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While consumers’ online activity had seen steady growth for years, Covid-19 turbocharged this. In retail, internet transactions as a percentage of total sales hit a high of 38% in January 2021, against 20% before the pandemic, according to the ONS. Even a year later, with all restrictions lifted, they remain at 27%.

by Clare Beardmore, Head of Broker and Propositions, & Jodie White, Head of Product and Transformation, Legal & General Mortgage Club 

Meanwhile, online banking was already well developed prior to Covid-19. More than three-quarters of adults in Britain used internet banking in the opening months of 2020. Yet open banking services have also witnessed rapid and massive growth over the past two years. January 2020 saw the number of customers using open banking in the UK pass one million. Nine months later, that doubled. Today, there are five million users.

There’s little doubt when it comes to the public’s appetite for digitally-enabled services. Among brokers, however, it’s been more mixed, and uptake varies widely.

But customer expectations are growing. Developments inside and outside the sector are leading to increased expectations for fast, smooth digital experiences. Customers increasingly demand solutions that will make their mortgage journey easier and quicker. And they want to be able to choose how to work with their broker.

Advisers that fail to offer a digital approach and communicate through online channels will only be restricting their ability to reach these customers. In this environment, the bar set by market leaders soon becomes the standard. Those who are yet to offer a range of digital communication channels risk hindering customer retention or may find themselves bogged down with administrative tasks, preventing them from doing what they do best: providing advice.

In short, a strong digital offering is becoming table stakes in the advice sector.

No need to reinvent the wheel

The good news, however, is that brokers don’t have to do this by themselves, and they don’t have to do everything. They’re not technology businesses after all.

Instead, brokers should avoid the gimmicks and look for technology that adds value for themselves and their customers. In most cases, they are one and the same: Technology that reduces inefficiencies in the mortgage process and friction cuts brokers’ costs, as well as the inconvenience and delay for clients.

Any serious adoption of technology must focus on the impact on the end customer. Consequently, a serious examination of existing technology cannot do better than begin with customer relationship management (CRM) systems.

Customer relationship management is critical to the client’s journey. It plays a central role in capturing and managing borrower information and streamlining the loan process. Its importance has meant that a wide range of robust existing systems is currently available. There’s no need to reinvent the wheel – nor even to invest; Legal and General’s Mortgage Club, for instance, provides certain members with free licenses to the Smartr365 technology platform, which includes a comprehensive set of CRM tools.

By automating tasks, eliminating effort, and providing workflows to accelerate the mortgage process, CRM systems are critical to meeting modern customer expectations. However, they can’t and don’t aim to replace the broker.

The human touch

For advice, the human factor is still vital. That’s reflected in the continued dominance of intermediaries in lending. Over seven in ten buyers used an adviser for their most recent purchase. With borrowers facing a sustained rise in interest rates for the first time in a decade, and finances squeezed by rising inflation and a cost of living crisis, that’s not going to change.

CRM technology, however, can boost efficiency and free time for brokers to spend working with clients to find the best solutions. It also promotes continued engagement to enhance retention.

Rather than replacing the broker’s expertise, the technology enhances advice by enabling advisers to apply their knowledge more effectively. To give one example, intuitive checks built into an affordability calculator share a far more complete picture by revealing why certain inbound leads might be failing. That allows intermediaries to offer better-tailored advice to customers.

Crucially, the technology must serve the advice journey, not determine it. The way to avoid that is to integrate digital capabilities in a wider transformation journey focused on using the tools available to meet customer needs and support advice. To do so, brokers must embrace technology, as their customers already have done.

Those that don’t could be bringing the next crisis on themselves.

The banking industry has undergone huge change in recent years, and so too have its players. As such, the time-honoured classifications of ‘incumbent’, ‘challenger’ and ‘neobank’ no longer sufficiently describe a bank’s offering, role or position in the industry;  arguably some incumbents are proving to take more ‘challenging’ strategies than some of their comparatively younger challenger or neobanks. So how will banks be defined in the future?

by Rivo Uibo, Co-Founder and Chief Business Officer at Tuum 

The evolution of banking is partly in response to an underlying shift in the way that people live and work and the demand across diverse demographics for more tailored banking services. Freelance workers have different banking needs to employees; the needs of Gen Z customers, such as saving money and managing subscriptions (including Spotify, Netflix etc.) are far removed from those of older generations. In essence, to prosper in today’s banking industry, banks must now find a means of being relevant to diverse customer demands and desires and provide these banking services in the most convenient way.

In tandem with this trend, the advent of embedded finance, open banking and APIs together with the rise of new entrants to the market including tech giants and superapps and demand aggregators (brands that provide financial services on top of their core offerings such as Alipay, Uber payments or Gusto wallet), are adding further complexity to the banking landscape and the number and diversity of players.

Banks are therefore under pressure to maintain market share and are looking at different approaches to achieve this. Let’s look at the different business strategies that banks are pursuing today and where these business models are likely to lead to.

High street banks

Even before the pandemic, high street banks were ramping up their digital offerings and reducing their number of branches. But in the wake of the pandemic and soaring demand for digital banking, high street banks face strong competition from online-only banks. As a result, they have radically reduced their number of branches; according to a report by Which? published in December 2021, almost 5000 UK bank branches had closed since 2015 or were set to close in 2022.

