As the Fintech sector emerges from a COVID-19-ravaged 2020, it has seen exponential growth, new players, and significant change. The absence of physical contact drove a shift in the way companies conduct business. On the flip side, consumers also felt the impact. Many were forced to move to easy-to-use services to access and utilize their funds.
Driven by this and other factors, the Fintech sector's popularity has reached over 90% awareness of at least one Fintech product or service. What all of this means is that Fintech continues to grow and evolve at such a rapid rate, sometimes it’s hard to get your arms around what it really encompasses.
Here are three sectors that are leading the way in driving Fintech's growth that you should watch:
1. Embedded Finance
Embedded finance is the integration of financial tools or services in non-financial areas. As one example, companies like Amazon are offering on-demand financing at time of purchase. Another example lies in mobile apps streamlining the in-app purchase experience by embedding Venmo or other direct pay services.
This category is poised for major growth – it’s estimated to generate more than $7 trillion in revenue over the next decade.
The main benefits of embedded finance offerings for businesses are two-fold. First, it opens up additional revenue streams through new product and service offerings, either built in-house or through partnerships with Fintech providers. Additionally, it lets organizations control and oversee more of their customer experience, which can streamline processes and deliver valuable customer data.
2. Open Banking
Open banking and Open Finance allow a customer’s banking data to be accessed by third-party organizations through the use of application-programming interfaces (APIs). By providing this ease of access, they're giving traditional banks a run for their money by allowing consumers to use multiple offerings such as flexible high-income-generating investments, credit cards, and other offerings. Additionally, budget apps and price comparison tools are prime examples of the wide use of Open Banking applications..
While these services come with some security risks for customers, the use of APIs is more secure than other data -haring techniques. The benefits for companies lie in greater access to customer data and an ability to provide insights or services based on that data.
3. Banking as a Service
But it works both ways! Banking as a service allows financial institutions to incorporate external Fintech services and products into their existing offering without having to develop them in-house. If open banking is the B2C arm of this Fintech offering, banking as a service is its B2B counterpart.
COVID-19 pushed traditional banks to expand their digital services more rapidly than they had planned, as many consumers could not physically get to the banks. This acceleration of services is excellent news for consumers and one of the positives that came out of a trying year.
Financial institutions are working hard to integrate more Fintech digital banking and payment services into their customer experience. While they may sacrifice some degree of control over services and customer data that was the norm for financial institutions, they, in exchange, can bring new products and services to their customers quickly and avoid the cost and uncertainty of in-house product development.