Nine payment and fintech predictions

This article was originally published on?Forbes?30. December 2020

I made these predictions looking into 2021. Publishing unedited for you to review.

At the beginning of the year, I spelled out three key payments investment themes for 2020. This was prior to the rise of the global pandemic that saw most of the year obliterated for many. However, the unexpected viral pandemic only accelerated the rate at which “alternative” payments have been thrust into the spotlight.?

At the end of the unprecedented and unexpected year that was 2021, my predictions for what’s to come have tripled. Below are nine trends I expect to hear a lot more about during the next year or so.

Payments go remote

Just as people work from home, the pandemic has given rise to remote shopping and payments. Once a business and their customers have grasped the convenience and speed of sending and receiving money and taking orders remotely, we will see a continued growth of app based money exchange. This will occur both between people and from customers to businesses. Think of Starbucks - once you get used to placing your favorite order with a tap in the app and getting it in a pandemic friendly way, skipping the queue, you will not enjoy going back to waiting in line handing over dirty cash. The same will apply in so many other situations as the businesses that can offer you remote and contact free payments and ordering. I would invest in players assisting and enabling remote payments.

SMEs come back into fashion

As a result of the payment and shopping revolution stemming from mobile payments, the SME segment, the mum and dad stores of the world, will likely see a massive boost in popularity. There are many reasons for this dynamic, but local value creation, focus on quality over quantity, keeping your local stores alive and the digitisation of these local businesses with remote ordering and payment options will help drive this. Not everyone wants to go into the shopping mall and the pandemic effect is set to help smaller quality-focused vendors to prosper if they enable their clients to shop, order and pay in a Starbucks like fashion.?

Offices are dead… long live the shared work space

With most people who normally work in offices now working from home, the real estate market will see a massive shift as leases will be terminated or left unrenewed. This is not specifically a payment, fintech or banking prediction, but the industry leaders in this category will likely have few reasons to bring their staff back to offices. With home office and digital tools producing higher efficiency than normal office work, we will likely see an increased investment in tools, home office hardware and stay-sane initiatives like gym, yoga and social events being facilitated by employers while office buildings will be repurposed for something else. Quite a few companies are considering converting their offices in co-working spaces and meeting rooms that would give the option, but not the obligation, to employees to work in the office. I would invest in remote work enablement, productivity and HR tools.

Subscribe to a neo bank

No matter what name you give the Revolut, N26, Nubank and Monzos of the world, they will all start to charge some form of subscription or service fee from their customers. The card networks are focusing on account-to-account infrastructure acquisitions to the extent that card issuing bonuses can no longer keep these loss machines afloat. You may not know this but the majority of challenger banks’ revenue comes from Client Incentive Agreements with the card networks. They get paid to issue as many cards as they can. That’s why every potential new financial services idea ends up revolving around some kind of card concept. But most people have plenty of cards already.?

While there is still some juice left in the venture capital carton for these beauty queens, they have to make some real money soon. The majority of what they sell, retail banks do already and the difference is brand and gift wrapping. Flashy app design and modern corresponding banking to reduce FX costs only takes you so far when you are out of money. I predict that few people will convert to the challenger banks as their primary relationship in 2021. So there will still be a series of funding rounds needed to keep these players alive and for that we will see feature after feature announced, as future revenue opportunities will have to be presented for the risk capital to be applied. Expect Revolut and co to become feature factories making their apps even more cluttered as they chase more investments. Some of the challenger banks will survive but some will not. I would be very selective.

Interest rates go up

As the affluent markets see a rise in housing prices the interest rates will start to move upwards. The world economy is still standing on shaky grounds and we may just as likely see a correction with stock exchange crashes, but interest rates are likely to start growing slowly in 2021.

Crypto gets a jump, then flattens again

With world markets synthetically positive and sane experts giving advice to stay calm as a correction will likely come, money is looking elsewhere for growth. Lately we have seen crypto coming back into fashion as interest rates are so low that both big and small money is put into crypto. With hyped announcements that many big players will now accept crypto as payments or allow their customers to hold crypto, bitcoin and its various siblings are back in fashion. Most people seem to have no clue how they work and it's set to become the same ponzi-scheme we have seen before. In 2021 we will likely see crypto prices rise further above their previous records. But I predict it will fall back down as it did in January each year for the last three years. The bottom of the crypto market will fall out when a sizable and trustworthy government bank from a politically stable country makes a crypto sibling of their fiat currency and pushes it on a public ledger. I predict this will happen in the Nordics or with the Euro, but likely not before 2022.

PSD2 matures while PSD3 is what will drive real competition

As industry giants who serve banks with core systems have come around and made aggregation services, the promised access to bank accounts becomes sort of real in Europe. PSD2 has been plagued with deliberate hurdles for third parties to connect to accounts as the API variations are many and the lack of adherence with the regulatory technical standards (RTS) is mindblowing. The regulators are also sadly way too kind with law breakers. Check if any of the PSD2 APIs you know of have support for strong customer authentication (SCA) exceptions such as trusted beneficiary for example.. they don’t.?

In 2021 we will see a growth of interconnectivity, with accounts listed and payments conducted from inside your favorite apps. But we will have to wait for PSD3 for universal bank account access to be everyday for the majority of banked people.

The behemoths continue to buy anything that challenges their position

As open banking, account-to-account and mobile payment apps are set to form new payment networks and payment habits for both people and businesses, the payment and banking giants, such as Visa, MasterCard, Amex and Union Pay will continue to buy anything that threatens their established money machines. The governments of the world have slowly woken up to the reality of the situation and are now set to break the monopolies up. With Visa being sued by the US justice department for their acquisition of Plaid and Facebook facing the same situation for WhatsApp (that also acts as a payment service) we will likely see a change in how such deals are made. Nevertheless they will continue. It is likely we will see more creep acquisitions and majority investments but not full takeovers. One example is Visa's involvement in Klarna. If you can’t beat them, buy a sizable piece and make sure they also push card payments and you will be alright. Card networks now virtually control the real-time and next generation account to account based payment systems around Europe and the U.S. and this will continue in 2021.

The m-commerce enablement space catches fire

With mobile payment apps (like Settle, Venmo, Zelle, AliPay etc) growing rapidly for the reasons explained above and businesses starting to sell in new ways due to the pandemic, the tools and services that enable mobile commerce will see a massive rise in 2021. This growth will span many sectors, such as social media management and digital advertising tools but mostly it will hit the mobile commerce enablement providers. Think simple software tools to make a digital menu for a restaurant, to open up a mobile store that is marketed on Instagram and a simple ordering and delivery system for small stores to do their own Starbucks-like apps. Facebook with their Shop and WhatsApp payments initiatives have already taken a deep dive into this segment. But there are startups, scale-ups and grown-ups that will all attack this massive opportunity as virtually every business needs to go mobile. Players like Glide are a fun example of a tool that will likely grow massively in 2021. It will be a year of fragmentation where Uber eats, Deliveroo, Foodora and other such players will see competition from each restaurant's own self-made apps, because they are so easy to make. Who needs a marketplace anymore when your local hairdresser can be booked in 20 seconds from an ad on insta?