“The next era of fintech is going to be special. We are going to see incredible changes that will move the needle for the sector, says a report ‘The Building Blocks of Fintech 2.0’ by Money 20/20.
Fintech has become a vital part of the economy during Covid and will become even more critical, it said.
The industry will move beyond distribution and marketing to reimagine its core offerings.
“Just as the last downturn triggered the first era of fintech, the pandemic accelerated digital adoption and triggered a new era, which we are calling Fintech 2.0,” it said.
The report has identified Central Bank Digital Currencies (CBDCs), Banking technology stacks, commerce experiences, data and ecosystem as building blocks of the Fintech 2.0 revolution.
Central Bank Digital Currencies (CBDCs)
Within three years, five of the ten largest economies will have CBDCs in the market, it said.
While CBDCs raise security and sovereignty concerns, they could in fact increase security, transparency, and control. CBDC implementations will vary with most developed economies issuing tokens backed by their governments while several emerging economies will issue tokens backed by cryptocurrencies like Bitcoin & Ethereum, it said.
Banking Technology Stacks
Within three years, banking tech stacks will be predominantly cloud-based, with significant elements of core processing being open-source based within five years.
Banks large and small have reassessed and revamped core processes and operations due to lockdowns and limited physical access. Cloud-based systems are the workhorses of big tech, and banks will need to move in this direction to keep pace with capabilities, efficiencies, and expectations. The black box of core systems is being exposed, also representing opportunities for open-source systems to play a greater part. While open source technologies have been a major force in general technology, they’ve had limited adoption in financial services. Similar to how APIs, open-source will simplify development.
Within five years, personalised cross-platform digital algorithms or Super-Agents will represent 20% of retail commerce transactions.
As commerce becomes experiential, segmented, and embedded with both physical and digital use cases, the key consumer value proposition shifts from things like product assortment to personalised algorithms. These algorithms, portable across platforms, acting like agents,
will have purchasing, borrowing and payment capabilities embedded inside. Incorporating current context and future plans, digital agents will use AI and predictive analytics with consumer permission. Digital agents will process data from web bots, IOT devices, consumer behaviour and preferences, and use predictive algorithms to make decisions and drive action.
The business usage of data follows a similar trajectory with initial data projects being haphazard and depending upon chance.
Computers enabled the cultivation of small-scale data, moving on to rudimentary analytics, then to AI and Big data today. Looking ahead, there will be a shift from Big data and Good data driven by consumer desire for control, regulatory desire for safety and business desire for ROI. Access to Good data will drive the greatest value creation in the ecosystem.
Digitisation of the economy is moving fintech value propositions from nice-to-have to must have. Market reactions including increased investment, sales and valuations can be viewed as rational or insane depending on perspective. It does appear that fintech is following trajectories of other industries moving from the periphery to center stage.
Applications for sectors
Fintech solutions could provide a competitive advantage to ecommerce, which is moving from marketplaces to seamless experiences spanning digital and physical. For example, while new streaming media services seem to be launched monthly, a micropayment or crypto based service could be differentiating.
Finance will shift from adapting existing infrastructure to developing digitally native finance infrastructure. This could have dramatic implications for treasury and wholesale payments on the enterprise side, and ID and fraud management on the consumer side.
Companies will need a deeper understanding of how their value proposition fits into customer situations across the supply chain. As an analogy, soda brands produce syrup for bottlers and restaurants, and bottles for stores and consumers. Adapting products and services to meet customer situations, will be critical.