Ripple’s 2020 predictions for the financial services industry
International payments will...
Marcus Treacher, SVP of Customer Success at Ripple, shares with FinTech his predictions for the finance industry this year.
International payments will continue to get faster and smaller. Payment providers and banks will continue to offer ever faster cross-border payment services to their customers, enabling them to send and receive low-value payments in real-time. The cost overhead of these payments will also continue to shrink. This trend will accelerate in 2020 as customer demand for frictionless on-demand payments grows - enabling solutions like Interledger and distributed ledger technologies to gain traction and scale up.
More banks will use banking-as-a-service tech platforms to revolutionise their cost-to-serve and cost-to-change. As technology costs associated with running and development continue to climb, we can expect banks will turn to cloud providers of banking technology to help radically reduce these costs.
Pioneers of such cloud services - like 10X and Thought Machine - will be the ones to watch in 2020. Because cloud-hosted banking technology providers have developed new platforms with modern methods, they are ideally placed to easily and cheaply plug into emerging blockchain networks, AI engines and other categories of fintech. This means the competitive advantage of innovative banks over slower-moving rivals will be intensified. The long-awaited tipping point from on-premise “museum” banking technology to agile, cheap cloud-hosted bank technology is getting closer. 2020 perhaps is the year?
2020 will see new consumer purchase solutions emerge for tourists/travellers that don’t require cards or card rails. Technology like Ripple’s will be key in achieving this. For example, imagine if a Japanese tourist visiting Thailand could buy goods using a mobile app or QR code, triggering an immediate cross-border payment from their Japanese yen account to a Thai baht merchant’s account. If more consumer purchase solutions start leveraging blockchain technology in the same way, the payoff will - quite literally - be huge!
The global economy will see continued growth of micro and wallet payments to support immediate, low-value payment flows. The use case for micropayments has traditionally been confined to messaging apps like Telegram and Line. But with big tech companies introducing payment services of their own, we can expect a surge of developers flocking to digital assets as the solution to keep up with in-app, real-time payment processing demand.
The shift from traditional, large-value batch flows to low-value, high-volume payments will help SMEs break into new markets much faster. SMEs are often young and fast growing which exposes them to cash flow crises through late payments from their larger, foreign buyers.
Cross-border payment services today are not set up to help them: they are slow, uncertain, prone to errors and accrue extremely high costs. In some parts of the world, cross-border services aren’t even readily available - all of which puts enormous pressures on small organisations’ small balance sheets and lifeline cash flows.
New blockchain payment technologies like Ripple’s enable SMEs to invoice and receive international payments immediately, in small amounts, and with certainty.
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This will be a game-changer, decreasing costs-of-business and enabling SMEs to free up precious capital for reinvestment. This will, in turn, increase the access to new markets for SMEs. 2020 will see a rise in international payment services like Ripple for SMEs across emerging markets, helping them to expand and process immediate payments around the world.
Outpacing of OECD economies by Asian economies in payments innovation will continue through 2020. With 80 percent of the volume in digital asset trading coming from Asia, the region has an appetite for innovation - and perhaps the greatest need for a better payments infrastructure. Blockchain has played a key role in this innovation, with its ability to make micro-transactions such as loans, payments, remittances - much more efficient and transparent. In a region primed for advances in both consumer and enterprise remittances, there is enormous opportunity for the use of blockchain technology like Ripple’s to address issues of liquidity, speed of implementation, and the cost of capital.
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FIVE things fintechs must do to keep investors onboard
New investors flocked to the stock market during the COVID-19 pandemic. Thirty-eight percent of investors said they had never had a brokerage or similar account before opening one in 2020.
Low or no-fee trading options have helped accelerate the trend – nearly half of new investors said they accessed their account primarily through a mobile app. As FinTechs, how do we create the trust needed to keep new investors in the market and create a fruitful customer experience for them?
The financial industry does a disservice to individual investors if we merely offer tools that focus on making money quickly, an approach that usually backfires. Instead, the surge of interest presents an enormous opportunity for those who want to help more consumers use financial technology to educate them on responsible spending, saving, and investing in order to achieve financial wellness current fintech tools have welcomed individual investors in the door.
Now, it’s time to focus on education and improving their experience going forward. There are several ways those of us in fintech can step up to shape the future of retail investing so that it works better for everyone, starting with the following areas.
Equal access to financial wellness education
Financial health should be available to everyone — but today, not everyone has the educational resources to achieve it. One study shows that only 3.9% of students from low-income schools were required to take a personal finance class. What they aren’t learning in school or from family members, fintech companies can provide on their platforms.
The companies should move from solely offering financial services to a more responsible model of education, advice, and prescriptive choices to help consumers develop better habits and make wiser financial decisions. Not only can they empower consumers and bridge historical wealth divides, but they can also stimulate growth by opening up new consumer segments.
Just as we’ve come to expect that our fitness routines are tailored to our individual bodies, we’re also ready for finance tools that go beyond one-size-fits-all solutions. But only six percent of financial institutions say they’re using the kind of technology that allows them to deliver a deeply personalized experience. Fintech tools need to reflect that financial success looks different for each of us.
For one consumer, it may mean providing guidance on how to pay off student loans early; for another, it may mean prescriptive actions that enable them to stick to a budget for the first time; for a third, it could look like prioritizing environmental, social and governance (ESG) investments, so that her portfolio aligns with her political beliefs.
Now, we are seeing financial technology beginning to meet the demands of personalized finance in a substantial and meaningful way.
The rise of AI-Powered Advice
Big-picture advice and predictive guidance used to be a feature of high-end financial advisory firms — a perk only available to those who could afford it. But thanks to rapid advancements in data analytics and artificial intelligence (AI), that kind of holistic advice is now more accessible than ever. AI-driven robo-advisors can parse many different streams of financial information, delivering customized answers to key questions: Is it time to buy a home, or is it smarter to keep renting? Can I afford to take out another student loan?
Intelligent connectivity powered by AI can anticipate consumers’ needs and next steps, making proactive suggestions that guide them along the path to financial wellbeing. Fintech companies can also help consumers identify when their financial picture becomes too complex for a robo-advisor, and help them find a human financial advisor to meet their needs.
Focus on financial mental health
New investors are quickly finding that the market can be overwhelming. That’s not surprising, financial anxiety is common and studies show that financial stress can have an impact on mental health for some.
It’s not enough for fintech companies to give retail investors access; they also must provide the guidance and support that help consumers manage their financial well-being. Educational tools can ensure that consumers are well informed about their options.
Predictive analytics can anticipate consumers’ questions, serving them key information and insights before they ask. Features that emphasize a comprehensive notion of financial well-being, rather than short-term wins and losses, can also help ensure that consumers are keeping their eyes on the bigger picture.
Gamification for good
The surge of gamification apps has done an impressive job making investing as engaging as playing a video game or joining a social media platform.
Much of the current use of gamification emphasizes short-term thinking, but there’s also an opportunity to help consumers think more broadly about their overall financial picture. One example is peer benchmarking, a feature that enables help consumers to see how their financial habits compare to those of friends and fellow consumers.
Gamification can also be used to incentivize making smaller, smarter choices — for example, rewarding saving over making an impulse buy.
The future of fintech is about more than just broadening access to the markets. It’s about making sure more individuals have access to the tools that can help improve their financial well-being—in the ways that suit their own circumstances and needs. The potential to act within their own set of individual priorities, with their long-term financial wellness in mind is much more empowering to a consumer than simply relying on short-term, high-risk investments.