There are just a few days left of 2020, a year marked by unprecedented disruption and seismic shifts in technology.

From the growth of digital and app-based banking services to the evolution of Open Banking and cloud adoption as the pandemic forced a pivot to remote working, 2020 was the year that separated the digital leaders from the laggards.

So, while this year has taught us to expect the unexpected, it’s now time to take out our crystal ball and look at what 2021 might have in store for the world of financial technology.

As ever, we’ve asked a range of experts from across the industry for their reflections on the past year and thoughts on what’s to come in the next 12 months…


Safety first

Plans have had to change drastically in light of the coronavirus pandemic. Covid-19 has forced a different approach – one that puts safety first.

It’s also something that has seen consumers’ habits completely shift online, underpinned by a need for a convenient, quick and informed approach.

The rise of digital banking was accelerated even further due to the global pandemic and the complete closure of high streets presented an all too realistic future for traditional banking institutions that could now become reality.

Ian Bradbury, Fujitsu’s chief technology officer (CTO) for financial services, reflected: “Covid-19 has had a major impact on financial services. However, it has also shown us the resilience that organisations have. Overnight, employees weren’t able to go into their offices, branches had to close and banks had to rethink the services that they provided online.

“From banking and insurance to conveyancing, financial institutions have found themselves in new scenarios, but adjusted quickly and efficiently. If anything, it has confirmed to long-standing organisations that technology isn’t to be feared because it can enable them to catch-up, adapt and innovate in a world that is increasingly becoming digital.”

And while the leading FinTechs are facing their own challenges when it comes to driving a profit, their focus on customer experience and app-based digital services have driven widespread change in consumer expectations of an ‘on-demand’ economy.

Marc Murphy, chief executive of Fenergo, a client lifecycle management solutions provider, said: “The prevalence of disruptors such as Revolut, Starling, and N26 in the market, and the experience that we each have with services like Amazon and Expedia transforming how we book and order goods, means that financial institutions have a lot of catch up to deliver a comparable experience.

“That enhanced customer experience comes through automation, human-less workflows, every participant being a digital actor on any device at any time, and really accelerating the move to true digital enablement,” he added.

The arrival of embedded FinTech

For centuries, financial services have been focused on selling traditional “products” – current accounts, loans, credit cards, but with the advent of FinTech apps and digital banking products in 2020, 2021 is set to mark the arrival of the next stage in this evolution, with financial services integrated into our everyday lives through apps, wearable tech and digital services.

“People want to buy insurance at the same time as buying a car, they want to pay for parking within Google Maps, they want to manage subscriptions from their banking app without having to sign into individual services time and again,” said Jay Wilson, investment manager at Albion VC.

“For too long consumers and businesses alike have been frustrated by the friction of finance, but 2021 will see these barriers break down. Thanks to increasing confidence in digital services, and advances in ID and verification technology and API connectivity we are on the cusp of the nirvana — engaging with Financial Services natively through touchpoints in our everyday lives.”

He added that while 2021 is likely to be another dark year for the economy, embedded FinTech “represents some light.”

From contactless to cardless payments?

The pandemic has led to a rapid acceleration in contactless payment methods, with regulators and the government moving quickly to increase the payment limit to £45 to reduce the need for pin entry and cash handling to reduce infection risk.

Figures from UK Finance have since registered record levels of contactless payments throughout 2020, with warnings that the arrival of the truly cashless society risks leaving vulnerable consumers without access to cash and with few options for continuing to manage their financial lives.

However, while the cashless revolution has bedded in during 2020, some are predicting that next year will usher in the end of physical cards, as digital wallet technology and virtual cards gain popularity.

Francesco Simoneschi, chief executive of TrueLayer, an Open Banking API provider, said: “As more customers have turned to digital channels to manage every aspect of their lives, they have experienced a poor payments experience and service.

“The problem is cards,” he explained. “They were not built for a digital-first experience and have been retrofitted into current online payment flows. Newer approaches such as Google Pay or Apple Pay paper over those cracks but don’t change the fundamentals.”

