Like every other industry in a COVID-19 induced new normal, the financial services industry too witnessed the sudden acceleration in digitisation and digital engagement. Exchanges moved to remote- trading, after the trading floors were shut, mobile banking transactions reached peak volumes, personal trading apps saw a record number of transactions as well, and remote-working became widespread.
The winds of change for the financial services sector were too abrupt but key players have managed to emerge stronger from the digital maelstrom. Many of these changes are here to the stay, and the financial services industry is probably better off with these changes. Adapting to the new normal has required a strategic approach by financial institutions, who had to take a long-term view of the digital tools and technologies that were adopted. Based on insights by Forbes, highlighted below are the key trends shaping the financial services industry in 2021:
Legacy core systems will get modernized: Financial infrastructure was put to the test in 2020, and extant architecture planning assumptions were challenged. Many of these core systems were not equipped to deal with the pace and scale of changes required. While certain US specific relief programmes like the Payment Protection Program witnessed significant demands, the process of manual reviews and approvals acted as bottlenecks. The credit needs of medium and small businesses soared, lenders with legacy risk management and underwriting systems found themselves struggling to meet demands. The nature of slow-moving information, data pipelines that take an eternity, batch-based, and fragmented systems served to hinder the efficacy and speed of the financial services sector. There is a heightened awareness today to adopt technologies that are agile, moden, secure, resilient, and scalable.
Cashless banking in the digital age: Cashless and contactless payments had already become a way of life in Asia and Europe for many, prior to the pandemic. Today, even the countries that were resistant to cashless and contactless payments prior are witnessing an increase in cashless payments. The trend towards cashless and contactless payments shall continue in 2021. 74 percent of consumers worldwide have stated that they shall continue to use contactless payments even once the COVID-19 pandemic ends. The market size for contactless payments is expected to grow from $10.3 billion in 2020 to $ 18 billion by 2025, at a CAGR of 11.7% during the period from 2020-2025.
Traditional banking and fintech players are expected to collaborate to bring in new financial apps for specific segments and use-cases.
3) Insurance becomes personal: The COVID-19 pandemic has been a period of heightened uncertainty. It has led to economic distress, an uncertain future, and a major health crisis. Insurance companies have changed their business models to offer better comfort, peace of mind, and stability to their customers. For instance, providers of auto insurance gave refunds or discounts with their auto-insurance products, as driving saw a decline. Further, health insurance companies made changes to their premiums to depict a decline in non-essential surgeries.
Today, financial products are tailored to the needs of its target customers better and this level of hyper-personalization is expected to continue.
Focus on digital first
Consumers increased reliance on digital banking solutions and mobile payment solutions has led to the financial services sector changing its business models. Leading players will continue to invest in data and analytics tools, enhanced digital platform capabilities, and artificial intelligence.
Changes will be seen across the sector that encompasses regulators and supervisors, financial services institutions, and financial vendors. Financial service players will have to work together to create a framework for operations in the digital age, and to bring in more inclusive, safer, cheaper, and equitable financial markets.