Digital experiences are increasingly taking the place of physical ones and this trend is accelerating among consumers of financial services. This can drive greater innovation, better experiences and new operating models at a scale not seen before.
Here are four financial services trends that will be in the forefront in 2022:
1. Embedded Finance Will Dramatically Take Off
The vast majority of financial transactions are happening via mobile apps, websites, email, text messages and other digital channels. But most of this amounts to digitizing traditional banking services and that’s no longer enough to satisfy consumer expectations.
Increasingly the future is about embracing embedded finance. This approach mixes banking services into non-financial apps and other digital experiences, making transactions and interactions convenient, simple, seamless and continual.
Embedded finance also enables banks and credit unions and other financial providers to form valuable partnerships with companies in other industries such as technology, retail and telecommunications, not only for delivering superior customer experiences but also to open new revenue streams and expand their customer bases.
Home buying is just one of many areas that could successfully employ embedded finance. Mortgages are typically currently structured as a separate event from home buying, based largely on referrals. You typically go to the bank to get preapproved for a mortgage, a cumbersome step that could be better managed for the consumer, perhaps in a buying experience that automatically links home visits and purchases to a range of mortgage options.
These embedded experiences will soon permeate all aspects of our lives that involve money — and they’ll feel so frictionless that users won’t need to be aware of the underlying technologies and applied programming interfaces that support these transactions. To prepare for this shift, financial institutions must build the data infrastructure to support it.
2. Self-Service at Scale Will Become the New Norm
Consumers are now moving from the DIY world of fintech to newer “DIFM” (do it for me) models. New generations of consumers want their ordinary financial services automated, so they can focus on more valuable tasks or simply gain more personal time. Financial institutions are hurrying to catch up to other industries.
This trend will soon be augmented with operational and analytical data, enabling hyperpersonalization of financial guidance and advice for savings, investment and other activities. The model works not only for consumers, but for companies that can connect directly to a bank’s commercial products directly, through online interfaces with the institution’s software.
3. The U.S. Will Finally Catch Europe and Other Regions in Fintech
Europe’s initial ventures into fintech were powered by a more favorable regulatory environment, along with rapid scaling by digitally native institutions. With consumers in the U.S. increasingly expecting digital-first financial services, fintechs are growing rapidly and legacy institutions are moving faster, with partnerships and acquisitions among digital natives, to meet or beat their fintech counterparts.
Still, while there is increasing innovation in financial services, much of it thanks to technology, it’s not distributed broadly enough.
While digitally native companies have sped ahead by meeting customer needs in faster and more flexible ways, they struggle with scaling and profitability.
The incumbents have years of excellent customer and market data, but for the most part have approached fintech as creating digital versions of their existing selves. They risk commoditization and slower growth.
Both sides need to learn from each other, perhaps through partnering, M&A or simply rapid iteration of the other side’s best practices.
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4. The Public Cloud Will Drive ‘Market Democratization’
Financial markets will increasingly move to the public cloud, driving greater access and transparency for more market participants. This will be a big change from recent years, when siloed data streams and expensive trading technology created inequities among market participants.
Now, the global investor base is rapidly changing and becoming more diverse. Individual investors are taking advantage of new investment vehicles and access to new asset classes like cryptocurrency. With the rise of digitally powered retail investors and greater access to information, data and analytics, the capital markets are quickly becoming open to more people and more types of people.
Both financial institutions and regulators have gained confidence that well-built clouds can be every bit as safe, secure and reliable as the mainframe computers that for decades powered much of the financial services industry. Moreover, cloud systems offer more flexibility, scale and speed, enabling new data sources, modeling of new innovations, and meeting needs in a far greater number of contexts.