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Financial Services

3 Financial Services Trends We’ll See in 2021

Customer Engagement & Experience

This is a topic on everyone’s top 10 trend list for 2021. Historically, the customer engagement and experience in many financial institutions have tended to be very product- or service-focused and can be very dysfunctional across channels. Customers want to have an overall engagement with their financial institution around products and services that are easy to use, convenient, safe, and maintain their privacy.

Banks will spend a significant amount of time and money in 2021 to create that compelling customer experience. The top banks have the funds, technology, and development teams to make this happen. Smaller financial institutions will have to be more innovative and rely on third parties and as-a-service based solutions to specifically address the needs of the niche market they are servicing.

Small Business Innovation

The number of small businesses in the U.S. reached 31.7 million in 2020, making up nearly all (99.9%) U.S. businesses. This also represents sustained growth as it marks a 3.15% increase from the previous year and a gain of 7.09% over the three-year period from 2017 to 2020. Small businesses remain an untapped marketing opportunity for the financial services industry.

The Paycheck Protection Program (PPP) was launched last March when Congress passed the CARES Act. This was a lifesaver for many small businesses, enabling them to stay open. But now there is a great deal of confusion about loan forgiveness – and there is $525 billion in loans at stake.

Politicians and the SBA have not provided either small businesses or financial institutions much insight into loan forgiveness. Until businesses receive forgiveness confirmation, they are stuck with loans on the books that prevent additional loans from being approved. Banks understand that the PPP is not a typical loan, but it still must be treated as one. There are opportunities for financial institutions to provide more transparency to the customer and better insight into customer cashflow and potential debt collection.

Small business opportunities rely heavily on incumbent institutions for their banking and financing needs. Historically, financial institutions have not been flexible or provided fast-paced solutions to meet the current landscape’s needs. In these times of economic crises and lending restrictions, FinTech will disrupt and fill the gap.

Many new services for small businesses are emerging in payments:

  • Buy Now, Pay Later (BNPL) is the name for a newer credit payment product that allows customers to purchase goods but pay for them either later or by installments. Many companies such as PayPal and Amazon offer these products as an alternative to traditional credit card payments. BNPL will shift more payments away from Visa, Mastercard, and American Express, providing merchants and small businesses with some interchange relief.
  • Stripe Treasury is a banking-as-a-service API that embeds financial services for small businesses with deposit, bill payment, interest, and cashflow management. Stripe is expanding its partnership with Shopify and other eCommerce solutions providers to offer a full array of treasury management services.

Financial institutions and FinTech need to examine the small business value chain and offer capabilities beyond basic lending to make it easier for them to conduct their business. Services are needed in areas including the expanded online store, inventory, payment, payroll, and accounting services.

Open Banking

Many industry experts believe that open banking will finally transform the banking sector in 2021. APIs enable FinTech companies and third-party developers to nimbly build applications and services on top of legacy banking systems.

Now more than ever, customers are in the driver seats of their financial interactions. They will increasingly rely on FinTech innovation to provide an aggregated view of their accounts and manage their finances and transaction activity.

Open banking will challenge traditional thinking. It will inevitably foster closer alliances between financial institutions and FinTech companies. We expect to see burgeoning opportunities in open banking as financial institutions and FinTechs develop solutions in areas such as online account opening, personal financial management, collections, and even direct payments between merchants and banks.

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Bo Berg

Bo Berg specializes in strategy, innovation, systems architecture, and technology transformation. With over 20 years of experience, he has led digital transformation efforts to revamp financial service businesses by adopting digital technologies. He has provided strategic leadership for companies to incorporate blockchain technology into their commercial and retail banking applications.

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