The current context in Fintech | Mobile Banking & Digital Financial Services transformation

"People need banking, not banks." 
– Ranjit Sarai, President's Choice Financial

Over the past years, there have been several events that had a direct impact on accelerating the growth of Fintech, some of which are:

• The COVID-19 pandemic.
• The Open Banking Directive (e.g., PSD2 in the E.U.).
• Banking as a service platform emerging.

The COVID-19 pandemic

As the outburst of the COVID-19 pandemic affects many industries, it has also resulted in certain beneficiaries. The technology sector, in particular, companies enabling communication and exchange of goods and services over distance, have seen a notable growth.

The fintech world is no different. With the lockdown restrictions and the safety measures worldwide, financial institutions that have managed to continue serving their customers through mobile applications have seen a significant increase in downloads and usage.

A 2020 research by the Swiss Finance Institute estimated that the spread of COVID-19 and related lockdowns resulted in a between 24 and 32 percent increase 📈  in the relative rate of daily application downloads in the financial industry. In absolute numbers, this would translate into an average daily increase of roughly 5.2 to 6.3 million application downloads. This means essential financial functions quickly changed and identified new ways of working - ways that are usually approved by early adopters, but due to the social and economic context, they were quickly adopted by the masses and will definitely impact the fintech industry!

The already emerging digitalization trend

At the same time, the world was already heading towards an accelerated digitalization. From online shopping of clothes or food order, all the way to purchasing a vehicle (e.g., Tesla). If one needed at least a physical auto dealer visit in the past, now there are more and more transactions where people buy a car without even seeing or even test-driving it before.

The finance industry might not have been the fastest to adapt to this trend, but it has seen an accelerated upward trend over the past few years and is now receiving another boost with the global pandemic. 

The trend is shifting from a world where a bank visit was required to open an account to one where a bank account can be opened from the comfort of your home or even while commuting. Simultaneously, the entry barrier for investing (in assets of various kinds, e.g., stocks, bonds) is being lowered, making investment more accessible to a wider audience.

"The major winners will be financial services companies that embrace technology."
– Alexander Peh, PayPal, and Braintree

At the same time, it has now become easier and quicker than ever for small businesses or traditional banks to digitize their financial services. With the Open Banking regulations, such as PSD2 in the European Union, to banking-as-a-service platforms, companies can now reach go-to-market faster than before, even without requiring a banking license.

According to Juniper research in 2018, the number of iOS and Android mobile banking application users will grow with a 14% year-over-year rate, while the traditional online banking clients will only have 6% users.

While many fintech companies might've hit different barriers due to the regulations, in the past, with the latest changes, the new challenges come from building a product that covers users' needs while focusing on impressive visuals (UX/UI).

Mobile Banking & Digital Financial Services - The only viable way forward

Since the outbreak of the COVID-19 pandemic, as nations or regions entered quarantines, people have been either not allowed or hesitant (for safety reasons) from going to physical banks. Digital banking is becoming the only viable option, and we believe the trend will not go away once the pandemic is over.

"Key challenge in the 2020s will be to change the mindset in many banks from one of a finance company to one of a technology company." 
– Mark Swain, Banking 2020: Transform yourself in the new era of financial services

If before the COVID-19 outbreak, just 15% of the European Union employees had ever teleworked, an ad hoc online survey from Eurofound (2020) estimated that close to 40% of those working in the E.U. began to telework fulltime as a result of the pandemic.

USA online banking statistics show that 80% of Americans would rather use digital banking than visiting a brick-and-mortar branch.

Major companies like Twitter are announcing that they will continue to work from home entirely, even after COVID-19, while many big corporations and small and medium businesses are adapting their office spaces for a post-COVID world where work from home is not going to go away.

Considering all of the above, the future of fintech seems to be looking a lot more digital, with staffless bank branches (and reduced number of branches altogether), A.I., robots, and open banking.

Banks are already starting to close down branches.

In September 2020, TBS Bank announced that it would shut down a third of its branches. Debbie Crosbie, TSB chief executive, mentioned: "Closing any of our branches is never an easy decision, but our customers are banking differently — with a marked shift to digital banking. We are reshaping our business to transform the customer experience and set us up for the future." (source).

In 2017 and 2022, the number of retail bank branches was projected to drop by 36 percent - online banking growth statistics show.

We believe that at the core of any successful app lays a well thought and executed UX/UI Design. Leanplum and Liftoff had reported that after one day of signing up for a financial application, only 34.8 percent of users remain. After one week, this number decreased to 14.9 percent, and after 90 days, it is only 3.4 percent. The biggest challenge comes from building an app that drives user engagement, and we believe that a premium user experience is vital. According to the FIS Global 2018 survey, community banks' customers rate their app experience as falling below expectations. 

Key takeaways

• The current COVID-19 context in the world is accelerating digitalization.
• Changes in the past years, like The Open Banking Directive, make it the perfect timing for Fintech.
• Fintech mobile applications seem to be a viable way forward.
• A well thought and user-friendly UX/UI Design is key to a successful mobile app.

We believe that, given the current context, the upcoming years are going to see major changes in fintech and are going to change the way we think of banking and investment. Digitalization is going to be at the foundation of this change, and building meaningful apps with a great focus on user experience and modern visuals will be a key differentiator.

At Wolfpack Digital, we're already seeing this trend in the amazing fintech apps we are contributing to - apps that will change the way we will think of investments, money transfers, and many more and we're excited to see what the future holds.