For much of the world, 2020 was such a bad year that it almost became a joke. The pandemic created havoc in our personal, professional and social lives.
The world of finance and fintech has been turned completely upside down. Companies have been forced to adapt to rapidly changing constraints and challenges. Customers had constantly changing needs and companies had to quickly learn how to approach them with limited resources.
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As a result, some important changes quickly emerged in the fintech space. Now, with the mass distribution of COVID vaccines, it seems like there is a light at the end of the tunnel: the end of the pandemic may be in sight. However, many of the trends that have emerged in the fintech world as a result of COVID are likely to continue long after the virus eased global society.
What are these trends? That’s what the experts say.
# 1: Alternative assets are on the rise
One of the most significant trends the fintech industry has seen so far in 2021 is the growing popularity of alternative assets, namely cryptocurrencies.
Cryptocurrencies have steadily grown in popularity since their introduction around 2010. That growth was accelerated to $ 20,000 in late 2017 by the first boom in coin offering (ICO) and the short-lived Bitcoin run. Since the beginning of the COVID-19 pandemic, changes in monetary policy around the world have resulted in an increasing number of individuals and institutions looking for new ways to protect and increase the value of their savings.
The best-known example of this is of course Bitcoin (BTC). Since late 2020 and through early 2021, a number of large companies have included Bitcoin on their balance sheets, including Tesla, Square, and MicroStrategy. In addition, a number of large banking institutions have started offering Bitcoin-based investment products to their customers.
In addition, beyond Bitcoin, cryptocurrencies have gained popularity in common finance and cultural sectors. Controversially, Dogecoin (DOGE) became a favorite among many retail investors after Tesla founder Elon Musk began promoting the coin on Twitter.
Snoop Dogg, Gene Simmons, Soulja Boy, and a host of other celebrities have followed suit. Additionally, a number of companies have committed to DOGE: For example, Slim Jim and Snickers, two US-based snack food companies, tweeted an iteration of “Dogecoin to the Moon”. The trading app Robinhood has been offering Dogecoin investments to its users since April.
As a result, prices for Bitcoin, Dogecoin and cryptocurrencies have risen significantly across the board since the start of the year. At press time, Bitcoin (BTC) is up around 86% year-to-date (from ~ $ 29,000 to $ 54,000). Dogecoin gained a whopping 6650% (from $ 0.004 to $ 0.27). Overall, the total market capitalization of all cryptocurrencies increased by around 73% (from USD 776 billion to USD 2.05 trillion).
# 2: Non-Fungible Tokens (NFTs) finally have their moment
A significant part of the surge in cryptocurrencies and other alternative assets has been the surge in non-fungible tokens or NFTs.
These tokens are unique digital collectibles that can be tied to anything from digital kitties to multi-million dollar works of art to homes, live event tickets and much more. Anything that can be collected in the “real world” can be made into an NFT.
In addition, NFTs can offer new ways to “own” artwork or other creative work. While non-fungible token technologies have been around for several years, it is the NFT cases in the art world that are really making their popularity skyrocket.
It all started in March when a number of high profile celebrity artists launched NFT drops that they could use to market their wares. Canadian musician Grimes has raised millions of dollars for the sale of several digital works of art. Since then, several NFT works have sold for up to $ 69 million.
However, some analysts believe the NFT art craze may not survive in the future, at least not in its current form. “With the majority of today’s NFTs neither making much sense nor offering much value, the hype will subside and prices for many non-fungible tokens will fall,” Samson Mow, CEO of Pixelmatic, told Finance Magnate’s year.
NFT specialist Eloisa Marchesoni told Finance Magnates: “NFT artwork should only be purchased because the work in question has artistic value to the buyer and not because of potential future profits.”
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“As with any purchase, consumers should consider getting value for money when it comes to how much an NFT is worth to them, but I wouldn’t bet on selling it for a profit.” It doesn’t mean you can’t make a profit, but that shouldn’t be your main motivation. “
# 3: The Rise of DeFi: In 2021, the barriers to entry into DeFi could be lowered
Decentralized finance (DeFi) has been on the rise for several years – ever since someone heard of COVID-19. However, the growth of the DeFi ecosystem has been explosive since the beginning of the pandemic.
However, DeFi still has some pretty high barriers to entry. First and foremost, many analysts argue that the majority of DeFi platforms are difficult to use for the average person. In addition, GoodFi founder Piers Ridyard told Finance Magnates that the high collateral for some DeFi derivatives represents another high barrier to market entry. GoodFi is a nonprofit that aims to encourage 100 million people to put at least $ 1 into DeFi by 2025.
However, Ridyard believes a solution to this second barrier to entry is on the way. “Capital-efficient derivatives are coming in 2021,” he told Finance Magnates.
“So far, derivative protocols like Synthetix required very large amounts of collateral to create a derivative instrument (7x collateral). However, lower derivatives are coming for collateral, ”he said. “Once we have capital-efficient derivatives, it is very likely that the face value of instruments traded on DeFi will explode from where it is now, possibly as much as 10x.”
# 4: Collaborative Fintech: Remote working is more popular than ever – and so are the risks that it entails
“The trend for fintech in 2021 is to improve digital collaboration,” said Jake Smith, managing director of Absolute Reg. “Most of the financial sector has remote working arrangements in place for the near future in response to the COVID-19 pandemic.”
“As a result of the change, there is a strong demand for digital tools that make people more effective and safer,” he continued. “Not only do physical documents need to be translated into digital format, companies also need to figure out how to make such files accessible to remote workers without compromising data protection or creating version uncertainty.”
In fact, there are quite a few issues to be solved when it comes to cybersecurity and remote working. “Rather than adopting a dedicated all-in-one solution, organizations often rely on a number of incompatible software applications and improvised workarounds to meet their viewing, editing and document management needs,” he said.
“Unfortunately, these random solutions create inefficient third-party dependencies, expose data to unnecessary risk, and increase the likelihood of human error,” said Smith.
How could it be possible to alleviate these problems? “Fintech developers can use SDKs and web-based APIs to combine these features into a single application,” said Smith.
# 5: New types of scams have forced fintech companies to come up with new solutions
Building applications to improve cybersecurity in fintech organizations is becoming increasingly important as fintech companies face new cybersecurity challenges.
Steve Maloney, executive vice president of Acuant, told Finance Magnates, “New types of fraud were introduced during COVID, but some that will continue to be ubiquitous are synthetic fraud and abuse.” According to Investopedia, synthetic fraud does occur when a criminal combines real and fake information to create a new identity. Muling is when people are recruited as money laundering brokers for criminals and criminal organizations, often without knowing it.
How will organizations deal with these evolving security threats? “[With] more robust KYC / AML anti-fraud solutions that truly verify an identity and uncover the associated risk that is essential to doing business, ”said Maloney. “AI-powered risk decisions with real-time analytics can put trusted users in the fast lane while flagging suspicious users. This will be the basic standard, ”he continued.
Amber Morland, CEO and Founder of WinCope, told Finance Magnates that a collaborative approach is required to effectively address these new types of threats. “The challenge of cyber criminals and fraudsters will lead to common threats that need to be addressed collectively across the financial system.”
“This is the path fintech companies should be taking to become more cyber-stable. They need to deliver secure real estate, build trustworthy relationships with established companies, and comply with regulations in the countries in which they operate. “
What do you think of trends in the fintech world in 2021? Let us know in the comments below.