Transformative technology doesn't capture the market in an instant. It makes gradual inroads that evolve through pockets of progress. The tipping point happens when technology, functionality, consumer awareness, pricing, marketing and capital come together.
While we can't predict the future, identifying shifts in market trends and consumer behaviors can point the way to new opportunities and enhanced value propositions in financial services and retail. A look ahead confirms another revolutionary year.
Here are the commerce and Fintech trends we expect to resonate in 2020:
1. Fintech Unicorns: Stay Private or Go Public?
Some private start-up tech companies, especially those that create or lead a new category, have seen their valuations exceed $1 billion. Dubbed “unicorns,” these once-rare companies now number in the thousands.
In 2019, seven times as many tech companies raised funds through private financing than went public with an IPO. Although there were still notable public offerings, many unicorns saw their stock prices fizzle as they fell victim to Wall Street's demands for a path to profitability. Expect a robust valuation trajectory to continue in 2020, but only select unicorns will successfully traverse the path to IPO.
2. Banking Moves to the Cloud
The goal for financial institutions moving to the cloud is to consolidate and simplify infrastructure, bring costs down and more easily serve customers. More financial institutions, including smaller and midsized organizations, and their service providers are beginning to migrate to the public cloud to take advantage of its technological advancements. In 2020, look for the momentum to build, with big players such as Capital One and Bank of America leading the way.
In the complex, interconnected world of commerce and financial technology, staying ahead of the curve has never been more important for merchants and financial institutions.
3. Challenger Banks Come Calling for Small Business
An influx of challenger banks, sometimes called digital-only banks or neobanks, are aiming their strategies toward small businesses. The banks may offer all-purpose digital checking accounts or specialize in single-purpose, small-business needs.
In the coming year and beyond, expect a greater focus on – and competition for – small-business digital banking.
4. Crypto Beyond Bitcoin and Libra
In 2019, cryptocurrency headlines were dominated by Facebook's Libra announcement and the ups and downs in the price of bitcoin.
But those headlines overshadow other developments. In 2020, expect lower-profile – but not less important – projects that use blockchain, distributed ledgers and other related technologies to drive the sector forward. For example, Sweden's central bank recently announced a pilot program for a digital currency and the Federal Reserve disclosed it is exploring the use of distributed ledger technologies.
5. AI: Out of Sight (But Not Out of Mind)
From Uber to Netflix, artificial intelligence (AI) is already powering many leading consumer experiences. As AI permeates banking, finance, commerce and technology, it has the potential to play out like e-commerce and digital investments did over the past decade: Those that don't invest may be left behind.
Many companies are rapidly building AI capabilities. According to a Stanford University report, 58 percent of large companies adopted AI in at least one function or business unit in 2019, up from 47 percent in 2018. In the coming year, AI investments and capabilities will continue to be important differentiators.
6. State of Installment Loans
Consumers are moving away from traditional revolving credit cards to needs-based financing, including just-in-time, just-the-right-amount installment options. While Fintech loans comprised 38 percent of all unsecured personal loan balances in 2018, many blue-chip banks also have a presence in this market, including American Express, Chase and Citibank.
In 2020, look for continued acceleration of investments in, and deployment of, buy-now, pay-later solution providers. But questions remain. As credit markets inevitably contract and personal losses increase, what will the effect be on the market? Could large incumbents' scale eclipse Fintech providers? No matter how it shapes up, consumers will have greater choice in how they pay for larger-ticket items.
7. Amazon's Expansion of the Grocery Market
Amazon has confirmed plans to open a new grocery store brand distinctive from its Whole Foods brand, which it acquired in 2017. Initial plans indicate the new store will not use the cashierless checkout technology found in Amazon Go stores, nor will it compete against the Whole Foods brand. Amazon wants to create a distinct offering to target new grocery segments.
Analysts speculate Amazon may be pursuing new grocery locations to move further into brick-and-mortar retail, which is still where most commerce happens. The company could use the new stores to help facilitate online grocery orders and test in-store technologies.
8. Business-to-Business E-Commerce
Instead of working with a salesperson, business-to-business (B2B) firms increasingly use digital options to discover, compare and purchase products. That digital-first, self-service approach can significantly reduce costs for buyers and sellers.
B2B buyers expect the same fast, convenient digital purchasing experiences they find in their personal lives. Meeting those expectations will be a differentiating factor for service providers in 2020 and beyond.
9. Retailers Explore Rental and Resale
The retail sector is adapting to a generation that is no longer buying with the intent to keep. Rental subscriptions, now a $1 billion market, began with startups such as Rent the Runway. Now startups and traditional retailers offer clothing, furniture, outdoor gear and other rentals to consumers who don't want to commit to big purchases.
Resale platforms offer another example of shifting shopping habits. The secondhand resale market is expected to reach $51 billion in 2023, more than double what it was in 2018. Resale platforms such as The RealReal, Poshmark and thredUp are capitalizing on this growing trend.
10. Consumers Hunger for Food Delivery
Consumers' love of convenience is driving growth in the food delivery market. Investments are flowing and competition is fierce. In 2020, look for some providers to exit the market while others consolidate.
Expect restaurants and delivery providers to take on new roles and define themselves differently. The next step in food delivery and restaurants could very well be cloud kitchens – spaces dedicated to preparing food for only delivery or take out. The concept allows for smaller spaces, fewer employees and shared kitchens for multiple providers. Look for the food sector to be an active one in the coming year.
Staying Ahead of the Curve
As technologies advance, the pace of change quickens. In 2019, commerce and financial services experienced continued transformation, including new digital technologies, evolving landscapes for the retail and banking sectors, and increased competition on every front. In the complex, interconnected world of commerce and financial technology, staying ahead of the curve has never been more important for merchants and financial institutions.