That being said, In the UK, high street banks offering personal and business banking (including RBS, Barclays, Lloyds and HSBC) are still regarded as the market leaders and mainstays of the industry. Only time will tell if their (albeit reduced) in-person banking services and industry standing will be enough to survive heightened competition from their more nimble digital counterparts. In the meantime, these mainstream banks will be closely analysing the options open to them to maintain customer share (greater focus on digital/focus on other market segments).

Digital banks

These forward-thinking, online-only banks provide banking services that fully reap the efficiency benefits of modern technological capabilities. Leading digital banks currently include the likes of Monzo, Nubank and N26. These large players, which started out as ambitious neobanks, have succeeded in gaining a sizeable customer base through innovative, digital service offerings. N26 is today one of the most valued banks in Germany and is aiming to be one of the biggest retail banks in Europe (without having a single branch) while Nubank boasts 40 million customers in Brazil.

Aside from these larger successful players, many digital banks tend to be niche players, laser-focused on the banking needs of one specific customer group. These financial service providers are made up of both those who have their own licence and those that depend on other banks or banking platforms for their licence – but both are perceived equally by end-users as ‘digital banks’. Their strategy is to gain maximum traction within their target customer segment and then expand and enhance their service offerings. A great example of a niche digital bank is Jefa, a LATAM bank set up by women for women, offering free accounts, a debit card, and a mobile app to assist money management. With the defaults of banking in LATAM broadly hostile to women customers, Jefa is making headway in a giant untapped market that has been ignored by other banks. Another good example is New York-based Daylight, a digital bank that offers services specifically tailored to meet the needs and assist with the financial challenges of LGBTQ+ people and their families.

Notably, as long as a financial institution is fully regulated and users’ money is protected, customers are beginning to show less loyalty for long-standing banks and are increasingly motivated by innovative services and excellent customer experience from digital banks. The rise of platform players – in the form of next-generation core banking and BaaS platforms are playing a key role in enabling digital banks to quickly roll out new tailored banking services and driving innovation in everyday banking.

Multifaceted banks

These banks succeed in functioning in multiple modes; they successfully provide banking services directly to their own diverse customer base while also opening up their infrastructure to provide the technology and licence to third parties.

Goldman Sachs is a key example of such a bank today. It launched a consumer banking brand, Marcus, in 2016, together with a new transaction banking unit, which amassed $97 billion and $28 billion in deposits by 2020 respectively. Goldman Sachs opens up the underlying infrastructure that powers Marcus and its transaction banking unit to external third parties as well, such as Stripe or Apple. By leveraging both its balance sheet and regulatory expertise as well as a modern platform, it is an attractive embedded banking partner for large sticky brands.

Starling Bank is another (online) bank that together with providing award-winning digital banking services to its own customers (it has been voted Best British Bank in the British Bank Awards for the last four years), it also offers its own infrastructure to other banks and fintechs in order for them to roll out financial services.

As embedded finance and the rollout of financial services by non-banks takes off, banks that can offer their infrastructure and banking licences will become increasingly in demand.

Only time will tell exactly what the banking landscape will look like in the future but what is very clear is that the age-old classifications of banks need reconsidering. And in order to survive and thrive banks themselves need to decide what path to take. We are entering a stage in the evolution of the sector where there is no clear roadmap for a given incumbent or a given challenger bank. Each individual bank needs to assess its strengths and ambitions and re-evaluate its strategy to carve out its own place in the industry.

The growing demand for personalised and relevant services will mean that only a minority of banks will be able to operate on multiple levels because it is hard for a bank to be everything to everybody. In the meantime, advances in banking technology and the growth of platform players supporting digital banks will enable this segment to further expand and diversify while the banks that serve both their own customers and support other third party banks and fintechs will help to drive competition and bring about more choice and more options for customers in the future.

FinTech is synonymous with innovation and is a key industry in this country. Its influence spans the globe, however, and makes it a primary player in the move towards greater financial and environmental sustainability.

by Keith Tully, Real Business Rescue, a company insolvency and restructuring expert.

Corporate social responsibility has been a pivotal business model for decades, but the 2021 COP26 Climate Change Conference in Glasgow clarified the urgency to act with purpose and laid out in stark detail the consequences for the planet if we don’t.

The FinTech industry is ideally placed to use its prominent standing on the global stage, therefore, and positively influence the crucial issues we face. It can set a ‘green’ example for others to follow, ensuring businesses adopt sustainable practices and leading the way towards a lower-carbon future for industries across the board.

How can Fintech businesses take a stand on sustainability?

Operate a ‘green’ supply chain

Fintech’s inherent use of big data, artificial intelligence, and real-time information, makes the industry a perfect role model when implementing environmentally friendly and sustainable logistical practices.

Transparency and collaboration between supply chain members is a necessity for a ‘green’ supply chain to work, and this ultimately reduces waste and increases cost-effectiveness for all participants.

Develop ‘green’ technologies

The industry continues to provide cutting-edge solutions that streamline and modernise financial procedures and payment systems, and can positively influence corporate behaviours.

