Banktech and Payments: What to expect in 2021

After a whirlwind of a year, industry observers predict the bankings and payments sectors will only see more innovation in 2021

The banktech and payments sectors underwent significant transformations in 2020 with the movement toward digital, contactless transactions taking center stage. But what can we expect out of the banktech and payments industries in 2021? FinLedger talked to a few industry insiders to get their thoughts.

Steve Smith, CEO of Finicity

As the country looks to 2021 with hopes for an economic recovery, strong consumer credit will be one of the last steps in this recovery. While consumer confidence remains stable and more government aid will provide a temporary boost, credit scores lag. I expect that we’ll see credit scores decline later in 2021. 

A survey we conducted this year anticipates this credit crisis: nearly two-thirds of consumers (65%) are concerned their credit score will go down in the next 6 months because of the pandemic, and 70% think the need for a better credit review process is more urgent because of this economic downturn. Banks and financial institutions will need to look past lagging indicators such as traditional credit scores, and I believe we’ll see an expansion of platforms like open banking for a more complete, real-time view into individual and organizational financial health. 

Junta Nakai, global industry leader for financial services, Databricks

Open banking is going to do what open source did to software. Open banking is quickly becoming law across major markets around the world. While it is not yet widely known in the United States, open banking represents a significant paradigm shift for banks. At its core, open banking is about data ownership. It forces incumbent institutions to open up access to customer data to third-party developers. Banks will be forced to move from a historically “closed” model, to an “open” model where customer data now belongs to the customer and thus data can be moved across institutions. It increases the risk that incumbent banks will become invisible to the end customer. 

Open banking will do the same thing to banking that open source did to software. Specifically, starting in 2021, it will spur innovation, render old business models obsolete and bring transparency to banking services. We have historic precedent. In the 2010s, as open source became prevalent in software, it significantly accelerated innovation. Agile incumbents and startups that embraced an open mindset were able to capture outsized value. Similarly, in open banking, incumbents that survive and thrive in this paradigm will need to become more innovative, data-driven and cost-efficient. A modern and simplified tech stack will become a prerequisite to competing in an open banking paradigm. While open banking is primarily centered around West Europe and Australia at the moment, the repercussions will be quickly felt around the world.

Simon Wu, investment director, Cathay Innovation

Incumbent banks will leverage their distribution advantage to embrace the fintech surge.

Similar to how trading commissions disappeared overnight, traditional banks will need to modernize to stay relevant with the rise of fintech. Incumbent banks will increasingly look to find ways to incorporate themselves into this new wave of finance by leveraging their brand and distribution to form partnerships. However, depending on the integration, the role of the traditional bank may change completely as new apps are dominating the mindshare of consumers. 

Chuck Huang, founder & CEO of mobile payments company Citcon

In 2020, we saw a dramatic shift toward contactless payments in the U.S. amid the pandemic. While all forms of contactless payments saw a bump in growth, QR codes accelerated especially quickly for brands looking for a long-term, cost-effective and versatile solution. We’ll continue to see this growth in 2021, especially in virtual shopping environments as safety-conscious brands look to provide a secure way for consumers to make purchases on their e-commerce sites. 

QR code-based payments will also help consumer-facing industries such as retail, quick-service restaurants, big box stores and grocery stores get back on their feet after a tough year. Not only do QR codes offer a safe way to pay that eliminates the microinteractions often associated with NFC-based payments such as Apple Pay, they also give merchants new ways to get to know their customers better. For example, adding QR codes to existing loyalty programs allows merchants to uncover a new world of customer data that can help drive better user experiences.

Eliot Buchanan, CEO and co-founder at Plastiq

Payments-as-a-service has become the norm. AI-driven payment intelligence is making payments easier than ever before for businesses. Using a combination of data science and pattern recognition, these smart products can now recommend how best to make a payment (ACH, credit card, etc.) based on the payment type and amount of cash a business has on hand. This is especially important for smaller companies watching their cash flow that don’t have the expertise to manage it themselves.

Businesses will remain with their banks for core banking, but will move to fintechs for other services. No fintech company has been able to replace a bank as a trusted, secure place to store their money, but the increased credibility and awareness of fintech solutions has helped businesses become more comfortable using them for other services, such as making payments or securing loans.

Fintech will be key in helping businesses bounce back post-COVID. Many industries, from hospitality and restaurants to e-commerce and retail, took massive hits during the pandemic and resulting recession. As businesses come back online as things return to normal, fintech solutions will be incredibly helpful in getting them back on track and helping them become more consistent with their capital management and payments so they can grow faster and access working capital.

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