9 minute read
2021 has been as uncertain — though, thankfully, not as 'unprecedented' — as 2020.
But it's also been a year of hope and of small but decisive steps towards post-Covid-19 recovery. And, for Solarisbank, a year we'll look back on with pride and immense satisfaction.
Over the past 12 months, we've achieved some incredible milestones. We launched in three new markets — Italy, Spain and France — and oversubscribed a €190 million Series D funding round. We also joined forces with fintech powerhouse Contis, a partnership that'll put us at the cutting edge of Banking-as-a-Service technology in the UK, Europe, and beyond. As 2022 approaches, we couldn't be more excited for the opportunities it's going to bring.
So what's in store for the new year?
And, more to the point, what are the key trends that'll shape banking and fintech?
We've spoken to Solarisbank's experts to find out.
Layla Qassim, Head of Strategy & Shareholder Relations
In 2020, we predicted embedded finance would take centre stage in 2021. And that prediction has undoubtedly come true.
Over the past 12 months, embedded finance has become the hottest trend in fintech, with ever more non-financial brands looking to integrate payments, loans, insurance products, and even wealth management services into their user journeys.
But Layla Qassim, Solarisbank's head of strategy and shareholder relations, reckons we've barely scratched the surface of what embedded finance can do.
"I don’t think many truly understand the tectonic shift that is already underway," she says. As embedded finance becomes more mainstream and AI-powered technologies get better and better at understanding customers' needs, customers will no longer have to research what products are available and approach a financial services firm to apply.
Instead, relevant, highly personalised products will appear in front of them at the time and on the retail channel where it makes most sense — whether that's at the online checkout or on their favourite social media network.
In 2021 it became clear that among others, retailers also want to offer financial services for three main reasons: boost sales for their main product, increase customer loyalty, or gain new data about their consumer’s behaviour.
But Banking-as-a-Service does not serve retailers only, it can serve any ecosystem seeking lowered barriers to entry. In fact, Layla thinks that fintech will become increasingly specialised.
"I think fintech players are going to start focusing their attention on slimmer and slimmer market segments. " This, she believes, will be good for the industry, and even better for customers, because it'll facilitate innovation. For example, we already see several niche neo-banking offers focusing on teenagers or crypto lovers, clear examples of specialisation trends taking place.
"For those who want to specialise, Solaris can create significant cost savings and remove regulatory complexity, making it easier for financial services companies and non-financial players to work together." she says.
"And once the barriers to entry are lowered, the dreamers can focus on creating solutions to the big pain points, without having to worry about technical implementation... because we are experts that can take care of that."
Randa El Baz, Product Manager
If embedded finance was one of the top fintech trends of 2021, buy-now-pay-later (BNPL) was its biggest star.
In 2020, we called BNPL "a best-practice example for embedded finance." But what we didn't anticipate was the extent to which its growth would skyrocket in 2021.
Over the past twelve months, European players grew 118%, and Klarna was the most downloaded app in Europe in the shopping category. Even in Germany, where uptake of credit products is notoriously low compared to other developed countries, BNPL grew by an impressive 55.8%.
Solarisbank's product manager Randa El Baz thinks this is down to the fact that BNPL has made lending easier to access, more flexible, and more convenient.
"Up to a few years ago, lending was a very traditional business," she says. "You had to go through a lot of cumbersome processes to take out a loan. Now, you can get one in 10 minutes, without having to provide piles of documents or physically go to a branch to get onboarded."
Of course, things have also become simpler for merchants.
"For our partners," she continues, "issuing loans is also easy, because they can use our banking licence." This simplicity, coupled with the fact that buy-now-pay-later increases basket size and customer loyalty, and earns them interest revenue, makes offering buy-now-pay-later at the checkout a no-brainer.
In 2022, Randa believes lending will become even more convenient and transparent.
"Now that we've simplified origination, I think the next step is to make servicing and communication the best they can be. Customers will have more clarity about repayments and terms and conditions. And it'll be easier for them to get in touch if they have questions or concerns — no more letters, calls, and bureaucratic back and forth."
Randa also reckons there's an opportunity in the B2B space, particularly when it comes to freelancers and SMEs.
"There are a lot of booming small businesses and many niche ideas with huge potential," she says. "But SMEs have been mostly overlooked, partly because they tend to be higher risk and partly because of the Covid-19 situation. Now that the retail space has been disrupted, innovating business lending is the logical next step."