Brand reputation strengthens when businesses use innovative financial technologies – they become trustworthy within their industry and in the eyes of the wider community. The investment in ‘green’ solutions consolidates the drive for sustainability and enables ethical conduct and business behaviours to be put in place.

Innovative banking and payment solutions

The banking and payments industries have transitioned, almost beyond recognition, in the last few decades. Although the ‘traditional’ high street banking services are still available, the development of new financial technologies has created a thoroughly modern alternative for businesses and individuals.

The Fintech industry has developed highly sophisticated, cost-effective, and sustainable banking and payment systems that help businesses reduce their carbon footprint. Blockchain is one such example, and this provides a platform that supports other technologies such as new payment and finance solutions.

Data analytics

Big data provides in-depth perspective and insight into various areas of business and offers key decision-makers a solid foundation for making strategic plans. It can also be used to keep a business on track towards financial and environmental sustainability.

Global financial services group, BBVA, uses technology to help organisations calculate their carbon footprint using data analytics, for example. Businesses can calculate their carbon footprint and then register on The Carbon Footprint Registry.

The ‘Climate Registered’ seal placed on their websites and promotional materials demonstrates the business’ commitment to sustainability, and to reducing their carbon footprint.

Make sustainability the USP

Adopting good practices and promoting financial and environmental sustainability enables Fintech companies to differentiate themselves, and to stand out in an increasingly crowded industry.

Making sustainability their unique selling point within a ‘Green Fintech’ umbrella of innovative technologies and working practices reiterates the drive to help tackle climate change whilst promoting a sense of purpose and well-being among staff.

Sustainable financial products

Figures published by Statista show how significantly Fintech solutions have changed the way in which we bank and carry out our financial business as a nation.

In 2007, only 30 per cent of banking customers regularly used digital banking services, a figure that has risen to 76 per cent in 2020. Personal finance budgeting and investment apps also help people achieve their own individual goals for sustainability.

Fintech businesses can measure and verify the impact of sustainable financial products, such as ‘green’ bonds, loans, and investment funds, and make adjustments as necessary to improve the products.

The case for taking a stand on financial and environmental sustainability

The positive case for taking a stand on sustainability is clear. It’s what is needed if we are to head off total climate catastrophe. This movement also holds significant benefits for individual businesses in terms of their reputation and place in the community, however.

Sustainability is an issue close to people’s hearts, and staff can rally around such a cause. This increases morale and creates an inclusive working environment that promotes well-being and productivity.

Apart from the key benefit of creating a more sustainable operating environment for businesses within the industry, Fintech’s considerable influence could also affect far-reaching change in other industries.

In fact, Fintech is in the perfect position to lead on financial and environmental sustainability. Introducing new ‘green’ financial products and creative payment systems not only helps other businesses on a practical level, but also sets the high environmental and financial sustainability standards that we need, and that others will follow.

Buy Now, Pay Later (BNPL) – a new form of credit giving consumers increased flexibility when paying for goods and services – has seen growing popularity over the past year.

by Amon Ghaiumy,  CEO and Co-founder, Ophelos

With BNPL allowing customers to pay now, later, or in instalments when making a purchase – the service has seen a recent surge of use as people use it to purchase goods, or when facing difficult financial situations, as an alternative to high-interest credit cards. According to TSB, this has seen one in five adults in the UK now using it at least once a month, and one in ten using it weekly.

Whether a FinTech revolution or simply a shift in spending habits, it’s clear that BNPL is here to stay. However, regulatory changes are on the horizon with implications for both providers and consumers. Demand for BNPL will no doubt continue to rise in the long term, but as with any form of credit offering, there comes the unavoidable risk of debt.

In light of this, it is worth addressing changing trends in the BNPL space, how impending regulation could shape its future, and why BNPL providers should be putting the financial care of vulnerable customers at the forefront of their operations – particularly when it comes to debt resolution.

The growth of BNPL spending

The combination of necessity, accessibility and the fact it is a cheaper alternative to credit cards and payday loans is seeing customers increasingly opting to use BNPL products.

Following its surge of use in 2021, data is already pointing to a further increased uptake in 2022. A recent survey from BNPL provider Splitit for example found that over half of UK respondents (54%) are planning on using BNPL services in 2022.

BNPL’s increased availability is largely contributing to this growth. Gone are the days when product-specific credit would be used exclusively for ‘big ticket’ items such as appliances, electronics, cars or holidays. Nowadays, it’s possible to use BNPL to pay for all manner of consumer goods including everyday essentials, clothes and even food.

Banks have also jumped on the growing BNPL trend. Monzo, for example, became one of the first UK banks to begin rolling out a BNPL service to its customers, whilst its rival Revolut confirmed it was “at the early stages” of developing a BNPL feature for Europe last year. Similarly, Santander is launching its own BNPL app called Zinia across Europe this year, starting in the Netherlands.

However, it’s not just convenience that has led to a surge in BNPL’s use. Against the backdrop of the living crisis in the UK, we are seeing more people use BNPL for everyday purchases they need but can’t necessarily afford.

Research from TSB shows that one in four customers say they rarely have the money in their account to pay in full for the things they are buying, and also suggests that some are worryingly resorting to BNPL when they are struggling financially.

