While the global pandemic has severely disrupted many industries — such as airlines, hotels and restaurants — it has also unleashed forces that have supercharged other sectors. Financial technology, or fintech, is one of them.
After an initial lull in the first half of 2020 as lockdowns brought many fintech deals to a halt, investment in the industry boomed in the second half of last year, more than doubling to $US71.9 billion, according to KPMG’s Global Insights report.
More M&A in 2021
“We’re going to see larger and more widespread M&A in fintech in 2021, whether it is fintechs seeking to achieve a position of dominant scale… or incumbents needing to accelerate their digital transformation agenda,” says KPMG fintech global co-leader Ian Pollari.
As with the shift to remote work and home shopping, the COVID-19 pandemic has accelerated existing trends in digital adoption across the financial services industry. These trends are being backed not only by businesses and consumers, but by governments across the globe.
The Monetary Authority of Singapore recently issued its first two digital banking licences, while the central banks of the US, UK and Europe have set out a framework and requirements for offering their own digital currencies.
Asset & wealth management
But fintech is not just transforming banking. Digital disruption is starting to overtake the asset and wealth management industry. Artificial intelligence, big data, cloud computing and robotic process automation are just some of the trends now evident.
This in turn is providing challenges for financial services companies in shifting their existing workforce to digital, while attracting the high degree of technical skills needed in a market where digital platforms like Google and Amazon dominate in drawing the top talent.
For smaller firms, such as financial advisory businesses, there is also the challenge of how to balance the need for greater automation and digitisation with the strengths of personalisation and customisation that drew clients to them in the first place.
Britain’s leading position at risk
Some of these challenges and opportunities for British business were highlighted in the recently released Kalifa Review of UK Fintech commissioned by the Johnson government. The report warns that the UK’s leading position in fintech is at risk from growing competition from abroad and from regulatory uncertainty caused by Brexit.
Highlighting the skills shortage in the UK, the review urges the creation of a new type of visa to provide better access to global talent for technology businesses. It also proposes a £1 billion fintech growth fund powered by pension fund savings.
“Overseas centres are seeking to emulate the UK’s success,” the Kalifa review warns. “Competitor jurisdictions such as Singapore, Australia and Canada are investing heavily across many of the areas we have looked at, including capital, skills and direct support for fintechs.”
“The pandemic has accelerated digital adoption globally in a way that marketing or policy never could. This is creating opportunities for jurisdictions that are quickest to diagnose what’s happening and nimblest to capitalise on the opportunities for fintech.”
Emerging global trends
Looking ahead to 2021, the KPMG report sees a number of trends emerging globally in fintech, including rising investment in the payments space, strong growth in embedded finance such as buy now-pay later programs, and the mainstreaming of crypto assets.
“The changes we have seen this year will not likely stop when COVID-19 wanes,” KPMG says. “Companies across the financial services spectrum now understand what is at stake if they do not embrace digital innovation.”
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Robin is a journalist and campaigner for positive change in global investing. He runs Regis Media, a niche provider of content marketing for financial advice firms with an evidence-based investment philosophy. He also works as a consultant to other disruptive firms in the investing sector.
