Assessing the rise of DeFi – and how data will drive fintech in 2021

Assessing the rise of DeFi – and how data will drive fintech in 2021 Christopher Brown is Co-Founder and CEO of Zabo, the only cryptocurrency data aggregator, connecting any financial institution to any cryptocurrency account within their application. Already integrated with over 50 crypto exchanges, wallets and protocols.

2020 saw a notable increase in the need for and availability of fintech solutions across various industries, such as personal banking, transportation, and food service, with many apps already utilising data aggregation techniques to make one-touch purchases and payment options the new standard. Companies like Uber and Amazon use frictionless data aggregation to curate a unique user experience while realising new revenue opportunities.

The success of these and similar applications make it clear that this trend isn’t going away anytime soon. With the rising availability of robust, data-driven APIs, any company or platform should be able to use embedded finance to create smoother and faster user experiences. In this new age of fintech, the ultimate hope is that the industry can reimagine itself and meet new demands from a new generation of users.

For example, take the traditional financial industry, which is already seeing profits erode as customers begin to turn to savvier products. Between 2015 and 2018 alone, analysts estimate that banks lost about $800 billion in profits. This loss isn’t even considering how the recent rise of decentralised finance (DeFi) or the coronavirus pandemic have affected returns. Still, we can assume it hasn’t boosted the prospects for these institutions.

Further, the innovations in cryptocurrency are adding to these effects within legacy money models. The market can no longer ignore cryptocurrencies when making decisions concerning this embedded finance trend. As we approach a mainstream adoption tipping point, those who add cryptocurrencies to their financial lives will expect to have more control over their investment in these currencies.

What can we learn from DeFi?

DeFi exploded in 2020; with over $40 billion locked into these platforms, the field is quickly growing. There are decentralised exchanges, loan services, liquidity pools, and more. While not every financial solution needs to be a decentralised one moving forward, companies would be wise to look to the philosophies driving this new arena.

Despite the massive risk, users have shown their appetite to put real money in bleeding-edge financial solutions because, one would argue, the old system must be updated with the systems capable of making finance so much better. Finance driven companies must commit to understanding how they can find their place within the context of these radical markets to remain relevant.

Users want interoperability

Another way that will be increasingly important is for financial products to become more like “one-stop shops” for their customers. Just as consumers can use a single app to purchase all of their household goods, why should they have multiple platforms for financial or other services? Does a trader want to use different portfolio trackers for various assets? Indeed, most banking customers don’t want to have to use multiple institutions to manage their money. 

Fortunately, seamless data aggregation, as well as financial integration, can make this a thing of the past. Both financial analytics and direct payments can be “baked into” a single software application. With more interoperable APIs, even competing platforms could effectively offer a single point of access for their customers, with cooperation between companies ultimately benefiting both sides. This collaboration can be a big win for consumers as their favourite platforms work together in a seamless ecosystem.

One great and recent example of this comes from Shopify Balance’s launch, a comprehensive banking account with small and independent businesses in mind. This single platform brings bill payments, expense tracking, and more all under one roof with no fees. This type of experience can be invaluable to businesses just trying to get off the ground.

Data aggregation can reduce operational costs

Implementing financial aggregation technology both increases user engagement and reduces cost. While there are significant investment decisions and resource costs upfront, once product developers have taken the time to set up these systems, they are reasonably inexpensive to maintain. In contrast, the value of the investment compounds over time as user engagement increases and users entrench themselves in a complete and thorough product.

With all of this combined, it is relatively easy to see why 2021 stands to be a momentous year for any data-driven industry. Products and companies that don’t embrace these ideals will be left behind. Fortunately for consumers, it stands to become almost a renaissance of flexibility, transparency, and security for both financial and social platforms. With any luck, this could also help boost the global economy needs as more pathways become available for more people to put their money to work. All of this becomes possible, thanks to data aggregation technology.

Photo by AbsolutVision on Unsplash

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