With many BNPL providers being observed to have little or no affordability checks – concerns are rightly being raised around already-vulnerable customers ending up in positions where they are struggling to manage financially.

This lack of diligent screening alongside growing supply and demand has pricked the ears of the FCA and the regulator is expected to introduce new rules as early as 2023.

What could these regulations look like?

It’s early days, but initial research from the FCA has indicated that as many as half of the people who enter into BNPL are already behind on payments, so it’s possible that regulation may call for stricter vetting from providers on customers to minimise risky loans from the outset.

With BNPL products currently unregulated, customer screening is largely done on a provider-by-provider basis, with some taking more measures than others. Under FCA guidance, this will likely change and should do, being vital that providers detect and protect vulnerable customers from the outset.

Also, many customers who miss payments are unaware of the implications it might have on their credit rating. As such, providers may be required to better communicate risks to their consumers at the point of purchase.

Either way, the FCA aims to implement rules that protect the consumers first and foremost, so providers should think about how they can get ahead of the curve now.

Using debt resolution as an asset

A simple change that providers can make today should be to reimagine their debt collection processes.

While fintech has given rise to innovations in customer experience at the point of purchase or lending, debt resolution is yet to adopt cutting-edge technology or modern ethical standards.

Still today, businesses often rely on outdated debt collection agencies who find it difficult to recover outstanding debts, spend too much resource on inefficient operational processes, or lack the tools, intelligence and insights to support financially vulnerable customers.

Meanwhile, financially vulnerable customers lack control throughout the debt collection process due to inflexible repayment options, an absence of digital tools for managing their debts and antiquated communication methods used by traditional collectors.

At Ophelos, we blend behavioural science with AI to help businesses identify and manage vulnerable customers who may be facing issues with debt. This approach ensures that customers can help devise their own bespoke payment plans, communicate with their providers in a way which suits them, and ultimately feel more secure in the arrangement.

As the cost of living crisis continues, how BNPL providers manage their approaches to debt resolution and vulnerable customers will increasingly be in the spotlight. Utilising technology to aid them in this process and partnering with ethical organisations in the space, will allow them to maintain their reputation among their customers, while also increasing their yield.

And so, while BNPL certainly has a place in our lives – providing convenience and flexibility at a lower cost when it comes to our finances – the businesses providing it must think carefully about the care of their customers. The question is: will it take regulation for firms to make this change, or will they lead the change themselves?

Commodities have long been considered a good hedge against inflation and, true to form, with inflation in many countries now at its highest level in decades, those businesses that failed to invest in minerals, energy sources, livestock and foodstuffs face a financial squeeze to keep their supplies chains operating.

by Paul Macgregor, Head of Sales, NovaFori 

Yet, even for those businesses with foresight, that have planned and hedged, the current inflation-based pressure points on the global economy are accentuating stresses and strains that already existed in global supply chains and business value chains. Long-standing inefficiencies were exposed by the pandemic and became even more visible with the onset of the post-pandemic period. These inefficiencies could be significantly reduced by harnessing intelligent digital marketplaces.

In the world of commodities, this is particularly noticeable. It shows the use of traditional analogue as a way for businesses interact with customers, suppliers and intermediaries to be outdated and in need of a rethink. For this sector, a new way of offering efficiency, transparency and good practice is needed.

The rate of inflation in the UK reached 5.4% year-on-year in December, a 30-year high, and is sure to rise further in April when a 54% rise in the UK fuel price cap takes effect. In the US, meanwhile, consumer prices rose 7.0% in December, the highest level since June 1982. Against that backdrop, coffee, crude oil and aluminium prices have risen well over 100% in the past year, while cattle, copper and gas are up more than 50%.

Most eye-catching is lithium, up by close to 500% since the start of last year. Demand for lithium has jumped as demand for electric vehicles (EVs) has soared. Lithium is used in the batteries, which typically also include nickel and cobalt, prices of which have also risen significantly – nickel up over 30% in the past year and cobalt up almost 100%.

Fusion of analogue and digital marketplaces

Taking metals as an example, the value chain can go from mining to processing and then on to fabrication, transportation, storage and consumption, and finally, it is hopefully recycled. The more verticals within the chain that a business owns, the more scope there is to benefit from significant efficiencies.

There are points in the value chain where most businesses deal with intermediaries or brokers to advise them on both sales and purchases depending on where they fit into the cycle. These intermediaries play an important part in the process with their local knowledge, business relationships and understanding of the metal in question. Their involvement is typically in a more traditional analogue form.

Three key metals used in batteries are nickel, cobalt and lithium. All three are mined in remote parts of the world; The Democratic Republic of Congo is the world’s largest cobalt producer. The world’s largest reserves of lithium are in Australia, Argentina and Chile, while significant amounts are to be found in China and sub-Saharan Africa. Major deposits of Nickel are found in Indonesia, Canada, Russia and Brazil.

Amid the rapid growth of the EV sector globally, demand for lithium-ion batteries has soared. The rate of increase in the price of nickel, cobalt and lithium reflects, to an extent, the nature of the market in which each exists.

