Last year, the world was crippled by COVID-19. But for the FinTech sector, it was just a speed bump. After the initial stun and the cautious reactions, the global pandemic acted as an accelerant for digital services, pulling the incumbent financial institutions from their manual, paper-driven ways. This year, the momentum will continue, and we will see big leaps in the FinTech space, primarily focused on user experience.
Below are my FinTech predictions for 2021.
Autonomous finance in retail banking
Consumers are opening up to a more automated life, and financial services are following that trend. The old personal financial management (PFM) platforms that focus on budgeting and spend tracking are going to get stale, and the emergence of intelligent “self-driving” platforms will become prominent.
These apps will recognize when your paycheck has hit your bank account and will automatically move the correct amounts into your retirement account and the kids’ college fund. They will initiate a cross-border transaction to mom in Mexico and will add $500 to your Robinhood account. The average person will have their own automated personal CFO that will manage their finances, and companies like Astra, Wealthfront, and Otomo are already building that future.
Buying insurance becomes user-friendly
Buying insurance, particularly life and health insurance is an arduous, painful task that usually requires hours with an advisor, PDF forms (or actual paper and ink), and weeks of waiting. The force of COVID-19 pushed insurance carriers to digitize workflows so that human interaction was reduced or eliminated.
The winners in this space will be those that carry a consumer from prospect to policy in a fully digital environment. This year, we’ll finally begin to see more user-centric experiences for purchasing insurance, directly from your phone in just a few minutes. Finaeo (a Luge Capital portfolio company), Breathelife, Policyme, and Emma are paving this path.
Money on demand
Access to capital for small businesses and consumers will be made easier and simpler through intelligent alternative lending platforms. Borrowers will be pre-approved behind the scenes and when an injection of cash is needed, the funds will appear at the click of a button. This trend took shape in 2020 with the rise of BNPL platforms and access to earned wages on-demand. With a lot of uncertainty still lingering, the unobstructed flow of capital will be an important driver for economic growth. ZayZoon, goPeer, and Sezzle are examples of the new age credit businesses that are delivering these experiences.
Live shopping will be a thing in North America and Europe
Online live shopping is already a huge form of e-commerce in Asian markets, with $60 billion in sales in 2019, and an estimated $242 billion in 2020. In the US, live shopping drove an estimated $1 billion of sales in 2019, but that number will grow significantly in 2021 and beyond.
As Americans, Canadians and Europeans seek new forms of online retail engagement with the brands they love, live shopping will grow in popularity, especially while shelter-in-place orders persist. Bambuser, based in Stockholm, and Livescale, based in Montreal, are shaping the future of live shopping experiences.
Employee benefits will focus on individual needs
The mental health of employees has become a top priority for many employers, and as Zoom becomes the prevailing method to interact with one another, managers will try to find ways to provide extra perks for their team.
Employee benefits will become personalized, offering flexible ways to spend within a certain allowance. There is no reason to stay within the confines of a traditional plan. Employees will be able to spend what they want on whatever they want for their health and wellness needs.
Companies like Aya (a Luge Capital portfolio company), Starship, and Lively are on a mission to improve the user experience for health spending accounts (HSAs) and wellness spending accounts (WSAs) by offering prepaid debit cards and a mobile app companion.
Crypto will become mainstream
In 2020, large consumer platforms, such as PayPal, catapulted crypto assets into a discoverable field of view for the mainstream population. That meant a significant growth in user TAM (total addressable market) almost overnight. The OCC implemented groundbreaking cryptocurrency guidance allowing banks to use stablecoins to facilitate payment transactions for customers. Furthermore, JP Morgan says there’s a long-term possibility that Bitcoin could reach $146,000.
The crypto momentum will accelerate through 2021, and Bitcoin will become an asset that retail investors will hold more prominently in their Wealthsimple or Robinhood accounts. However, it won’t become a dominant currency for commerce just yet.
In addition to all of these trends, we’re also going to see more mega-mergers and IPOs. As the market for SPACs develops and matures, we’ll see smaller companies advance their ambitions to be publicly-listed, especially if the current trend of public markets outpacing private market valuations continues. Don’t blink!