Fintech trends watch 2021: checkouts, wealthtech and SCA
Our resident Gen Z’er, Ruby Hinchliffe, shares her three predictions for 2021.
Banking will continue tailing paymentsI can’t speak for all Gen Z’ers, but I know if I have to enter my card details to buy something, then the probability of my buying said item will decline by around 75%. And if it’s an impulse buy – which, in lockdown, it likely is – thinking about it for too long makes me feel instantly guilty for entertaining the purchase in the first place. That’s why the majority of venture capital (VC) investments are going into payments-focused fintechs, rather than challenger banks. Optionality at the checkout, with various alternatives to plugging in your card details, will always triumph over banking app functionality.
There’s an ever-growing number of fintechs operating payments businesses with no intention of getting into banking. Fintech start-ups facilitating a burgeoning list of embedded payment options – such as Stripe, Checkout.com, Affirm, and GoCardless – have continued to drive the decentralisation of global finance from banks to end-user platforms. A wave which kicked off in the early days of e-commerce with the launch of PayPal’s digital wallet to support its owner at the time, eBay.
Richard Arundel, Currencycloud’s co-founder and “chief evangelist”, tells me the rise of embedded finance through 2021 will continue to “propagate the uncoupling of payments and finance from the traditional banking system”. He points out that banks – historically monolithic entities where all financial transactions and services took place – are seeing their roles in society change. And this, Arundel says, is what’s going to “underpin the second wave of fintech innovation”.
Wealth management suddenly became sexy
Whilst the volatility of 2020 brought with it a boom in day trading, the continued rock-bottom interest rates globally are encouraging young people to think more long-term when it comes to investments. That, paired with the energy these spiking markets have demanded from their investors this past year, is shaping an appetite for more expertise. Queue that sexy, two-word phrase: “wealth management”.
As Bloomberg reporter, Kamaron Leach, notes in an article published in late January: “Even day traders and people who prefer set-and-forget index fund investments have come to realise that there’s a lot more components involved in building wealth”.
Robo advisors have, as a result, enjoyed significant growth in the last year. Charles Schwab’s digital advisory assets, for example, grew 18% year-over-year to $57.9 billion in 2020 alone. But more than this, day traders have, for some years now, called for human-based investment advice. A 2019 Investopedia survey of young adults with household incomes of $50,000 or more found more than half (56%) trusted a human financial adviser over an automated one.
A fight for the next best payment method
With Secure Customer Authentication (SCA) under the Second Payment Services Directive (PSD2) set to be implemented by the UK’s online commerce market in September, and already here for wider Europe, it doesn’t seem outlandish to predict cards will soon be displaced for other payment methods.
When SCA was announced, it sent ripples through the industry. Not only has it been a regulatory beast for firms to wrap their heads around, it also seriously threatens the default “pay by card” option. It adds security steps to drive down fraud which players anticipate will drive up shopping cart abandonment.
The regulation has already seen merchants migrate to alternative payment methods. Be that offering deferred payments which avoid paying at checkout, buy now, pay later options, or bank transfers. Cards are still the most popular payment method on e-commerce platforms in the UK, according to JP Morgan. Post-September, I think we’ll really start to see this dominance shift in favour of bank transfers and digital wallets.