Fintech Challenges to Conquer in 2021: Major Issues in the Financial Technology Sphere
In the ever-evolving world of finance, 2021 is set to be a transformative year as the fintech sector continues to reshape the financial services landscape. Here are some key trends that are expected to dominate the fintech scene this year.
Predicted Disintermediation of the Banking System
The disintermediation of traditional banking systems is a hot topic in the fintech sphere, with technological advancements set to redefine the role of banks as intermediaries. Innovations such as Embedded Finance, Banking-as-a-Service (BaaS), and digital currencies are expected to integrate financial services directly into various non-banking platforms and everyday transactions.
Embedded Finance and BaaS are anticipated to accelerate the erosion of traditional banks’ roles by embedding financial products into non-financial platforms like e-commerce and HR systems. Central Bank Digital Currencies (CBDCs) could influence disintermediation dynamics by potentially allowing consumers and businesses to hold digital currency directly with central banks, reducing reliance on commercial banks for deposits and transactions.
The rise of stablecoins, as discussed in emerging strategies like the US Digital Assets Strategy, is also projected to offer alternative means for everyday payments, further challenging traditional payment infrastructures and bank-mediated transactions.
Key Benefits of Fintech Disintermediation
The anticipated shift towards fintech-driven disintermediation promises significant benefits, including enhanced customer experience, increased efficiency and speed, broader financial inclusion, and innovation and new revenue streams for banks.
Investment Opportunities for Mainstream Investors
Robinhood has made investing more accessible by offering a user-friendly mobile interface, product innovations like fractional shares, and commission-free trading, lowering the capital required to participate. Seema Amble, a partner at the website, predicts an increase in the availability and accessibility of alternative asset classes to mainstream investors in 2021 and beyond, with tech platforms developing innovative ways to educate new investors and encourage engagement with these new asset classes.
New Channels for Distribution
Fintech companies are looking for new, better ways to differentiate themselves through distribution. Anish Acharya, an entrepreneur and general partner at the website, anticipates the emergence of new fintech products that are "social" in 2021, products that have more utility when used with others, creating a functional and emotional incentive for users to help drive distribution.
Expanding Fintech Community
The fintech community has continued to grow in 2021, with over 180 fintech entrepreneurs reaching out in less than 48 hours in response to a tweet offering to help find a cofounder. Fintech companies are partnering with physical locations such as SoFi Stadium and the Chime x Mavericks partnership, and exploring offline distribution avenues like leveraging existing communities and affinity groups.
Fintech founders are able to recruit from a deep bench of industry talent, and referrals from friends and influencers/creators are being used as a marketing strategy for financial services and products. Tech-enabled marketplaces have emerged to centralize and facilitate the trading of alternative asset classes for retail investors, often offering fractionalized ownership to lower the barrier to entry.
In conclusion, 2021 is poised to be a year of transformative change in the fintech sector, with innovations set to redefine the role of banks as intermediaries, make investment opportunities more accessible, and create new channels for distribution. These changes promise significant benefits in efficiency, inclusion, and user experience, though challenges related to regulatory oversight, financial stability, and privacy will need to be addressed.
- The disintermediation of traditional banking systems, driven by innovations like Embedded Finance, BaaS, and digital currencies, is expected to reshape the role of banks in the fintech industry, integrating financial services directly into various non-banking platforms.
- Mainstream investors may have increased accessibility to alternative asset classes in 2021 and beyond, as fintech platforms develop innovative ways to educate and engage new investors, following the lead of companies like Robinhood.
- As the fintech community grows, fintech companies are exploring offline distribution avenues, such as utilizing existing communities and leveraging influencer marketing strategies, to differentiate themselves and reach a wider audience.