Given the geographies, the logistics and the local market complexity, such as grade of materials, shipment times, insurance, pricing and other local issues, intermediaries play a key role, by utilizing digital marketplaces to grow the geography of their client base. It may seem counterintuitive, but their analogue processes can in fact complement digital marketplaces with their local knowledge. The two go hand-in-hand, expanding access to the market, increasing the number of participants and adding liquidity. The result is greater price competition and a more efficient market.

Digital B2B marketplaces trusted to transact billions

Digital business-to-business (B2B) marketplaces are trusted to transact billions of dollars worth of goods annually across a wide variety of industries, including vehicle sales, leasing and re-leasing through to luxury goods and food products. They have a role to play in improving marketplaces for physical commodities.

Digital B2B markets widen distribution networks, help to ensure competition and liquidity in the marketplace, and enable price discovery using various auction methodologies. At the heart of it, buyers compete for goods or services by bidding incrementally upwards before finalising the price. The bidding process can be open or closed, during which it’s possible to capture every activity of potential buyers, including lots searched or browsed, bids submitted, and lots won or lost.

Once in operation, B2B markets can incorporate data science in the form of machine learning with the capability to make recommendations on products, buyers and timing, thereby helping sales teams to operate more efficiently.

Recommendation algorithms also point buyers to possible substitute products if they exist. For example, with EV batteries it could recommend another supplier with a similar specification and price. This enables sellers to satisfy customer demand where previously the transaction would not have been completed. The use of data science in such a way can broaden understanding of the marketplace and the wider industry.

It is fair to say that for some industry sectors, including the EV battery sector, without an efficient and digitised supply chain, achieving the end goal of a carbon-zero future becomes a far greater challenge. The issue goes beyond what is good for business, it has a real societal impact too.

In the post-pandemic environment, the commodities sector may retain some of its traditional characteristics that smooth the works of the market, but they will also have changed for good with increased digitalisation. As the world eyes the prospect of ‘building back greener’ with net-zero emissions targets, digitising the multi-billion-dollar commodity value chain has a part to play. Markets will be created where they didn’t previously exist and enhanced where they do exist. Inevitably, there will be disruption, but that will be accompanied by opportunities for those who embrace change.

As lockdowns, social distancing guidelines and a wave of uncertainty swept the world in early 2020, experts at McKinsey predicted that global payments industry activity could drop by as much as 8% to 10% of total revenue due to the then-emerging COVID-19 pandemic. Instead, the opposite occurred.

by Jairo Riveros, Chief Strategy Officer and Managing Director for the USA and LATAM, Paysend

Between 2020 and 2021, the global digital payments industry grew $5873 billion, a compound annual growth rate of 16.1%. In addition, we saw a record amount of funding with payments startups raising an estimated $31.9 billion in 2021.

The growth of digital payments and digital money transfers shows no signs of slowing. As we enter a new year of exciting growth in the space, we can continue to trace the path that digital payment innovation has taken since the industry’s explosive growth in 2020.

How we got here

With social distancing in effect, it’s no surprise that the COVID-19 pandemic helped digital payments skyrocket in popularity. However, what’s important to note is that three trends contributed to digital payments’ spike in utilization: rise in online consumer spending, the move to digital currency and the shift from brick-and-mortar to digital storefronts.

First, digital payments were already growing in popularity. In 2019, Americans spent about $360 billion on eCommerce transactions, and 77% of people used one or more types of mobile payments. While the pandemic caused digital payments to soar in popularity, the stage was already set for the rise of digital payments even before March 2020.

Second, physical money lost favour worldwide during the pandemic. Globally, cash use decreased to account for only 20% of all face-to-face payments. But in the U.S., it just wasn’t available—the U.S. Mint lowered its coin production from March to June 2020 to keep Americans from being exposed to COVID-19. A national coin shortage ensued that summer, but many businesses stopped accepting cash as a form of payment.

Third, lockdowns and stay-at-home orders forced us to take our financial needs from physical storefronts to digital storefronts. While this led to an uptick in eCommerce, lockdowns affected far more than just retail—60% of international and domestic cash transfers, for instance, took place online in 2020.

The trends we’ve seen

Digital payments carried this momentum into 2021 – 82% of Americans used some form of digital payment in 2021, up from 78% in 2020.

In addition to digital payments as a whole, several practices within the digital payments umbrella term have also grown more popular. The rise of the “buy now, pay later” option on eCommerce has struck a chord with consumers – about 33% of shoppers between 18 and 37 in a survey said that the option to pay in phases influenced their choice to complete their online purchase.

Further, remittances as a whole have increased in 2021, with the World Bank predicting in November that remittances would increase by 7.3% in 2021. But sending them digitally is also popular among those issuing remittances. In fact, a 2021 Visa survey showed that digital payments were the most popular method for sending money outside of the country. 23% of survey takers reported that they’d used digital payments to send money outside of the country, while 65% said they planned on doing so for the 2021 holiday season.

Digital payments have become so widespread that it’s causing some to purposely leave their wallets at home. For example, 15% of digital wallet users reported that they regularly leave their residences without bringing their physical wallets with them. With the federal government discussing standards for digital driver’s licenses, consumers will truly be able to live day-to-day without bi-folds, tri-folds, or clutches.

