Our Fintech Team believes the pandemic has strengthened many of the driving forces behind the sector's most compelling themes. This crisis has forced consumers to embrace digital technology in order to adjust to the ‘new normal,' driving greater adoption of mobile wallets, branchless banking, and ‘do-it-yourself' financial services. Financial institutions with more modern technology have also been able to respond better to increasingly digital customers and a more remote workforce. In addition, we think recent market movements have provided historically attractive entry points for many fintech opportunities.
In our view, despite the sector's recent growth, we are still in the early stages of fintech's disruption of financial services. Data analytics, machine learning, the cloud and artificial intelligence are just starting to be broadly applied across the sector. We believe these innovations will fuel an enduring growth story that will only be accelerated by the current crisis. We find three key areas particularly compelling.
Payment systems
The world economy continues to enjoy a long runway on its steady transition from cash to digital payments, as 60% of global consumer transactions still take place in cash.1 We believe this persistent shift has the potential to drive huge opportunities in consumer, software-enabled and business-to-business payments. In fact, we think payments could continue to experience double-digit growth rates as companies are now addressing brand new payment flows in new geographies and market segments.
The evolution of digital payments has been hastened by the pandemic as people are less likely to use physical cash anymore. There's been an expanded rollout of contactless cards around the world and consumers are becoming more comfortable using technologies like mobile wallets, peer-to-peer payments, and other online transactions that they used to do in the physical world.
The digitisation of financial services
The digital transformation of processes that used to be done manually can make a firm's operations cheaper and more efficient and often helps them achieve better end-customer experiences. We think digitisation can also deliver financial services solutions to new markets and underserved populations, like the roughly two billion adults worldwide that do not yet have access to bank accounts.
These solutions include new ways to bank, do taxes, manage wealth, and buy real estate, among many others. Companies are successfully automating or digitising these financial services, improving user experiences and delivering more functionality to new markets. In addition, new technologies like the cloud, artificial intelligence, and machine learning are allowing firms to harness data to improve their decision making.
Technology infrastructure
Finally, the fastest-growing of our three key themes is the upgrading of technology infrastructure. Most banks' IT systems were built in the 1980s and are ripe for improvements. In our view, this space has reached an inflection point as banks turn from defensive regulatory spending to offensive investment in growth. Though many companies have historically been hesitant to upgrade, this is changing with innovative and disruptive start-ups as well as the evolving industry landscape in the wake of COVID-19.
The pandemic has really highlighted the ease of managing and updating cloud-based infrastructure compared to legacy on-premise technology. We have therefore seen an acceleration of companies moving their back offices to the Cloud, which we think allows for greater innovation, a faster time to market, more secure data, and lower costs.
Bottom line
We are at a tipping point as the financial services industry increasingly embraces new technologies. In our view, the health care crisis has clearly accelerated many fintech trends, fuelled the sector's long-term tailwinds, and shifted up its growth curves. We think this is particularly exciting as we believe we're still in the early stages of fintech's enduring disruption and investment opportunity.
For more of our views on fintech, read our recent Q&A where we explore the impact of COVID-19, the latest opportunities in fintech, and the sector's long-term tailwinds.
1Wellington estimates as of 30 June 2020.
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