It’s hard to say when the term ‘fintech’ was first coined, but Chris Skinner, global FinTech expert, announces the start of FinTech with the launch of Zopa, a peer-to-peer lender in the Kingdom. United in 2005. Since then, the industry has grown steadily until 2020, when we saw a dramatic 72% increase in the use of European fintech applications.

While foreclosure has certainly pushed fintech services into the mainstream, there are a number of other trends that have shaped the future of fintech startups, banks, and other players entering the industry behind the scenes. These influences will have a major impact on what the bank looks like in the future.

We spoke with experts from the ABN AMRO team to find out which trends will persist, which are just hype, and how those changes will impact the wider financial sector.

Let’s take a closer look at what motivates or challenges this growth sector.

1. Big tech goes into finance… but will we see big tech banks?

With developments like the Apple Card, Google Pay, and Facebook’s Libra, it looks like big tech is slowly moving into finance, but will we see a big tech bank in the future? The short answer may be, but unlikely.

Even though big tech companies are in an excellent position to become banks, Perry Koorevaar, Platform Manager at ABN Amro, seriously doubts they’ll take this step because of the hassle it entails. He believes they will most likely “focus on the most attractive services and position themselves in a position that gains the most financial value, without having to deal with regulatory and back-end requirements.” In addition, big tech lags financial services when it comes to consumer confidence.

Additionally, big tech generates a large portion of their revenue from banks advertising on their platform, so they wouldn’t want to cannibalize this revenue stream. The same goes for all types of cloud services that big tech provide to banks.

While the move to payments makes sense, Dennis de Reus, AI manager at ABN AMRO, also believes that,

Going deeper into other banking products like loans or savings will not be a smart big-tech strategy because it requires holding assets on balance sheets.

Instead, they can choose to become one of the platforms through which banking services are provided.

2. Banks go to bed with fintechs… and like it

Before the pandemic, the Payment Services Directive 2 (PSD2) and open banking now pushed banks to develop open APIs, with the aim of facilitating greater collaboration with fintechs.

And, in some cases, it worked. For example, Koen Adolfs, senior product manager for open banking and enterprise integration technologies at ABN Amro, shares that:

Tikkie, a payment request platform, has an API that allows businesses to send bulk payment requests through any channel of their choice (e.g. Whatsapp, Facebook, email).

But will PSD2 revolutionize the EU’s fintech sector? It really depends on whether these players are taking advantage of the advantages that fintech-banking collaborations can bring.

Perry Koorevaar, Head of Platforms at ABN Amro, says open banking will play an important role in many areas and we will see an increase in “on-board” banking products incorporated into the offerings of non-bank companies.

While consumers are still reluctant to embrace open banking initiatives with open arms, the EU’s focus on privacy could help ease this transition. As with all facets of banking, trust remains at the heart of service. It is therefore important for banks and financial institutions to give customers control over their personal data and how it is shared.

In the world of open APIs, “Security is a hot topic, and everyone hears the stories about scammers, hackers and ransomware. These threats appear to be increasing, but banks are responding accordingly by integrating security into all of our products, applications and infrastructure, ”says Martijn Bot, IT Security Assistant for CISO Technology & Engineering at ABN AMRO.

With proper cybersecurity management and multiple layers of protection, the future of open banking can be safe and secure. Maintaining communication and transparency with customers will also help build trust and loyalty in your bank.

3. The digital bank is equipped with new technology

A perfect storm of factors like the pandemic, PSD2 and the challenge of big tech companies is helping to increase the number of collaborations between banks and fintechs. In turn, this accelerates the rate of adoption of new technologies.

Before the pandemic, nearly half of financial executives said cutting digital costs was their top priority. In October 2020, 90% of executives surveyed said they were focused on modernizing their capabilities, investing in technology solutions, and refocusing their entire business around digital technology. One of the key investments is video banking, which is now becoming more widespread.

