2020 accelerated the transformative processes that began earlier and highlighted systemic problems that the financial market has not found the solutions to yet. Experts from the international investment company Digital Horizon analyzed the European markets during the pandemic and tried to predict how fintech trends will develop going further.

The full version of the report, with examples of fintech product developments, is available at 2021.digitalhorizon.vc.

Trend #1. Embedded finance

2021 will push banks further away from customers. Embedded finance tools make it possible to integrate payments, debit cards, loans, insurance, and even investment instruments into almost any non-financial product. For example, you can get a loan directly on an online store or supplier company website without filling out any forms. In turn, applications that are seemingly unrelated to finance can now process such transactions. This approach will drive up the profits of banks and fintech companies because they will be able to go up against competitors that are pulling customers into their banking applications.

Trend #2. Real-time data

Information about clients’ financials is becoming outdated so quickly that banks need to track it in almost real-time for decision-making reasons. But more data leads to an increased load on data departments. Consequently, it increases computing costs. Therefore, we can anticipate the rapid growth of analytical and scoring products that can provide real-time insights, calculate historical scoring, and make predictions based on big data.

Trend #3. Transformation of insurance and loans

New user scenarios force us to look differently at traditional financial products. Insurance is going in the direction of loans, loans are getting integrated into areas that were dominated by insurance, and hybrid models are combining credit and insurance components - for example, security deposit financing solutions for renters.

Trend #4. Self-driving finance

2020 has shaken up our financial discipline even further and forced people to look for new ways to maintain and increase their savings. The answer to this is automated financial solutions, the first prototypes being round-up bank accounts. But fintech products can do more. Both regular users and businesses are waiting for a self-driving treasurer that will distribute funds across bank accounts on the best terms.

Trend #5. Account-to-account payments

The pandemic has led to a sharp increase in online payments and exacerbated the issue of transaction costs. The business sector is bringing the request for alternative methods of online payments to the foreground, including e-wallets, QR codes, and cryptocurrencies. Clearly, international payment systems are not going to disappear. However, there will be new developments that will change the roles of Visa, Mastercard, and acquiring banks.

Trend #6. Low-code fintech

Traditional financial institutions have accelerated infrastructure upgrades and digitalization, which creates the trend of simplifying digital infrastructure. In the short term, this will imply low-code developments (i.e., requiring little coding knowledge) and in the long term - no-code solutions. In the future, banks will be able to provide customized solutions to meet customer needs as best as possible.

Trend #7. Rise of digital assets

Following China, in 2020, dozens of countries announced that they were developing their own digital currencies or exploring such an option. At the same time, regulators tightened control over cryptocurrencies, requiring crypto services to identify users the same way as banks do. As a result, many financial industry players changed direction and focused on creating a hybrid model with digital assets. PayPal, BBVA, and Visa have already launched crypto solutions; others are closely monitoring the leaders. In 2021, incumbent players are likely to not only develop their own crypto products but also integrate third-party ones.

Alan Vaksman, Founder and Managing Partner of Digital Horizon:

"2021 will push banks further away from customers, demonstrating the limited value of banking apps. The growing competition with fintech companies is pushing conventional financial institutions to seek new customer touchpoints through third-party products and services where they can integrate conventional functionality, such as payments and loans, using embedded finance technologies. These can be marketplaces, aggregators, accounting software, business schedulers, games, streaming services - any digital space where users consume products or services. This approach allows banks to service millions of transactions while reducing customer acquisition and infrastructure maintenance costs. These changes will be gradual. But, at the same time, they will be deep-rooted, systemic and long-term: banks are gradually turning into regulated SaaS companies".

The lessons of the COVID-19 pandemic revealed both bottlenecks and the most promising areas for financial developments. Embedded finance, account-to-account payments, smart real-time data, low-code fintech, hybrid products, and digital assets ― European tech companies are sufficiently experienced in these areas. That being said, the entire financial system strives to enable users - both individuals and legal entities - to make the best financial decisions. This is undeniably the main long-term fintech trend.

Learn more at 2021.digitalhorizon.vc.

About the company

Digital Horizon is an international investment company that brings together a venture fund and a venture builder. The Digital Horizon venture fund invests in early-stage startups that have working products and promising solutions for the financial industry, e-commerce, education and enterprise software. Together with strategic partners, the venture builder creates breakthrough projects in finance, retail, marketing, and media. The Digital Horizon team has unique expertise and extensive network connections in target industries.