The Future of Fintech in 2021 — Investments trends and technologies that are shaping the industry

Trends are easy enough to spot with hindsight. Looking back, it seems obvious that stocks were going to recover from the Covid-19 selloff. In March 2020, though? Not so much.

Detecting trends at their onset is a tough job, but after carrying out some serious research and reflecting on my own experiences, I decided to take the plunge and throw my hat into the arena.

Below are my predictions for FinTech’s in 2021 — spanning brand new trends and changes that have been brewing for years.

Direct Indexing

Thematic ETFs are booming. Why?

One plausible explanation is traders flocking to popular companies without much dd (due diligence) as an alternative investment strategy amid the astronomical stock market returns post-Covid-19.

ETFs got a boost from this frenzy and quickly became as popular as some of the stocks. For instance, the ARKK Innovation ETF — full of tech high-flyers like Tesla and Square — was worth $11bn (USD) in November 2020.

For a second, let’s ignore that some of these ETFs are actively managed. What stops an investor from replicating the allocation from these ETFs? Particularly now that:

• Trading costs are ultra-cheap
• Fractional shares are ubiquitous.

Nothing really (other than the difficulty of issuing and managing so many orders).

This leaves space for some innovation. What if brokers helped investors to manage all the micro-orders needed to replicate an ETF? Forbes believes this may be about to happen — and it carries various other benefits, too.

“Niche” Opportunities

In the past, most products interacted with many market segments, leaving customers to decide which to try and which to ignore. But now, if a segment is big enough, companies can build a product with a specific niche in mind.

Arguably, some of the following areas aren’t “true niches,” — but they’re definitely trends worth watching.

• Female Finance: This space shouldn’t and won’t end with Ellevest. There are plenty of more opportunities.
• Sports and E-Sports: Can sports (and particularly sports betting) be redirected to investing? It seems so — look at sites like Football Index, which lets you “invest” in players as if they were stocks.
• Henry’s: “High Earners, Not Rich Yet”, is another popular topic today. While all the focus is on mass-market solutions, some seem to believe that this segment needs arenot being fulfilled.

ESG & Impact

When it comes to Environmental, Social, and Governance (ESG) investing, Europe is far more advanced than the USA. No surprises there.

Still, ethical investing is getting big. We’ve seen rapid adoption of ESG strategies and investments, even among retail traders. Trade Republic, the German answer to Robinhood, constantly displays iShares Global Clean Energy as one of its top ETFs.

We already have Tomorrow bank, a mobile bank with sustainability at its heart. Will we soon have an ESG-only online broker?

If in doubt, offer stocks

If you’re N26 and you’re still achieving success by offering the same thing as two years ago, you might wonder if this will last forever.

Particularly when you realize that your biggest competitor, Revolut, already offers a whole suite of investment options — and that even smaller rivals (like Vivid) already rock stock rewards, oh, and now Transferwise also wants a piece.

Worried that your customers will leave you, you follow the crowd and start offering your platform stocks.

2021 is the year that users will be able to access stocks anywhere and everywhere — probably even in their breakfast cereal. New players like Upvest in Germany are enabling companies to add investment products into their digital services.

Tap, tap, trade — but with a purpose

2020 was the year of “tap, tap, trade.”

Companies like Robinhood and TradeRepublic in Germany have seen tremendous growth with their no-fees trading platforms. This shouldn’t come as a surprise — it’s been a year of phenomenal volatility and returns.

But that’s not always a recipe for success. At least, not for the most active bunch — most day-traders lose money.

Is there a solution? Maybe. Here are my predictions:

• Thematic investments (as examined already)
• Community. The conversation is already on, so why not bring it to the app a-lá public.com?
• Discovery. Arguably, the biggest pain point retail traders face is missing out on the action. Can platforms do something more than show current trends?
• Education. Robinhood does it; should others do it too?
• Goals & Wealth Management. Eventually, you can expect new investors to start worrying about more long-term goals. Will fintech platforms lose their users to Vanguard’s new Robo Advisor?

New Asset Classes

Does it really make sense to let retail investors blow $50,000 in call options on Robinhood but ban them from buying equity in startups? I’m not so sure. Retail traders have traditionally been excluded from investing in some Asset Classes, but that’s gradually changing.

With plenty of time and no small amount of creativity, you can securitize almost anything. For instance, using Pipe, you can invest in the cashflows of app subscriptions.

Real Estate, Collectibles, Art, and (of course) Sneakers are other new Asset Classes that everyone will eventually access.

We can expect the “Investment Universe” for retail traders to expand dramatically. Big time.

Netflix-style hyper-personalization

Investments are incredibly emotional, yet companies do very little to address their audience’s money worries or (lack of) investing skills.

There’s an opportunity here, and it can be capitalized on most easily through hyper-personalization and psychometric risk profiling.

No two clients are the same. Netflix knows this — that’s why they have millions of different versions of their app. Even the movie thumbnails differ between my Netflix account and yours.

Behavioral finance and psychometric tests would enable companies to figure out what their investors are really up to. They’d then be able to match them with better products, reduce churn, and open the door for hyper-personal services. Barclays knows this.

Different profiles would allow platforms to send totally different marketing emails to their customers and customize apps. However, they should avoid exploiting their users’ known biases for gains, like overconfidence, leading to over-trading and ultimately dangerous investment outcomes.

Dying trends

As new trends emerge, the previous golden children of the fintech industry must die out to make room for them. Here are a few victims of 2020.

Moneyfarm is shutting down in Germany.

Scalable Capital is still recovering from its Covid-19 lackluster performance and data breach. Ouch.

These days, investors are also reluctant to invest in:

• Robo-Advisors. The passive Robo-advisors with minimal personalization are generally good for your money, but they’re boring. Customer acquisition is also costly. They appeal most to an older, savvier audience, which puts them out of kilter with the current trends.
• P2P Lending. Credit dynamics work on a pull basis, whileP2P investing relies on push mechanisms. Ever heard of banks? They solve this problem. Let’s pray there’s no big financial crisis brewing.

Bottom line

For better or worse, these trends are set to change the FinTech industry's face in 2021. They could make for some excellent (and profitable) opportunities this year, so keep your finger on the pulse.

And yes, if it gets to 2025 and I turn out to be totally wrong about everything, feel free to remind me about this article and laugh at me.