2020 saw major disruptions hit the financial services industry. The COVID-19 pandemic forced all industries to change how they do business, and financial services was no exception. In addition, the financial services industry also reeled from changes to global financial markets.
Now, the end of the pandemic is in sight as the COVID-19 vaccination gradually becomes more available. The financial services industry will likely see growth as the economy reverts back to normal, but some aspects of the industry have been changed for good.
Here’s a look at some of the trends and changes to look out for in the latter half of 2021.
- Fast-Paced Economic Recovery
The economy will remain slow in early 2021, as the pandemic remains a concern. However, based on current vaccination projections, the economy should begin to grow again in the latter half of 2021. Once growth begins, it’s predicted to be rapid. The economy is expected to return to its pre-pandemic level of growth by the end of the year.
- Process Automation Will Become a Differentiator
Any advanced financial service can’t be successful if the underlying technologies and processes aren’t effective. To keep up with the competition, businesses providing financial services will need to recognize the increasing importance of automation and streamlined processes.
Fintech innovators have created automation platforms and other digital enablers for any area of financial services. Take, for example, Mortgage Automator, which creates a platform that helps bring automation to the private lending process. This solution helps financial services companies automate traditional processes, thereby meeting the changing expectations of modern financial customers.
- There Will Be an Increase in Green Investing
2021 will see the world’s largest economies push for green infrastructure more enthusiastically than ever before. It’s expected that the market for green bonds will grow dramatically as companies and investors become more interested in being on the forefront of renewable energy.
In addition, investor interest in high environmental, social, and governance (ESG) scores will increase. Around the world, mutual funds and other investment portfolios with high ESG scores will become more attractive and valuable.
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- Interest Rates Will Climb Slowly
The Federal Reserve decided in August 2020 that it will move to an average inflation targeting model informed by employment rates. This gives it some flexibility in exactly what interest rates will be, but suggests that it’ll be relatively low for the rest of the year, as it will take some time for the people who lost jobs last year to return to work.
That being said, interest rates won’t remain static. As the economy gradually grows, so too will mortgage rates, CD rates, and other types of interest rates. Mortgage rates fell to their lowest point in August 2020, but they are already inching upward. It’s expected that they’ll continue growing throughout 2021.
- Demand for Personalization Will Grow
Today’s technologies enable businesses in all sectors to personalize goods for their customers. This same level of personalization is now expected of financial services. Forward-thinking financial institutions have already done things like adjust insurance policies to match the unique experiences of their clients during the COVID-19 pandemic. This level of customization will only be more in-demand in the future.
Providing high levels of personalization requires collecting and analyzing customer data, which in turn requires an advanced technological infrastructure. Financial services institutions will need to adopt more FinTech innovations to stay ahead of the competition.
- The Use of Cash Will Decline
The pandemic changed many people’s relationship with cash. Contactless payment methods became more common due to their relative safety. Customers quickly realized how convenient these digital payment methods are, and many people intend to continue using them after the pandemic. Cash, which had already been on the downturn, is now declining faster than ever.
This fall in the use of cash is accompanied by a demand for more tech-forward banking. Customers are favoring digital banking services, such as Ally Bank, because they are looking for safe, mobile-friendly options for carrying out various financial duties. Due to this appeal, banks are feeling the pressure to provide platforms that allow their customers to do everything online.
- FinTech’s Influence Will Increase
The financial services sectors’ customers spent the past year moving their lives online. As the economy reopens and people gradually return to their normal lives, they will choose to hang onto the most convenient digital tools they discovered during this time.
Research overwhelmingly shows that digital banking is one of those conveniences. In fact, 62% of people believe digital banking is one of the best technological inventions of the past decade.
To meet demand for digital financial services, financial institutions will need to reinvent their tech stack. They will need to adopt technologies that make online banking fast and convenient, automate processes, and help them predict and proactively meet customer needs.
From broad market trends to more granular customer expectations, the financial services industry is in a period of change. Being aware of this broad range of trends is a challenge for any financial institution. The ones who can adapt to them, though, are the ones poised to succeed in this year and beyond.