September 2021 will also see the introduction of long-awaited Strong Customer Authentication (SCA) security measures, which will require authentication based on the use of two or more elements: knowledge (something only the user knows), possession (something only the user possesses) and inherence (something the user is).

In practice, this requires extra steps at checkout, usually in the form of a one-time passcode sent via SMS, or some form of biometric authentication.

The Financial Conduct Authority (FCA) confirmed that due to the exceptional circumstances of the COVID-19 crisis, it is "giving the industry an additional six months to implement Strong Customer Authentication (SCA) for e-commerce".

The new timeline of 14 September 2021 replaces the 14 March 2021 date.

Simoneschi said the rule change will bring additional friction to the customer experience.

“With Open Banking payments, authentication is integrated in the payment flow, often with the consumer using biometrics such as fingerprint or face ID to identify themselves in their banking platform,” he said. “There is a huge opportunity for banks to improve the experience, removing legacy card infrastructure and move money at a fraction of the cost, more securely and with a higher level of consumer experience and convenience.”

He added: “Cards have had their time. 2021 will be the year the future of open payments architectures powered by Open Banking capabilities come into their own. We will see significant investment in innovative payments products and services built on top of Open Banking, driving further adoption, for a better user experience.”

Buy Now Pay Later

The consumer lending model has been transforming for some time now, with transactions themselves becoming an opportunity for payments innovation. There has been significant growth in Buy Now Pay Later models such as Klarna and ClearPay, with industry leaders such as PayPal following suit as retailers and consumers realised the opportunity in payment by instalments.

However, while basket sizes have increased, so too has the credit risk and personal debt consumers are taking on with this payments trend. This challenge will be a focus for lawmakers as well as payments service providers in 2021.

“The sector will have to reassess how people purchase products and borrow money, underpinned by the right level of comfort to pay it back without having to pursue them,” said Ian Bradbury, CTO at Fujisti UK. “Moreover, the traditional credit risk model that we have had in place for decades will not be a viable way to support the economic environment we should expect next year.

He concluded: “The aftermath of Covid-19 will be challenging, and the regulator won’t allow businesses to fall into another payday loan conversation. Ultimately, it’ll boil down to companies needing to innovate to allow people to borrow, and a personal and sympathetic approach.”

The digital economy

The digitisation of payments infrastructure itself has long been on the cards, but in 2020, the growth of the wider digital economy prompted the need for reliable, fast and secure payments as consumers moved online.

Scott Johnson, head of product at Western Union Business Solutions, said research carried out by the cross border payments firm is forecasting that the value of trade in digital services will rise from $6.1trn in 2019 to $8.0trn by 2025, with financial services playing a critical role in the future digital economy.

“A growing digital economy requires a digital payments infrastructure and as more banks and countries adopt local and cross-border real-time payment systems, I predict that payments will continue to clear and settle faster in 2021,” he said. “We’ll also see payments become more embedded in the business processes they serve, making the process of initiating payments faster and easier for end customers.”

Looking further ahead, he added that the industry can expect to see a broad range of new business models redefine the possibilities for cross-border transactions, with developments such as 5G and fibre broadband further supercharging this.

“The industries and global markets that adapt fastest to enabling seamless cross-border digital payments will be the first to recover, and ultimately thrive, economically,” Johnson added.

Data-driven transformation

Financial services providers’ ability to offer personalised experiences has been essential during the last 12 months, with incumbents and FinTechs alike harnessing data and online engagement to support customers through the financial challenges presented by COVID-19.

As this continues in 2021, data analytics will become increasingly important, according to data integration platform Mulesoft.

“Analytics is only effective when it’s fuelled with a complete set of data that reveals the context behind a trend or insight,” the company said. “Organisations will therefore prioritise their API strategies as they seek to connect their applications and systems effectively, and draw information from a variety of sources to maximise the value of their data.”

