FinTech 2021

Perspectives on banking in the coming year

In its annual prediction-focused magazine issue, The Economist reviews the current state of the world and attempts to forecast the trends of 2021. Within the finance section of the publication, Matthieu Favas argues that in the next year, “banks will regain ground against fintech rivals.”

Principally, he contends that since governments delegated banks with providing crucial financial support to individuals and companies during the COVID-19 pandemic, banking institutions saw a significant increase in their deposit bases. To Favas, this activity highlights one key edge that banks maintain over FinTech firms - “consumers’ willingness to entrust them with their earnings when it really counts.”

The piece also posits that the younger FinTechs which typically rely on rapid growth to outweigh cash burn are struggling to find additional VC funding in the face of economic uncertainty. As many journalists continue to emphasize, although the equity markets have reached new heights, the lasting economic damage of the pandemic remains unclear.

It seems reasonable that people would rely on entrenched financial stalwarts during a crisis and that some fledgling, untested FinTech rivals could falter. Furthermore, banks that invested in digital platforms before the pandemic will continue to increase their dominance in 2021. Favas does mention, however, that some FinTech firms have also expanded during the crisis. These companies include those that facilitate digital payments, such as Stripe and Square, and firms like Robinhood that foster retail equity trading.

Square Payment Processing

Will the transition away from human-facilitated banking to digital platforms allow the reputational advantage to persist? The findings in Accenture’s 2020 Global Banking Consumer Study, a survey of over 47,000 global customers, indicate that some of this edge may dissipate.

In 2020, 34 percent of Canadian consumers trust banks “a lot to look after their long-term financial well-being,” while in 2018, 47 percent of those surveyed felt similarly. Accenture concludes that “while banks often view broader digital adoption as a way to lower costs and provide services 24/7, the rapid pivot to existing and hastily launched digital services has all but removed the vital human element from banking, further eroding consumer trust.”

Erica - Bank of America’s Digital Assistant

While the survey summary does not explicitly mention this, it would be interesting to see a “trust” breakdown that divides banks into different tiers and compares the results to those of FinTech firms. Not all digital platforms are equal, and as the Economist article argues, those banks with superior solutions may have seen an increase or little change in “trust.”

The COVID-19 pandemic catalyzed the acceleration of many existing trends. As people cope with the aftermath of the crisis, perhaps 2021 will be the year of the traditional bank. Long term, however, it is difficult to bet against all of the novel solutions and disruptive power of the FinTech competitors.