Another strategic initiative is for banks to partner with fintechs. Traditional institutions are often seen as inflexible and slower to innovate, but fintech startups face a high risk of failure. The combination of the two entities each helps to overcome these barriers. Hugo Bongers, director of ABN Amro Ventures, knows that these partnerships are not always easy, but they are mutually beneficial.

Will this lead to a future of fully digital branchless banking? According to Dennis de Reus, head of AI at ABN AMRO, they already exist.

Currently, they are focused on retail or small business, but do not have a wide range of products. However, in 10 years, I expect these players to tap into “banking-as-a-service” products to broaden their offering.

4. New threats and security solutions are increasing

Ransomware is sweeping the world at an unprecedented rate. In fact, cybersecurity experts predict that ransomware costs will hit $ 20 billion by the end of the year and climb to $ 265 billion by 2031.

According to CBS News, groups like DarkSide (the hackers behind the Colonial Pipeline attack) even provide what’s known as RaaS, ransomware as a service. These sophisticated cybercrime groups operate like a normal business, with marketing, customer service, and negotiators able to handle communications with victims on behalf of their clients.

So what can banks and fintechs do? According to cybersecurity experts, preparing for a ransomware attack is the best form of defense. “Companies need to prepare backup solutions and make sure that all of these things are tested,” suggests Lalit Bhakuni, head of the Global Cyber ​​Intelligence Center at ABN AMRO.

In addition, ABN AMRO’s information security expert Federico Casano states that

Collaboration is a mutually beneficial endeavor for the financial services industry and the broader fight against cybersecurity attacks. An important aspect of cybersecurity is awareness and knowledge sharing.

The bank has partnered with other financial services companies alongside the Netherlands Organization for Applied Scientific Research (TNO) to tackle cybercrime under the Cybersecurity Innovation Partnership (PCSI) of the TNO. The collaboration resulted in the creation of a self-healing cybersecurity system based on how the human body responds to bacterial infections.

5. There is a will to generate income from sustainable initiatives

Currently, sustainable innovation is generally not tied to income generation, but Talitha Mac-Lean, Sustainable Innovation Portfolio Manager at ABN AMRO, believes it will happen in the future. Currently, the bank has a partnership with TechStars and runs an acceleration program to find startups and scale-ups with which to potentially partner in order to build new proposals that extend beyond the traditional finance.

For example, ABN AMRO owns a lot of real estate, which puts them in a similar scenario with their clients who also own commercial real estate. This means that they can use their knowledge of energy efficiency in real estate to help their clients with their initiatives. As the macroeconomic trend and urgency of climate change becomes more apparent, there is an urgent need for new business models to tackle broader societal issues like the production of renewable energy.

6. Will crypto ever replace fiat money?

“A lot of our customers are already in cryptocurrency or blockchain,” says Yurry Hendriks, head of digital assets at ABN AMRO. The bank’s corporate clients also understand the potential applications of how smart contracts could be applied to increase the operational efficiency of their business model in their corporate life. Meanwhile, institutional investors are recognizing the investment potential of established cryptocurrencies such as Bitcoin or Ether.

However, Dennis de Reus, head of AI at ABN AMRO, is not optimistic about its widespread adoption. He believes that:

If central banks release digital currencies, that outlook could change.

But it would be very different from traditional cryptocurrencies of today, for example Bitcoin, because many blockchain solutions feel like they are reinventing many aspects of modern banking. We don’t know what will happen with crypto, but digital assets is one area we see a lot happening in the future.

Currently, many market inefficiencies are occurring due to lack of technological innovation. Yurry Hendriks, Head of Digital Assets at ABN AMRO, explains that using our current infrastructure, settlement typically takes five business days, but it will be much faster if the assets are tokenized. Moreover, if a digital cryptocurrency such as a stable euro coin existed, direct settlements (where there is no time limit) would be possible.

As with all fast-growing industries, the trends underlying fintech present both opportunities and challenges. Open banking, new technologies, partnerships with banks and the adoption of digital assets will unlock new innovations in the sector. However, challenges such as newer and more frequent security threats and major technologies potentially entering the market will also determine the evolution of the industry.