Where we’re headed

In 2020, digital payments became a necessity that also increased the efficiency of payments. By 2022, streamlining digital payments even further has become a hallmark of the sector’s evolution. It’s an exciting time for the digital payments industry, and we can expect several trends in digital payment innovation to emerge or continue in 2022.

Catering to customers as a whole will continue to be a focus for fintech companies as they improve their product’s user experience. Because digital payments already make financial processes more efficient compared to in-person processes, we can expect this efficiency to increase even further. For example, startups will begin to make fintech services a more seamless experience for users, as embedding financial services into non-financial companies becomes more commonplace. Additionally, both payments and credit processes are poised to become even more efficient for consumers.

Furthermore, we can also expect efficiency to be extended to international banking. Digital technology has made places around the world more accessible than ever before. Fintech is already doing its part to grow this global accessibility, with multiple banks beginning to offer multi-currency digital wallets to enable greater financial flexibility for global citizens.

At the same time, it will be important for the sector to address immigration and financial inclusion. One way the sector can innovate in this area is by introducing instant, low-cost and hassle-free remittance transfers in Latin America since digital transfers are still a budding practice in the region. Making digital payments in the region easy and inexpensive will let remote, low-income households in the region make and receive payments both quicker and more securely.

The biggest issue plaguing consumers right now are expensive transfer fees. Take the U.S. as a prime example. Consumers who don’t utilize traditional banks spend about $140 billion per year on unnecessary fees. In order to promote financial inclusion for all, it’s imperative that providers lower service fees.. We’ve seen some movement on this front within banking recently – Capital One announced in December that it was giving up $150 million in annual revenue to do away with its consumer overdraft fees.

Lowering service fees won’t impact digital payment ROI, as the global digital payments industry is expected to hit $2.9 trillion in 2030. Digital payments are also poised to continue their stark ascent in usage – one study estimates that by 2024, cash will account for under 10% of U.S. payments and only 13% of payments worldwide. Meanwhile, the same study estimates that digital wallets will be used in 33% of all in-store payments.

It’s an exciting time for the digital payments industry, and if the past two years have shown us anything, it’s that the sky’s the limit for innovations in the field.

 It’s been said that “change is the only constant in life.” The global pandemic created a wave of change for everyone. We experienced the sudden shift to remote work, the acceleration of e-commerce, and a focus on digital capabilities.

by Michael D’Onofrio, CEO, Orbus Software 

For financial services, there was the additional challenge of tighter budget control, and increased regulations around cybersecurity and data protection, in addition to rising customer expectations for stellar digital-led delivery.

As a result, we’re seeing three key challenges emerge for financial services CIOs:

• addressing disruption from new technologies and emerging business models,
• achieving a first-class customer experience,
• maintaining business as usual.

What links these challenges is the balancing act of controlling risk while enabling technology-driven transformation. Organisations with a more proactive and collaborative approach to risk management fared better during the pandemic than those with a defensive and reactive approach.²

However, Gartner notes that “almost half of global financial services organisations are still in a very early or even immature stage of their digital transformation journey”³ and rely on traditional business growth or are still working on digital optimisation (versus digital transformation) efforts. When confronted with the above challenges, those with strong Enterprise Architecture were more equipped with the tools to assess and respond.

Addressing market disruption

A 2022 Alix Partners study found that “70% of business leaders report high disruption to their company, up 11% in the past year. 94% of executives say their business model must change in the next three years.” The pace at which disruptive forces impact businesses today means leaders can no longer “wait and see.” The best-performing companies disrupt and reinvent themselves on a continual and ongoing basis.”¹

Technology is the foundation of the modern bank and at the heart of much of this reinvention. But many financial services firms rely on customised and legacy systems (about 55% of enterprise applications!) and are only very slowly migrating to cloud-based options. Outdated technology infrastructure reduces agility, flexibility, and organisational resilience. You just can’t pivot or bounce back from a threat or transform as quickly.

Rising from disruption requires executing on increasingly integrated capabilities. This requires clarity and alignment on the challenge being faced, the systems, people and processes impacted, the strategy to move forward, and the shifts already underway. Many organisations don’t have the tools needed to cut through this level of complexity.

Enterprise Architecture supports the ability to execute through a shared common language across lines of business, an understanding of the layers of the organisation impacted, and a toolset to respond. A microservices and service-oriented architectural approach supports greater business agility. EA improves speed to market for application and data integrations, and the automation of business processes or workflows while establishing control over scenarios. For CIOs, speed, executional clarity and alignment make the difference in responding to change – and, planning for the future.

Achieving a first-class customer experience

To remain competitive retail banks need to ensure customers can move between communication channels easily and that they personalise online interactions to maximise customer interactions and additional revenue opportunities. McKinsey reported that 76% of US consumers moved to digital channels for the first time during the pandemic, while a survey by Accenture²  showed that 58% of customers want to be able to switch between human and digital channels.

In order to achieve a first-class customer experience, financial institutions need to focus on delivering true omnichannel: offering the same services to customers across all digital and offline channels, synchronising their data for reuse across channels in real-time. For many FIs, this trend accelerated the need for digital transformation and increased focus on digital customer experience.

