Zac Cohen, COO, Trulioo
As the “no-touch” economy continues into 2021, challenger banks are likely to see a rise in new users – and given COVID-driven conversations around banking digitization, many users will expect that kind of experience. Only about 16% of U.S. and Canadian banks employ the global identity verification technology needed for securely opening a financial account online, but we can expect this number to increase as those lacking in the technology begin investing in it.
Additionally, more challenger banks will offer cryptocurrency services to meet this growing interest in digital assets and services. However, digital assets are complicated and challenger banks offering cryptocurrency services face significant regulatory scrutiny. As a result, this furthers the need for challenger banks to invest in global identity verification technology to ensure regional regulatory compliance requirements are met. When they do, it will be important for them to use a platform that offers a streamlined approach to verification and onboarding.
In addition to using low fees to entice customers, challenger banks will also start introducing loyalty rewards offers (e.g. cash back offers) as they aim to target millennials and maintain customer growth. To compete against challenger banks and their low fees, traditional banks will start offering more options for customers to waive fees, such as lowering the deposit amount needed to open checking accounts. Beyond low fees, traditional banks will also need to find ways to compete against the other perks challenger banks offer such as a better, more personalized customer experience and an easier and faster onboarding process.
Challengers banks with large, established customer bases will become attractive acquisition opportunities for traditional banks as they seek to incorporate the features that challenger banks offer. Looking ahead to 2021, we will likely see traditional banks pushing to acquire challenger banks. With cryptocurrency companies also active in mergers and acquisitions, we may see them look to acquire challenger banks and expand their financial footprint.
Blockchain + Crypto
2021 will see a rise in cryptocurrencies as consumers begin to familiarize themself with it as an alternative to traditional currency. As blockchain technology and digital assets continue to grow and be increasingly used, the sentiment and value around virtual currencies will rise. As users continue to expand their knowledge on virtual currencies like Bitcoin, these are likely to experience dramatic price movements. As we know, cryptocurrencies offer a sense of freedom as it operates on blockchain, and currently there is a lack of central authority, meaning little to no fees.
As virtual currency usage increases due to the pandemic, in 2021 virtual asset service providers (VASPs) will get tougher on using proper Know Your Customer (KYC) identification and authentication to ensure they can continue to grow into new regions to meet this growing demand. As VASPs educate themselves on how to build trust with users and eliminate opportunities for fraudsters by using proper KYC methods, the inadequate and traditional KYC method of taking selfies with documents will become less common. VASPs won’t start out small with KYC solutions, but rather will aim to be compliant in markets with the toughest regulations, so they then can meet the requirements nearly anywhere that allows crypto exchanges. As crypto exchanges span the world, this will also aid VASPs in expanding into new markets while ensuring they are compliant with the varying regulations in different regions. This increase in security not only protects customers and eliminates fraudsters, but protects the VASP brand from failing to meet compliance requirements.