“If 2020 has taught us anything, it’s the importance of being prepared,” said Ian Fairclough, VP, EMEA Customer Success at MuleSoft. “Digital transformation has been high on the agenda for years, but few of us could have imagined that the demand for digital initiatives would have increased so dramatically in the last 12 months.”

“In 2021, we’ll see organisations explore ways of developing their resilience to future challenges through greater use of Application Programming Interfaces(APIs). Doing so means they can set themselves up to become agile enough to handle the immediate effects of a crisis, but also to power the long-term innovation and connected experiences that customers increasingly value.”

Ahead in the cloud…

While the hype cycle for technologies such as quantum technology, blockchain, AI and automation has waxed and waned in the past 12 months, there has been one steady constant: cloud adoption.

“Large organisations have moved to public clouds, meanwhile major players like Google and AWS have doubled down their investment. The cloud is not new, but it will accelerate – rather than moving what we already have it’ll become about reengineering everything to become cloud-native,” said Ian Bradbury, CTO at Fujitsu UK.

However, while many FinTechs are certainly headed in that direction, incumbents and more traditional players are encountering multiple roadblocks to cloud adoption.

Edward Knight, partner at global early-stage venture capital firm Antler said: “The pace of evolution of incumbent banks and financial institutions is constrained by significant regulation and dated technology.”

“For start-ups, education on new, disruptive trends is key to building trust and changing mindsets at legacy organisations. The contrast in approaches to innovation leaves many existing financial offerings vulnerable to the deflationary effects of disruption. AI will play a key role in this, as currently observed with the disruption of credit rating agencies.” said Knight.

For Marc Murphy, chief executive of client lifecycle management firm Fenergo, “the financial industry went to bed in March 2020 and woke up in 2030.”

“Although, financial institutions are making great strides when it comes to digital ambitions, he said thinks that the financial services industry has a lot of catching-up to do in terms of delivering an optimal customer experience.

“The previous inhibitors have been removed and we see a big acceleration in spend to support this area, aggressive timelines set out by FIs to get to the point of full digital solutions,” Murphy said.

...But with an eye on the fraudsters

However, Fujitsu’s Bradbury also warned that this rising reliance on digital technology may also contribute to fraudsters’ ability to dupe customers.

“Organisations cannot allow fraud, identity theft and customer manipulation to become commonplace; fraudsters are putting effort into their innovation,” he said.

And while many remote workers have become much better at recognising suspicious links or email attachments, issues of ransomware and data security have come to the fore in the last year, with the trend set to grow in the next 12 months.

Nigel Thorpe, technical director at SecureAge Technology said: “No amount of IT security education will eliminate this risk. Blocking all unauthorised processes is the only way to stop all malware from working; but most organisations still rely on the ‘human firewall’. The better approach is to behave like the doorman at the nightclub - if you’re not on the list, you’re not coming in.

He added: “We can’t keep predicting more attacks and breaches every year and still approach the problem in the same way as we have always done,” says Thorpe. “It’s time we stopped simply doing all we can to prevent access to the things we want to protect and focus on the data itself.”

Next generation biometrics

The boom in FinTech apps for everything from money management to investments and crypto trading has led to a pressing need for onboarding and compliance checks that can be done quickly, seamlessly and with a smartphone.

As a result, customers have come to expect fast video ‘selfie’ onboarding, which uses facial biometrics and images of a passport to replace the onboarding process traditionally carried out face-to-face in a branch.

However, while this method of Know Your Customer (KYC) has proven popular, the rise of deepfakes, voice scams and video manipulation, has meant that video onboarding is no longer failsafe.

Andrew Bud founder and chief executive of digital identity provider iProov explained: “Within the next 12 months, banking regulators in global territories – including Europe and the Far East – will authorise the use of automated biometrics instead of video calling for remote Know Your Customer (KYC) processes.”

He also predicted that high profile scams could lead several countries, including the US, to take concrete steps towards instituting government-backed digital identities.

“This will be an important step towards enabling financial institutions and government departments to verify identity and mitigate fraud in bank onboarding and government support programmes,” he added.

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