The challenges CIOs face here are threefold:

• Cost and complexity of adopting omnichannel technology often spiral out of control
• Omnichannel technology projects are sometimes impeded by disconnected silos of enterprise information
• Security and compliance risks are not always visible and not accounted for

The delivery of integrated channels and seamless end-to-end transactions relies on Enterprise Architecture. Enterprise Architecture can not only help with the delivery of such things but also enable the creation and deployment of digitally-enabled business strategies and new operating models using those technologies.

Enterprise architecture can help control investment across IT portfolios, create a single source of truth of all enterprise information from all areas that are to be integrated, and gain visibility into compliance and security to anticipate and prevent potential threats.

Reinventing Business-As-Usual

According to an FT article from last summer, banks in the US and Europe were starting to show signs of being back to Business as Usual, moving away from the negative effects of the pandemic. This does not mean we are out of the woods. But it is a start.

The pandemic highlighted two things: the need for and benefits of cross-departmental collaboration, and the importance of “as is” and “to be” planning. Organisations need to start moving away from a reactive business model to a proactive one where the focus is back on winning against the competition. This is also the time for financial services firms to reassess the short-term fixes they put in place over the last two years and look at long term designs.

We know change is a constant. What differentiates resilient organisations is the ability to endure and even benefit from change. They have the agility to align IT assets with risk, resiliency and business processes & programs around an actionable plan.

Enterprise Architecture is the missing link between technological resilience and operational resilience. Enterprise Architecture provides organisational clarity to accelerate this transformation in a strategic and purposeful way, mapping the process of a desired future state. Overcoming these challenges in the coming year will be key for FIs in order to be truly resilient and be able to weather the next storm.

BaaS (Banking as a Service), is the enabler of contextual and embedded finance. It presents a huge opportunity – and threat – to all participants in today’s financial services ecosystem. Customers increasingly expect financial products and services to be brought to them, wherever they are. They expect them in the right context. With forecasts showing that the total market opportunity for BaaS will exceed $7 trillion by the end of the decade – the impact of BaaS simply cannot be ignored.

by Eli Rosner, Chief Digital Officer, BaaS and Platform, Finastra

To gain revenues from high growth sectors or geographies banks must adopt new scaling strategies. They must leverage partnerships, to get them to where the customer is and what the customer wants, today and in the future. They must meet the customer where they are in their journey, whether the customer engages directly through established banking channels, or whether the customer consumes the bank’s services contextually, as an integral part of their journey with another brand.

Traditional channels will not deliver the radical value that’s being offered by BaaS and Bank as a Platform models. These models leverage platform ecosystem advantages to create better customer experiences. Unless banks embrace these models, they will face a tougher fight for revenue in ever-decreasing addressable markets.

Outlook for BaaS

BaaS is expected to grow at more than 25% per year for the next 3-5 years. Players across the BaaS value chain are seeking to monetize the opportunity and deciding on the role they want to play.

Recent Finastra research on BaaS has found that some 85% of senior executives in the financial services ecosystem are already implementing BaaS solutions. It also identified that areas such as SME lending, corporate treasury and foreign exchange services are poised to gain the highest traction.

The research goes on to outline the key players, exploring where they are on their journey and what they anticipate in the future:

• First you have the BaaS providers – financial institutions holding a banking license and manufacturing regulated and compliant financial products. Our research shows that some 42% of those surveyed are already in the advanced stages of implementing BaaS. These providers expect the BaaS market to grow by more than 50% per year over the next five years.
• Next you have the BaaS enablers – usually BigTechs and FinTechs that help to embed financial services into third-party platforms and apps. Some 50% are already in the advanced stages of implementing BaaS. Enablers see high growth potential from offering payments and credit cards. In addition, 40% believe checking accounts offer high growth potential.
• Finally, you have the BaaS distributors – consumer brands such as retailers and e-commerce brands that will supply embedded financial products to retail or corporate customers. Some 33% of these organizations in our research are already in the advanced stages of implementing BaaS. Distributors expect BaaS revenues to increase by more than 15% per year over the next five years.

Unlocking success

Monetising BaaS is a lot harder than embedding it. Not all BaaS strategies will succeed – and it’s vital to first understand the ecosystem in depth and to take a structured, programmatic approach to developing a use case in close collaboration with partners.

To succeed, financial services providers need to have an open API platform in place, as well as integrated data and analytics to support specialized digital solutions. They also need to create dynamic and compelling products that stand out against competitors. Winning in BaaS requires a focus on discrete, profitable and differentiating use cases that align to the bank’s overall strategy, and play to key differentiators, alongside a good understanding of where they will be able to exert the greatest influence over positioning and pricing.

Knowing the players and their ambitions is key to unlocking the value of contextual finance beyond just the redistribution of financial products, helping create new retail and wholesale marketplaces.

Some banks are already making significant inroads. UK digital bank Starling, for example, launched its BaaS offering in the UK back in 2018. Today it has 25 payment and banking services customers, including Raisin, CurrencyCloud, Moneybox and Vitesse, and is in the process of expanding into Europe. Starling’s ethos is simple: allowing businesses to build their own financial products on the bank’s platform while it handles the technical and regulatory demands behind the scenes.

