What's in store for FinTech in 2019?
Written by Peter Walker
As we near the New Year, it’s time to gaze into our communal crystal balls and make some bold predictions for the big FinTech trends of 2019. Having canvassed the industry, what follows are the most interesting suggestions for what may take place in the months ahead.
Open Banking begins in earnest
While officially rolled out this January, the biggest banks are still in the processes of properly opening their Application Programming Interfaces (APIs) and the FinTech challengers have been slow to grasp the inherent opportunities.
App Annie’s EMEA investor lead Natalie Aitken said that a year on, we’re starting to see some real innovation on the aggregator front.
“For example, Yolt, an early mover from ING in the UK, launched in-app integration, along with Wealthify. Similarly, money management app Emma recently launched a FinTech marketplace. In the near future we expect to see aggregator apps launching in-app payment features, meaning users no longer have to leave the app, further challenging traditional banks’ own apps.”
Crealogix’s chief strategy officer Richard Dratva, agreed that financial ecosystems based on Open Banking are entering a new phase.
“Banks, third-party providers and technology companies are developing applications and connecting them into a seamlessly networked banking environment that is integrated into the customer's environment – but we are still at the beginning,” he stated.
“In order not to stretch the patience of customers, it is high time to bundle the confusing multitude of individual applications – banks often underestimate the demanding task of orchestrating applications, delivering attractive digital services securely and, in particular, aggregating bank data.”
Ian Matthews, data evangelist at NGDATA, also believes the industry is yet to see a dominant ecosystem emerge.
“As consumer awareness of the programme and its benefits grow, it will become a race to develop the first widely-adopted platform, and those who can reach a critical mass of users will secure huge numbers of long-term customers, providing a stable base to depend on through the next few years of disruption in the sector,” he commented.
“FinTechs which make the grab for immediate customer interactions now, even when these customers bank with an established brand, could benefit greatly from increased brand recognition.”
Frederik Mennes, senior manager for market and security strategy at the Security Competence Center, pointed out that differing versions of the open data movement are being adopted not just across the UK and European Union, but also in Singapore, Hong Kong and Australia.
“We will see a lot of discussion around the convenience of the authentication process – when the user wants to access a bank account application through the application of a third-party payment service provider (TPP), the user has to be authenticated by the bank, and the authentication flow needs to be integrated into the TPP’s application,” he explained, noting that the authentication needs to happen in a secure way that is convenient for the user at the same time, otherwise users will not adopt the applications of TPPs.
“There’s still a lot of discussion between financial institutions, TPPs and regulators about how this authentication can happen, and different approaches are on the table.”
This discussion will especially take place in the EU, as financial institutions need to provide Open Banking APIs by September 2019, in line with the timeline set out by the second payment services directive (PSD2) technical standards.
Startups and incumbents collaborate
Eugene Danilkis, chief executive of Mambu, predicted that potential lies in a combination of technologies as part of a wider value chain.
“Institutions are beginning to design their operating model and technology for change which involves an API-driven composable architecture; this allows them to adapt quickly and mix the right technologies for the biggest impact.”
Matthews from NGDATA noted that after the IT and customer experience struggles the biggest UK retail banks have faced in 2018, they are now looking to innovate.
“For this, they are turning to agile and innovative startups, providing them with the deep pockets of incumbent banks,” he opined. “Uniting the stability of established financial institutions and the digital-first approach of new entrants could lead to some interesting hybrid confirms who embrace the best of both worlds, delivering both superior customer experience and reliability.”
Digital systems replace legacy
Ross Mason, founder and vice president of product strategy at MuleSoft, reckons legacy systems will get a new lease on life in 2019.
“MuleSoft’s Connectivity Benchmark Report 2018 revealed that 42 per cent of organisations cite legacy infrastructure and systems among the top three challenges to digital transformation – nowhere is this felt more strongly than in financial services, where 92 of the world’s top 100 banks still rely on the mainframe,” he explained.
But rather than trying to rip and replace or connect legacy systems to modern services with rigid integrations, Mason said we will see businesses plug legacy systems into their overall application network with APIs. “As a result, organisations will establish an integration layer between legacy systems and new-age applications and devices, where data can securely flow across the business and be reused to speed up development time.”
Crealogix’s Dratva also said that banks need to use digitisation not only to reduce costs, but also to generate additional digital revenue from their ecosystems and redesigned customer journeys.
“It is important for a bank to follow a new philosophy, namely active cooperation with FinTech partners – this is the only way for a financial institution to benefit from the new opportunities that open up for it when it understands ‘banking as a platform’ instead of building a defensive wall against the digital world, as was often the case in the past.”
Sankar Krishnan, executive vice president for banking and capital markets at Capgemini, agreed that with new technology and more collaboration, 2019 is going to test the banking sectors speed of evolution. “The biggest challenge for major players in the market will center on accelerating upgrades to legacy systems and creating impact with digital savvy customers.”
Biometrics and authentication advance
Howard Berg, senior vice president at Gemalto, said that next year he expects to see the first commercial rollout of these biometric payment cards in the UK and Europe, followed by the mainstream adoption of this type of payments in developed markets.
“In the longer-term, it seems only logical that biometrics will take over PIN code for cards and will also become commonly used in new areas such as authenticating wearables and other devices,” he continued. “As digital IDs and biometrics become fully embedded into the consumer purchasing journey, they will become both an identification step at the stage of check-in and an authentication step at checkout – this means that our digital identity will become our payment token, enabling a seamless purchasing experience.”
Will LaSala, director of security solutions at OneSpan, suggested that intelligent authentication will become a necessity for financial institutions to deliver better experiences, lower costs, reduce risks and increase revenue.
“Today, banks and financial institutions are already looking to simplify, yet secure, their customers’ online and mobile transactions,” he opined. “This begins with the use of adaptive authentication and orchestration within their platforms and infrastructure.”
What will come next is complete and continuous intelligent authentication that prevent missteps like stopping a user during login, LaSala noted, or asking users to jump through the same hoop regardless of the potential risk associated with the transaction.
Blockchain adoption takes hold
Rocket Software’s forecast for the year ahead included an increase of blockchain popularity in the supply chain.
“Once hailed as the saviour of the Irish border issue and secret weapon in the fight against world hunger, blockchain has had a tough couple of months,” read a statement from the firm. “But the new year will see blockchain finally come into its own with the manufacturer crowd.”
Rocket admitted that it may never be adopted across the board, blockchain will certainly make its mark in the supply chain – processes like B2B transactions, ordering, invoicing, payments and stocking, will benefit hugely from implementing the technology.
BigTech finally goes financial
Arnold Koudijs, financial services industry principal at Pegasystems, predicted that the BigTech disruption rumours will grow, but banks shouldn’t run to the hills in fear.
“The FAANG [Facebook, Amazon, Apple, Netflix and Google] gang are characterised by knowing extremely well what drives customers and how to get their attention, interest and money, but don’t underestimate the banks,” he said. “They have experienced similar threats from FinTechs before and many are coming through this challenge gloriously well.”
Koudijs expects positive collaboration, not conflict, to be outcome of Big Tech edging into retail banking. “Let’s not forget this is a regulatory minefield that may make some BigTech’s wary about making a financial play – if some do, expect them to seek a bank’s wiser counsel and support.