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Dawn 2022  •  30 March 2022

The Changing Nature of Financial Services

By Madhumita Mukherjee
The Changing Nature of Financial Services

Much has changed since COVID-19 began. Extreme lockdown measures transformed the role of retailers. Technological disruption accelerated. Cross-channel customer experience gained green light status. Consumers viewed business services through a new lens. In fact, they started seeking personalised intelligent services that offer engagement with impact. These shifts in buyer behaviours, alongside rapid technological advancements, are pushing enterprises to embrace digital frontiers. And the financial service sector is no exception. 

The financial service industry is currently undergoing a metamorphosis. As 2022 dawns, here are three key developments that are restructuring the industry:

Rise of Financial Technology Companies 

Financial Technology (Fintech) ventures across Australia are growing and disrupting existing financial services. With creative business models, Fintechs are fundamentally altering the way the financial system operates, especially by meeting emerging consumer expectations and reconstructing backend business processes. Australia’s award-winning Fintech Gini is providing innovative client focussed solutions through its new product; GiniPredict. GiniPredict is an intuitive financial software program that integrates seamlessly with an existing tool, Xero to unlock hidden patterns in business data. Implementing such well-designed analytics programs enables business owners to analyse their rich datasets and gain actionable insights for boosting revenue growth and even improving employee retention. Additionally, by capitalising on the potential of machine learning and artificial intelligence for predictive modelling, Gini Predict can generate future commercial scenarios for businesses. Such forecasts,backed by data, facilitate organisations to assess the impact of variables and identify productive commercial outcomes. As a result, companies are in a strong position to make informed decisions while prioritising resources and investments.

Booming in recent years, the Financial Technology industry is redefining customer choices and offering unique financial solutions that are more efficient and effective. Fintech firms are frequently building their entire technology stacks from the ground level and innovating amazing things by harnessing the power of data. For instance, Lensell, a local fintech, launched Diversiview to assist investors in finding the right combination of securities for their portfolio based on personal risk and return goals. While investing through Diversiview, clients can access companies' data-driven corporate performance reports on Lensell’s platform. Thus, by considering the detailed information presented to them, investors can anticipate their needs and choose securities wisely.  

Evolution of Payments Infrastructure

The payments industry is undergoing a wave of infrastructure modernisation, mainly due to the growing popularity of digital technologies and omnichannel customer experiences. . As a result of COVID-19, there has been an increasing shift towards the adoption of digital payment solutions like Google Wallet and Apple Pay. Shoppers have switched to contactless payments and are ordering products, from garments to groceries, remotely. These new purchasing habits have paved the way for Australian retailers like Cotton On Group and Mecca to incorporate an omnichannel strategy for engaging their consumers. Undoubtedly, having across-channel approach is a strong bet for businesses trying to gather a comprehensive understanding of purchaser attitudes and meet their growing needs in the current climate.  

An attractive facet of the omnichannel commerce that grew tremendously over the past year was the usage of ‘buy now, pay later’ (BNPL) services. 

In Australia, around 1 in 20 customers have 4 or more BNPL accounts as per National Australia Bank’s June 2021 report . With a range of partnering retailers, BNPL products, allow shoppers to purchase items when cash is tight and make payments later through s fixed installments. Customers can quickly set up their BNPL account through providers like Zip or Openpay almost instantly by entering their contact details and payment method. That sounds like a pretty handy payment option… especially when these BNPL platforms do not check credit scores of their users.Most of the BNPL services pride themselves on being free to use and interest free for all customers. As expected, such a plan is very appealing to shoppers. Whilst interest-free payment schemes are an enticing prospect, they carry the risk of encouraging extravagant expenditures. However, as long as the repayments are made, buyers are in a safe zone. Overall, BNPL services provide a convenient way to spread out the pains of a huge purchase and they are exploding in popularity. The growing interest in these programmes has forced regulators to look closely into the implications and risks associated with the unsecured credit market.

Emergence of Embedded Financial Services

Many Australian nonbank companies like AfterPay and Humm, have started providing embedded financial services, like payment processing, to serve their clients in an increasingly digital era. They have proven to be a game-changer for consumers seeking simple payment options. In fact, shoppers are flocking to these alternate payment providers to get cross-channel customer experiences. By investing in embedded finance offerings, businesses increasetheir client engagement levels and acquirenew customers. That said, embedded finance is driving access to buyers and encouraging them to either: stay longer on the providers’ platform or buy from them as frictionless as possible. In response to the changing competitive dynamics, banks have started looking for ways to become more appealing to consumers, particularly millennial audiences . Firms are partnering with young tech-driven firms who can successfully reach that customer base. In November 2021, Australian bank Westpac partnered with Afterpay and SocietyOne to improve banking-as-a-service (BaaS) focus on its deposits and transaction offerings.Additionally, Westpac is working with its embedded finance partner, Afterpay, to distribute Westpac powered services and products to the consumers. By integrating such new delivery channels in its system, the bank can lower its technology costs and grow the services further. Such a move enables the financial institution to strengthen relationships with its clients, improve customer loyalty and receive invaluable behavioural data that has never been possible. Until now. .

For too long, archaic institutions created high barriers to entry within the financial services and consequently slowed down innovation. Thanks to the advent of embedded finance and BaaS, the industry realised that it could go much further. 

The Digital revolution has sparked long-term radical changes within the financial services industry. Innovations in fintechs,payment services and embedded finance offerings are at the forefront of digital transformation. Given another year to cope with the pandemic’s ongoing impact on the global economy, it will be exciting to see how digital trends unfold in 2022.   


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