Payment processing platform Stripe has also established itself in BaaS. The firm took the decision to work with Shopify as a distribution channel, and to partner with Goldman, Citi, and Barclays to provide Stripe treasury services globally. The Stripe example demonstrates the value to be found in partnerships and leveraging existing distribution channels which can help fuel exponential growth at speed.

Other examples include Uber working with Square, and Goldman Sachs expanding its footprint through digital lender GreenSky. In the corporate banking space, HSBC is working with Oracle NetSuite to embed international payments and expense management services into the SuiteBanking solution so that customers can access these services exactly when they need them.

In essence, the potential to create entirely new retail and wholesale offerings as a service is vast, restricted only by imagination. The most important thing is for financial services providers to start taking action today, exploring BaaS use cases and putting the tech and partnerships in place that they will need to maximise the opportunities ahead.

Hack to the future: supporting innovation in embedded finance

To help drive innovation and explore new ideas in the world of embedded finance, Finastra is inviting participants to sign up to the hackathon which opens on 8 March. This year we’ll be focusing on the three key themes of embedded finance, DeFi and sustainability. The hackathon is open to all, as everyone has a role to play in defining the future of finance.

Low costs, accessible services, and an excellent customer experience have long been the core criteria consumers expect banks to meet. But, today they’re not enough. Good value is being overtaken by good values in the minds of many consumers, giving rise to an army of ‘ethical bankers’ who expect more and tolerate less from the financial institutions they partner with.

by Eelco-Jan Boonstra, Managing Director, EMEA, at Mambu

In a survey of more than 4,500 banked consumers globally, Mambu found that the majority (73%) are more likely to use banks that put purpose before profits. In fact, 58% are prepared to pay a premium for financial services that help the environment or local communities, suggesting an overwhelming shift in attitudes supporting Environment, Social and Governance (ESG) criteria not seen in the industry before.

So, how can banks effectively engage this tribe?

Who are ethical bankers?

One of the fastest-growing tribes with the loudest voices, almost half (49%) of ’ethical bankers’ is between 18 and 34. These younger generations account for the largest proportion of consumers globally and have growing spending power, making them particularly valuable customers that banks must cater for to future proof their business.

As consumers become increasingly aware of global issues, expectations of the brands and companies they associate with grow. Whilst this trend is being seen across a collection of consumer finance tribes, almost a third (31%) of consumers identify themselves as part of a cohort of ‘ethical bankers’ whose ethics, values and social responsibility drive their decisions – including spending and saving habits.

Young, well-educated and hungry to make a positive difference, these socially-conscious consumers prefer to pay for access to goods and services than ownership, valuing experiences over traditional assets. And they’re putting pressure on financial institutions to take responsibility for social and environmental issues at both a local and global level.

Service-specific needs

Banks must listen to customers in every cohort to understand what’s important to them or risk leaving them dissatisfied. For the ‘ethical bankers’ tribe, digital accessibility is key – with respondents in this group saying it’s important to be able to use an online or digital banking service to open new accounts (69%) and deposit cheques (51%).

They’re also on the brink of significant milestones possibly accelerated by the pandemic. For example, our research revealed that almost half (46%) of ‘ethical bankers’ have become more likely to buy their own homes over the past eighteen months. Offering seamless services that meet specific needs means financial institutions can add value and position themselves as trusted partners.

Make values valuable

Ethical banking services come at a cost, and it’s easy to assume that consumers won’t pay extra to make them viable. However, research shows, many are open to premium options as long as sustainable values are truly embedded across a business. And that’s where the hard work begins.

There’s no point in preaching about a commitment to solving social injustice or improving environmental outcomes if an action does not accompany it. Simply paying lip service is a waste of time and can erode trust in a brand, particularly amongst customers that prioritise purpose. Banks must be brave and put their money where their mouth is – and trust that customers will do the same.

Make it easy to stay

‘Ethical bankers’ are among the most spontaneous in their spending habits, with 42% describing their spending habits as spontaneous or very spontaneous. But this spontaneity comes with transience and demanding expectations of digital services.

A fifth (19%) of respondents in this tribe said they’ve switched banks in the past 18 months, with over two fifths (43%) claiming they’ve become more likely to make a change since the pandemic began. With services under scrutiny, banks must work harder to earn such custom. Their loyalty certainly shouldn’t be taken for granted. To prevent them from jumping ship in search of a better customer experience, banks should offer an unrivalled combination of tailored services and flexibility they won’t find elsewhere.

Taking social purpose seriously

Every bank claims to be customer-centric, and many are making concerted efforts to walk that talk. But consumer behaviours have changed, and expectations have risen. Banks whose plans for transformation are based on pre-Covid predictions risk being left behind by customers who have found new ways to manage their money during the pandemic.

Banks must take social purpose seriously if they want to survive. Rather than talking about products and services, they need to think about broader values aligning with those of their customers. To remain competitive in a post-pandemic world, they must shift their role from service provider to lifestyle partner – and this requires an intimate understanding of customers’ wants, needs and values.

Get it right and, instead of an expense, purpose can be part of the path to profit.