{"id":39374,"date":"2022-02-07T11:32:41","date_gmt":"2022-02-07T10:32:41","guid":{"rendered":"https:\/\/intellias.com\/?p=39374"},"modified":"2023-10-04T14:27:29","modified_gmt":"2023-10-04T12:27:29","slug":"the-future-of-finance-an-outlook-for-the-next-decade-2022-2030","status":"publish","type":"blog","link":"https:\/\/intellias.com\/future-of-finance-outlook-for-next-decade\/","title":{"rendered":"The Future of Finance: An Outlook for the Next Decade (2022\u20132030)"},"content":{"rendered":"

The past two years were a litmus test of sorts for all standard operating procedures and technical systems in the financial sector. It showed both inefficiencies and deficiencies \u2014 broken digital account opening processes, subpar back-office procedures, and a lack of online customer engagement mechanisms.<\/p>\n

We\u2019ve all learned our lessons and know who\u2019s a winner. But let\u2019s be real: this was just another crisis. More will come and go. Yet banking will remain an in-demand service.<\/p>\n

The question many are now asking is who will own the banking experience?<\/em> Traditional financial service providers, digital-first players, or tech companies? Because all of them are trying to dominate.<\/p>\n

The changing shape of financial ecosystems<\/h2>\n

As consumers, banks, and governments alike progressively recover from the economic slump, the financial sector is getting more bullish about growth prospects.<\/p>\n

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Consumers\u2019 balance sheet is in excellent, outstanding shape \u2014 coiled, ready to go and they\u2019re starting to spend money. Consumers have $2 trillion in more cash in their checking accounts than they had before Covid primarily due to reduced personal spending.<\/p>\n\t\t\t\t<\/div>\n\t\t\t\t\n\t\t\t\t\n\t\t\t\t\t <\/span> Jamie Dimon of JPMorgan<\/span><\/span>\n\t\t\t\t<\/small>\n\t\t\t<\/blockquote>\n\t\t<\/section>\n

Investment in FinTech has also resumed. In the second quarter of 2021<\/a>, US FinTech companies attracted nearly $7.5 billion in venture capital, up by 70% from a year before. Banks are gearing up for aggressive growth too. According to Forrester<\/a>, most plan to increase already lavish spending on tech by double-digit percentages in 2022.<\/p>\n

The line between FinTechs and traditional banks are getting blurrier by the minute. Technologically, the leaders in both categories are on similar levels \u2014 both have completed a major chunk of frontend and backend transformations in response to operational and customer cues.<\/p>\n

From the market perspective, incumbents still have larger customer bases and hold more capital. Successful FinTechs have managed to attract and retain only certain market segments \u2014 Millennial consumers or the underbanked \u2014 and have eroded incumbents\u2019 profitable service lines such as cross-border money transfers, personal investment, and lending to some extent.<\/p>\n

Since the mid-2010s, the financial sector has been talking about the great \u201cunbundling\u201d of banks. But we believe that somewhat different market dynamics will emerge over the next decade.<\/p>\n

Consumers are not ditching their primary<\/em> banks. They just no longer recognize one institution as primary because they\u2019ve amassed a portfolio of financial products from banks, FinTech companies, and TechFins.<\/p>\n

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The percentage of U.S. consumers using technology to manage their finances has increased from 58% to 88% (86% in the UK). More people use financial apps than social media (72%) or video streaming services (78%).<\/p>\n\t\t\t\t<\/div>\n\t\t\t\t\n\t\t\t\t\n\t\t\t\t\t <\/span> Plaid<\/span><\/span>\n\t\t\t\t<\/small>\n\t\t\t<\/blockquote>\n\t\t<\/section>\n

What\u2019s more, the growth has been tremendous among all demographics including Baby Boomers, with whom adoption of digital banking surged from 39% to 79%<\/a> over the past year.<\/p>\n

Thanks to technology, FinTech companies have commoditized access to what was once seen as complex or exorbitantly expensive services \u2014 personal financial management, fast loan pre-qualification and approvals, portfolio management, and so on.<\/p>\n

However, because of unbundling, no financial player now has a complete view into consumers\u2019 financial lives \u2014 not even a consumer\u2019s primary banking institution. And that\u2019s the challenge the industry will have to tackle next.<\/p>\n

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Embrace digitalization in banking and benefit from a full spectrum of digital banking development services by Intellias<\/p>\n

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Financial trends for 2022: A shift to ecosystems<\/h2>\n

Banks and FinTechs now occupy equal space on consumers\u2019 phones (and in their minds). But the problem is that everyone has limited mental bandwidth.<\/p>\n

When financial products become too numerous, one of them must go. Or bundle back up with others, but on better terms.<\/b><\/p>\n

Banks and FinTechs are aware that they cannot capture the market without each other\u2019s help. The bar for the connected customer experience<\/a> is set high. Few can reach it fast enough on their own.<\/p>\n

For banks, legacy technology and lack of expertise often stand in the way of agile finances<\/a>. FinTechs, on the contrary, can\u2019t make the regulatory machine move faster than it goes. Similarly, aggressive customer acquisition and market expansion also require time and\/or major cash injections.<\/p>\n

Finally, growth and innovation are hard to pull off on your own. Every side has its strengths and weaknesses:<\/p>\n

\"The<\/a><\/p>\n

But together, banks and FinTechs can complement and reinforce each other.<\/p>\n

Today, it\u2019s no longer bank vs FinTech or bank vs neobank. There are leaders at each end as well as laggards struggling to catch up. In the middle stands a confused consumer who was first enticed by the accessibility and variety of financial offers but now wants clarity and convenience above all else.<\/p>\n

The financial market has enough room for everyone, especially if all players join forces and start working on an equitable ecosystem, where value trickles from one player to another through joint offers, tech and operational partnerships, and transparent data exchanges.<\/p>\n

\"The<\/a><\/p>\n

In the next decade, ecosystems will be an industry mega-trend that serves as a springboard for other shifts.<\/p>\n

In 2022, we\u2019re already seeing some moves in that direction.<\/p>\n

1. Embedded finance and financial services from tech companies<\/h3>\n

Over 90% of multinational companies<\/a> have mentioned planning to expand their activities in business ecosystems. Many of them (not just GAFA) are looking to move to the financial turf.<\/p>\n

Open Banking<\/a> has reduced the barrier to accessing financial services, and tech-led companies are profiting from this. What\u2019s more, they already have an edge over traditional banks thanks to a convenient online experience (or the ability to create one).<\/p>\n

That\u2019s a major advantage because 81% of adults<\/a> say the quality of the online experience determines who they bank with. All generations favor a stellar digital banking experience.<\/p>\n

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46% of those in the 55+ age group stated that online banking experience was \u201cvery important\u201d compared to only 26% of 18-24-year-olds.<\/p>\n\t\t\t\t<\/div>\n\t\t\t\t\n\t\t\t\t\n\t\t\t\t\t <\/span> UK Finance<\/span><\/span>\n\t\t\t\t<\/small>\n\t\t\t<\/blockquote>\n\t\t<\/section>\n

But the bigger question is who will deliver it and how?<\/em><\/p>\n

In the next decade, innovation won\u2019t just come from existing financial service providers. Companies adding financial services for the very first time will partner with existing market players to launch embedded financial services or joint products.<\/p>\n

We are already seeing this in the works:<\/p>\n