Five trends driving the future of finance

Global events and volatile macroeconomic conditions demand agility from all players involved in serving customers in today’s interconnected financial services ecosystem. The adoption of open platforms and increased collaboration between all is vital in accelerating digital innovation and responding to changing customer needs.

Gartner has predicted that investment in platforms will triple from $90 billion in 2021 to over $250 billion by 2026. In its ‘Legacy to Digital Platform survey’ from 2021, Gartner found that 62% of banks believe that creating new products in partnership with fintechs is a high priority.

Against this backdrop, let’s explore five trends that are driving the future of finance today, noting that a platform-based collaboration approach is predominant in driving innovation in financial services.

1. A growing appetite for Open Finance: Open Finance is disrupting and reshaping the foundation of financial services. In the last few years, the industry has seen the unbundling of banking, with institutions offering products procured outside of their organization, a move to contextual and conscious banking services which meet the customer at the point of need, and a greater desire from many companies to do well by doing good. All these form part of the shift to ‘open’ and require collaboration through open platforms. Indeed, Finastra’s latest State of the Nation survey of global financial institutions shows that 85% of respondents agree that Open Finance is already making the industry more collaborative and is having a positive impact.
2. A push for improved financial inclusion and interoperability: Interoperability is the need of the hour, and as the world gets more interconnected, it will power the digital economy towards Open Finance. It will drive collaboration between financial institutions, operating and technology models, government and regulatory entities to allow for economies of scale and an optimized user experience. This in turn will help boost financial inclusion through the creation of products and services that are not only profitable, but support a more inclusive digital economy where everyone can thrive.
3. The rise of embedded finance: How we empower small business owners is vital for our economy. Analysis from Accenture forecasts that embedded banking for SMEs will capture up to 26% of global SME banking revenue by 2025. Embedded finance has been a growing trend over the past year and is well-positioned to accelerate as an increasing number of banks look to become service providers and non-financial institutions look to deliver a customer experience or service proposition involving financial services as a component of a larger offering. The adoption of an open platform which acts as an essential connectivity layer to enable Banking-as-a-Service is vital here: making it easy to connect all participants in the ecosystem.
4. Collaboration is key in driving innovation: Innovation is fast becoming a norm of the business fabric in which banks and financial services firms will operate. Banks will look to collaborate with external fintech partners to help them stay current with customer expectations, regulatory imperatives, and uncertain economic conditions. They will need to leverage open and collaborative platforms from fintech players around the world to connect to, collaborate on, and co-create innovative solutions with, to advance the innovation agenda. Plug and play APIs are on the rise and will be the engine around which new business models will be created. Many platform firms are looking to offer financial services as an extension to their core platform capabilities.
5. Increased focus on ESG: Sustainable value creation in financial services has never been more important. There is increasing interest in fintechs with ESG capabilities, including companies focused on climate change, decarbonization, and the circular economy. Customers and investors are increasingly looking for those they do business with to have strong green credentials. We will see more of this in 2023 and beyond. Data centers and blockchain technology need to become greener, and companies need to ensure they don’t waste valuable resources storing data they don’t need and running algorithms that don’t add value. It’s no longer about building and running everything in-house, but partnering with those that are best in class and that offer highly sustainable business models

In summary, the future is all about collaborating with partners to innovate at speed to best serve customer needs. Open Finance eliminates a lot of friction in the ecosystem so that financial services can be delivered in the best way – as well as being fairer, more sustainable and inclusive for all.

As a global provider of financial software applications and marketplaces, trusted by over 8,500 financial institutions, including 90 of the world’s top 100 banks, Finastra with our open innovation platform, FusionFabric.cloud, is in a prime position to lead the platformification of banking and enable open collaboration at scale within the global fintech ecosystem and beyond.

This article first appeared on Infinite Intelligence.