FinovateSpring 2023: The top trends shaping the future of financial services
With the rapid rate of change in the financial services space, it can sometimes be difficult for banks and fintechs to keep their finger on the pulse amid a sea of technological advancements and ever-changing consumer demands.
To help with this, this year’s FinovateSpring conference in San Francisco has put digital transformation and innovation at the top of the agenda.
The conference kicked off this week with a session led by three fintech analysts on the shifting financial services landscape, with each speaker looking to shed light on the top trends shaping the future of the industry in the US.
Gen Z and banking
Tiffani Montez, principal analyst at Insider Intelligence, kicked off the discussion with a look at how consumer preferences are changing. Montez says that the power is now shifting to Gen Z, with 18 million Gen Zers set to adopt mobile banking between 2023 and 2026 in the US.
“When we start thinking about this generation, they are very different than the generations that came before,” says Montez.
“The average age to own a smartphone for Gen Z is 12 years old, according to our forecast, and what they do on their mobile devices is very different. 73% of them indicate that they spend up to five hours per day on social media platforms.
“When they think about banking relationships, more than half of them indicate that mobile is a top consideration for them when they choose a bank. But when we start thinking about who they actually trust to provide them with banking products and services, it is not traditional financial institutions like banks and credit unions.
“They trust big tech companies like PayPal and Apple more than they trust financial institutions.”
Montez claims that to catch Gen Z’s attention, firms will have to embrace on-demand video and become discoverable on platforms such as Instagram and TikTok, as well as lean into digital financial tools.
Survival mode: neobanks, BNPL, crypto and more
With the economic uncertainty in the industry, Montez also cast a light on the struggles many companies have been facing raising capital. Looking specifically at neobanks, she says they have been “working really hard to extend their runway”.
“When you think about extending their runway, they had to change from ‘growth at all costs’ and quickly shift to containing costs,” says Montez.
“And the hard truth is, unfortunately, we are going to start seeing an uptick in mergers and acquisitions and even bankruptcies. And this is where I’m going to pause to say it’s really important right now that we support each other and that we support our networks. But we also know that there are neobanks that are leaning into things like lending and even using subscription services as a lifeline, and we expect those neobanks to emerge stronger than ever.”
Montez adds that buy now, pay later (BNPL) is the “hottest lending product in the industry”, claiming that in 2023, 26.3 million Gen Zers will adopt BNPL, “and we expect that number to rise to 35.1 million by 2026”.
However, she notes that BNPL is going through growing pains, with 42% of consumers indicating that they’ve missed a payment. “And we know that regulation could add steps to the checkout process and that’s going to make lending stricter and BNPL harder to use,” she says.
“But even so, we think that actual transparency will bode well for BNPL providers. And in the long run we expect revenues to surge.”
Montez adds she expects cryptocurrency to “finally push past crypto winter” and is slowly carving out a payments niche in the industry, with 3.1 million US adults set to pay with crypto in 2023.
“We believe that payments use cases still hold long-term appeal for certain industries, like retail remittances and cross-border B2B payments, and that is actually continuing to drive market adoption.”
While there’s still regulatory uncertainty clouding crypto’s future, Montez says crypto adoption will grow 21.7% between 2022 and 2025.
Daniel Latimore, chief research officer at Celent, then took to the stage to discuss a topic that’s been on everyone’s lips this year: generative AI.
Latimore says the technology is still relatively young and advancing weekly, and even though it’s currently prone to what he terms “hallucinations” – or making things up – there are certainly huge opportunities when it comes to reducing costs by automating processes and bringing in usable data.
But he says there are currently cybersecurity threats as well and firms could be giving up sensitive data by using the tech, and so still require a human presence to check what their generative AI models are doing.
He says firms should treat generative AI at the moment as a “nosy neighbour” that’s able to tell you information, but that information should always be passed through your own filters and you should always “use your own judgement”.
Latimore closes his talk by detailing the next steps companies should take with generative AI.
“Well, first of all, you should experiment, but do it with non-sensitive data. Keep on questioning, and if you don’t have the resources yourself, look to your advisors. And finally, keep on monitoring what’s going on.
“But what’s best at this stage? Ultimately today, you can choose to play offense or not – it’s definitely up to you given your resources – but you have no choice but to play defense, because the bad guys are coming out here and they are motivated and skilled and incredibly creative. So ultimately, start small. Maintain your optionality. But do start.”
Latimore closes by saying generative AI is the “biggest thing to hit financial services” and firms need to “pay attention to it and keep up on the ever-changing progress”.
Standing out from the crowd
To close the discussion, Dylan Lerner, senior analyst of digital banking at Javelin Strategy & Research, highlighted the need for financial firms to focus on helping customers with their financial fitness, saying it is a “key differentiator for us to navigate this new environment”.
With the rise of Banking-as-a-Service (BaaS), the number of non-banks offering banking services has risen exponentially. Lerner says there’s been an “unprecedented explosion of consumer choice, and we’re seeing consumers take advantage of that”.
He says that customers now use non-banks for 52% of their financial needs, with this number rising to 69% for Gen Z.
So what can banks do to differentiate themselves amid this growing number of options for customers?
Lerner believes financial fitness “is something where you can go a million different directions” to help improve the financial experience for customers.
He says this involves increasing customer confidence, giving them the capability to manage their finances effectively, as well as managing their financial ambition and providing coaching.
Lerner adds that personalisation is key, while banks should also look to take the initiative and be proactive in helping customers rather than simply just throwing them the tools and wishing them good luck.
To conclude, he says firms should first “prioritise engagement over the occasional cross sell”.
“Think of your customers as long term. Don’t throw a random product at them. Think about how you as the bank can move along their financial fitness future.
“Number two, watch for blind spots. Think about the missing pieces you may not have in your digital banking environment. Think about things that matter to customers although they may not be directly related to your bottom line.
“And, of course, number three, deliver a curated experience. Not just the DIY tools. Be the financial expert for your customers. Let them know that you are the financial advisor of this relationship. And always provide a path forward. Never lead a customer down to a dead end. You want to make sure that wherever they go, you follow along or handshake them off. The worst thing you can do is let your customers look elsewhere because they’re going to go to a competitor to find it.”