Marina Fernandes, Head of Product
One of our biggest predictions for 2021 was that incumbents would have to "walk the talk" on digitalisation.
And, in a way, they have. Over the past twelve months, banks have redoubled their digital efforts, put deploying or improving their banking-as-a-service capabilities at the top of their agendas, and made encouraging strides towards embracing open finance.
But if digital access has improved by leaps and bounds, research has found that many banking apps still struggle with parts of the user experience. Solarisbank's head of product Marina Fernandes thinks this is a missed opportunity, and one that needs to be addressed sooner rather than later.
"I think banks have a lot of work to do when it comes to being more customer-centric," she says.
"What happens when I have to recall a payment? Or if I was supposed to receive money today but it hasn't arrived? Or if my card details got stolen and I need to block it? The customer experience should be smooth across the board."
Customer support isn't the only area where incumbents need to up their game. Marina believes it's high time financial services products became more personalised and contextualised.
"There's a huge opportunity to grab market share in niches that are underserved, like teenage banking," she says.
But greater personalisation isn't just vertical. It also means giving customers more control.
"I see a trend towards more interactive products," she says. "So, for instance, the customer could automate their investments, deciding when to invest, how much, and where. Allowing customers to engage with products in this way builds more loyalty and trust."
Nora El Azzouzi, Head of Anti-Financial Crime
Another challenging area for incumbents is the fight against fraud. During the first half of 2021 alone, attempts at digital fraud rose by 150% globally as cybercriminals sought to exploit vulnerabilities brought about by rapid digitalisation during the Covid-19 pandemic.
Solarisbank's head of anti-financial crime Nora El Azzouzi thinks artificial intelligence is going to play a critical role in reducing the incidence of fraud and keeping customers' financial details safe during 2022 and beyond.
"AI is adept at sifting through huge amounts of data quickly and spotting suspicious patterns of behaviour that may not be immediately noticeable to the human eye," she says. "So it can make a massive difference when it comes to detecting fraud and related activities."
But artificial intelligence, Nora believes, is also going to become even more instrumental when it comes to striking a balance between customers' desire for fast, seamless digital experiences and regulatory compliance.
"Acting fast can't come at the expense of legal obligations and regulatory rules" she explains. "So financial services firms need tools that can be scaled alongside customer growth."
That said, there's a danger of adopting too much technology for its own sake. "We need to embrace automation when it's helpful," she says. "But not when doing so makes it harder to identify the risk of financial crimes."
Julian Grigo, Managing Director Digital Assets
If 2020 was a big year for crypto, 2021 was even bigger and better. Leading cryptocurrency exchange Coinbase had a hugely successful IPO in April. And, in even bigger news, Amazon announced it's developing a blockchain strategy, which means crypto payments could be coming to the world's biggest e-commerce retailer very soon.
But what's especially significant about the NFT explosion, according to Solarisbank's managing director digital assets Julian Grigo, is that it's a sign crypto has truly gone mainstream.
"People are trading NFTs without any knowledge of crypto and the blockchain. And that's exactly how it should be," he says.
"Consider the internet... Everybody uses it, but very few people understand TCP/IP protocols or the other intricacies of how it works. That's the test of true technology adoption. You don't have to understand how something works... it just works."
Now that technology itself is no longer the use case, Julian believes we're about to see a massive shift. "We can start regarding the blockchain as what it really is: a technology layer that facilitates other use cases."
So what does this mean for the future? How will crypto and blockchain technology impact finance in 2022?
"I think banking — and financial services generally — will eventually become one subset of a bigger ecosystem that runs on the blockchain, and this will bring about tremendous change for both customers and banks.
"From a customer perspective, the blockchain is immutable, censorship-proof, and democratic, so there will be fairer access to financial services for everyone.
"And from a bank perspective, as the blockchain expands further into art, music, games, and other industries, there'll be a growing need for trusted institutions to act as custodians. By stepping in to fulfill this role, banks can expand beyond financial services and reach new markets."
In 2022, the financial services industry will have to tackle many challenges, from ramping up the fight against fraud and improving the customer experience to figuring out where they fit in an increasingly decentralised world.
But as daunting as these challenges might seem, they'll also bring with them exciting new opportunities. And those that seize them now will enjoy first-mover advantages for many years to come.
Are you ready to make the most of what 2022 will throw your way?