Learning from Global FinTech Trends in 2021: Opportunities and Challenges
The financial technology sector has faced multiple challenges in the last year. Like many other industries worldwide, the finance sector lost its workforce, and many businesses had to close down. But inefficiencies bring new opportunities, leading the way for FinTech companies and startups to emerge and take the role of aiding those affected.
Fintech and Sustainable Innovation center Rockit initiated a global discussion with FinTech experts from Sweden, UK, Switzerland, and Lithuania to understand FinTech’s objectives and challenges outside the Lithuanian ecosystem and see where the sector is headed.
Inefficiencies create new opportunities
Challenges of yesterday create opportunities for tomorrow. Last year has brought a sense of urgency to adapt. Many financial institutions and banks expedited digitalization to make financial services accessible and secure from the comfort of your home.
The crisis has also brought banks and FinTechs closer together and inspired future partnerships. Knowledge and technology sharing sparked the growth of embedded finance, alternative finance, digital platforms, improved data security, and more attention to sustainability.
‘COVID has increased the pace in a few areas, if you talk about anti-money laundering, ESG. They’re seeking solutions very actively at the moment,’ said Anders Norlin, CEO and Board Member at Findec. He explained that with traditional and neobanks being more open for collaborations and implementing new technologies, 2021 is set off to a great start.
Despite a fast reaction from FinTechs, traditional banks couldn’t adapt as quickly, which triggered the demand for alternative types of insurances and loans, bringing consumers closer to FinTech solutions.
However, Rūta Merkevičiūtė, Head of Division, Payments market supervision at the Bank of Lithuania, explained that based on the circumstances, banks showed flexibility. Many banks launched digital consumer platforms, facilitating payment operations to make traditional banking in-tune with the current consumer needs and the new normal.
Moreover, not only banks and financial institutions accelerated their technological development and digitalization. Cyberattacks and money laundering are becoming more advanced each day, raising new risks for FinTechs.
No mistakes in cybersecurity are allowed
Transition to digital environments in the midst of the pandemic created favorable conditions for cybercrimes to thrive. The European Union Agency for Cybersecurity (ENISA) warns that in the COVID-19 times, online attacks such as phishing, identity theft, ransomware increase, putting financial institutions and banks in a susceptible position.
Gerrit Sindermann, GM, Country Success Lead Switzerland at F10 FinTech Incubator & Accelerator believes that money laundering and cyberattacks are aftereffects of digitalization, ‘Anything that’s software-driven and globally connected scales much better and applies for the opportunities, but also the threats. When we talk about anti-money laundering, while it’s much faster now, also money laundering will be faster.’
Not only do cyberattacks possess data privacy and violation risks, but they also cost billions for banks and other financial institutions. ‘The cost is about 150 to 200 billion USD per year, increasing 10% per year. That itself implies it’s a massive area to improve,’ Anders Norlin explained the severity of the problem.
Banks and FinTech companies are ready to invest in data protection. However, for young startups, the threat of cyberattacks can be fatal, therefore future collaborations and knowledge-sharing are very likely to be a solution in fighting cybercrime. According to Rūta Merkevičiūtė, banks now try to collaborate with FinTechs to integrate technologies that could help solve growing data violation risks in the future.
Global FinTech picture and China’s role
Stepping back from Lithuania and Europe “bubble” it is important to see how FinTech is evolving worldwide. Investors and companies looking to grow to wonder whether expansion to developing economies is a smart decision and how they could use the Western experience to benefit the most.
Like in Europe, FinTech is also booming in the US, South America, Africa, and China. While some believe that developing markets could learn a lot from European startups, others say that China, for example, is in many ways ahead of Western countries.
Sharon Kimathi, Editor at FinTech Futures, agreed, saying that ‘China has always been at the forefront, and I think the rest of these players are pretty much following what it is that they’ve already had for many years.’
She added that technologies in the Chinese population play a vital role in FinTech development. ‘Their market is happy to work with their phones for pretty much everything. Then they just grew from that. And I think Silicon Valley ended up taking a slice of that cake and saying, ‘actually, yeah, it looks like that’s where we’re headed.’ And that’s why there’s been such a growth in embedded finance with so many different standards. ‘
One of the reasons China is ahead is because its central government is pushing for innovation, said Mr. Sindermann. ‘It’s an example hard to replicate, but with a centralized government giving a strong push in investing and defining long-term plans, investing in building cities that are completely focused on business. I think that dedicated leadership on a political level can actually leapfrog from a follow-up position into a leadership position.’
Although emerging markets become more attractive for investors and businesses, there’s still a lot of work to do in the European FinTech ecosystem.
Where is FinTech headed in 2021?
Despite all the obstacles, experts expect positive trends in the FinTech sector in the upcoming years. Embedded finance, acquisitions, collaborations between traditional and neobanks, sustainability, and data-driven solutions will be leading the way in the upcoming years.
While banks and FinTechs focus on digitalization and expansion to foreign markets, they shouldn’t forget customers. ‘Smooth, safe, sustainable,’ should be the goal of leading banks and FinTechs, according to Rūta Merkevičiūtė.
When Lithuania and other European FinTech markets are doing great, it’s easy to oversee the bigger picture. The current health crisis proved that banks and FinTechs need to work hard to be ahead of challenges, better understand their customers, and create accessible and safe services for everyone.
Trends are prepared by FinTech hub in Lithuania – Rockit.