim that they will stop accepting cash before 2025. Without going as far as this Nordic country, the European country with the highest volume of cashless payments is the United Kingdom, with 10.67 billion euros in volume in 2017. In Spain, this figure is reduced to 1.16 billion. The arrival of payment systems that are even more convenient than the traditional card, such as contactless enabled by NFC technology, is quickly making cash become old-fashioned. The most common payments of this form are given in public transport (91% of payments), food (53%) and books and magazines (49%), according to a study conducted in the United Kingdom, that also places the youngest people as the most open to these types of payments and the elderly as the least predisposed.
6. Unstoppable development of open banking
Linked to the six previous tendencies, we have the latter that cuts across all of them. The advent of open banking, understood as the empowerment of the customer who is given full control of their data so that they can be shared between different companies (their bank, the startup that helps them with their day-to-day accounts through an app, etc.), has changed everything and will continue to do so. According to a study by Deloitte, by 2019 some banks will have completely replaced their old legacy systems, while others are opting for microservices and cloud applications, while gradually reducing the dependence on previous systems. According to this consultancy firm, in the next 12 months, 22% of banks will already have deployed their own API platforms and 39% will be working fully on it; 30% will already have launched their own Big Data platforms and 30% will be working on it; and 22% will have implemented their own artificial intelligence and machine learning platforms to -for example- feed their CUIs, and 36% will be working hard on it to not be left behind. All this will take us to a scenario that perfectly sums up a response by Andre Durand, CEO of the fintech Ping Identity, to a question in an interview for McKinsey: “The beauty of open banking is that it has taken much of the ambiguity out and the resulting interoperability will be massive.”
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