What trends will shape the future of financial services

We joined the fabulous Future Today Institute (FTI) to hear their financial services predictions for 2023. Their annual research is downloaded over 1 million times, so we always pay close attention.

Trust is at the core of any successful financial system, with money typically sitting in one of two key phases: 1. At rest and 2, In motion. FTI predict a fundamental and creative re-look at what money can do and a new model emerging that forms the basis for our system.

and jump considers these insights from a product and service innovation perspective. Here’s the headlines.

1. New Needs. New forms

Changing macroeconomics is shifting the base mechanism of our financial system and how society participates.

The path to IPO is not as common. Funding mechanisms have changed as investors seek a clear path to profit, not just growth.

People want to be financially free — especially prominent among younger generations. This is creating new needs and forms of income, i.e. the time millionaire and aggregating assets to create enough passive income. These will likely change the evolution of retirement and what people are working, saving and building towards.

Why this matters: Customers will pick financial services products that achieve their desired lifestyles and outcomes. Money must work harder. The payment is the key to value exchange.

Ask: how does your product fit into the ecosystem and develop your product strategy in building blocks? Where can you add new forms of value against the seven key use cases for money, e.g. pay, save, borrow, lend, insure?

2 Open banking makes business interoperability critical

PTS2 enables a user’s bank ledger to be made public, making information and insight gathering easier — creating a new ecosystem. This trend has taken 10-15 years to come to fruition but is now embedded and shaping future products and services.

Today, we’re at stage one, ‘Read access’ - the ability to do something with the data, e.g. initiate transactions. Start-ups have established a foothold by interpreting this rich data, but greater innovation is anticipated to explode, particularly in account-to-account and real-time payments.

It’s worth noting that the global power axles have taken different regulatory approaches — free market (US) and regulatory approach (EU). The advice in Europe and North America is to act now, or you might have missed the boat.

Why this matters: The market is swiftly moving to stage two, ‘rights access’. With so much data richness about to hit the market, organisations must get ahead, either using their data better (proprietary and secondary) or partnering with a fintech that’s made progress.

Ask: understand where you act on the open banking lifecycle and partner ASAP if you can’t build new value forms.

3. Invisible banking: the commoditisation of banking infrastructure

What helped Uber accelerate growth is having payment embedded in the platform. This removed a friction point with the card-on-file mechanism

Expect to see this concept explode, i.e. payment is pre-authorised outside of the moment you make a transition by having the user's token, identity, and card on file. By separating the thought from the moment of payment, it becomes easier to buy more. Furthermore, embedded finance is moving the purchase decision to a different place—i.e. car loan at your car dealership rather than a bank.

In addition, Banking as a Service (BaaS) — where the backend has become commoditised and more interchangeable—  has quickly become the norm. Visa and Mastercard are becoming the ‘networks of networks’. Apple and Google Pay contactless user experiences are spurring new behaviours.

Why this matters: The industry will see a split between those that own the customer relationship and those who own the backend.

Ask: From a backend perspective, does the organisation have the ability to connect multiple endpoints? Creating magical experiences drive adoption; what else can you do in the seven money use cases highlighted above?

4. Ushering in new forms of democracy

Transparency and open banking is making the backend more visible. Digital identity will fast become the root topology and identifier, creating an opportunity to extend this to other areas, such as government and voting, where your wallet has become a powerful way to act on your individual beliefs.

Environmental, Social and Governance (ESG) has also increased in importance to society. Organisations such as Mastercard and Unilever now use it as a mechanism to think long-term rather than purely by profit on a quarter-by-quarter basis.

Organisations have to share information with regulators they never used to, and future requests from regulators will only increase.

Why this matters: The industry requires a different mindset. It must be prepared for greater scrutiny and assume auditing and ESG are the status quo.

Ask: Are your backend and systems effectively set up so your organisation can stand up to scrutiny? How can you use ESG as a great mechanism to drive value and think long-term?

5. Better, faster, stronger AI and automation

Welcome the rise of 1. algorithmic purchasers, i.e. Non-humans buying things for non-emotional reasons. 2. decentralised finance, and 3. better acquirer orchestration, e.g. when a card’s swiped, the transaction is routed more efficiently, like foreign currency.

AI is powering better personal financial management and asset optimisation, e.g. how to work towards your ideal retirement date.

Why this matters: As systems connect, firms will have more opportunities for hard-nosed decision-making at the backend level.

Ask: How can you make the systems powering your products and services more dynamic to add greater value for consumers?

What next

First, get up to speed, and understand your value and core competence. Second, develop winners or partner with a Fintech with a proof of concept who is building scale.

⚡️ To see how these insights affect your business