To say this past year was tumultuous would be an understatement. But while 2020 demonstrated just how unpredictable the future can be, it also provided insight into rapid cultural shifts, fertile grounds for innovation, and new avenues for growth. As 2021 begins, we asked members of our venture investing team to share their perspectives on the emerging trends they'll continue watching closely in the new year.
I've been focused on the ongoing “infrastructure-as-a-service” trend in financial technology that allows third parties to quickly develop tools and platforms directly on top of banks' infrastructures, due to the unbundling of the banking technology and product stack along with the abstracting of banking applications from regulatory licenses, compliance operations, and data. This makes for an explosion of fintech innovation, banking APIs, and specialized providers that can offer consumers more personalized and powerful financial products. It also enables non-bank corporations to embed financial services in their products to give their customers a more seamless and satisfying user experience.
This progression in how financial products are created―and by whom―is emerging in both retail and transactional banking. It is enabled by the newfound portability of financial data and the ability to quickly launch banking features through secure, standardized, and scalable applications. As a result of this API-led banking architecture, developers can focus on value-add products and features that compete on unique functionality, user experience, and marketing prowess―leading to better customer experiences, faster product launches, and lower costs.
Global regulatory changes are also fueling this movement, as open banking initiatives continue to be implemented across countries and continents. Combined with that are technological advances in cloud computing that enable this kind of modular, API-led delivery of financial data and products. We're also seeing consumers continue to demand personalized financial products that are seamlessly delivered in the channels they frequently use. All of these factors are leading to the proliferation of next-gen banking infrastructure companies that help banks and non-banking enterprises respond to the modern consumer's demand for tailored financial products. Forward-thinking institutions will do well to strengthen their customer engagement with this powerful new set of tools.
Cybersecurity continues to be top of mind as companies come under pernicious and pervasive cyberattacks that compromise organizations' supply chains, adding more strain to enterprises already challenged by the pandemic-driven transition to remote work and the need to secure their dispersed teams and systems.
Recent examples of hackers sneaking malware into software updates put a spotlight on supply chain and third-party security. As enterprises and governments implement digital transformation initiatives, they are becoming more reliant on third-party software―creating a massive and rapidly growing attack surface that is insufficiently secured. Strategic third-party software providers make ideal targets for hackers because they are centralized nodes that, once compromised, grant access to a broad customer network. These type of attacks were not an isolated incident, as over the years there have been many notable hacks involving a third party as an attack vector—including the breach of a major retailer.
To defend against these types of attacks, organizations are pursuing myriad solutions designed to improve hygiene and detection, access control, and response and recovery.
Meanwhile, with employees operating on home networks, using personal devices, and conducting work on cloud-based, third-party software, there's no shortage of entry points for cybersecurity threats in a modern business's digital workplace. For those without proper digital hygiene practices already in place, playing catch-up has been a matter of corporate survival. The trend I'm seeing is the early implementation of security, built directly into an organization's digital infrastructure. There's clearly a vast opportunity as emerging startups can harness the power of automation and AI to help massive enterprises get their cybersecurity up to snuff at both speed and scale.
The cybersecurity challenge Suman notes above is one of many facing software developers within enterprises today. They're now responsible not only for including security earlier and earlier in the software development process, but also for simultaneously increasing feature velocity by delivering faster product innovation. With such a direct influence on the way companies provide value to their customers (and ensure that value is delivered in a secure manner), the software developer has become a key constituent in companies' business strategies.
A side effect of this trend is the proliferation of new tools and solutions that cater to the specific needs of that software-developer. We're seeing many new startups focused on helping developers improve their workflows―through coding, integration and testing, debugging, and performance optimization—to achieve maximum efficiency and streamline their work.
All of this reflects another corporate shift: almost every company is, in some way, becoming a "software" company. As modern businesses serve an increasingly mobile-first, digital-savvy customer, their road to new growth is inherently paved with tech-infused strategies. When software has such a clear impact on an enterprise's bottom line, developers' value cannot be understated—or neglected.
As Xiaolei observes, there is plenty of opportunity for new financial solutions as banking's digital infrastructure continues to open up. Clearly there's already a market for consumer-friendly fintech services, from robo-investing to interconnected payments systems and everything in between. With that diverse menu of personal finance tools available, however, the burden has been on the consumer to navigate their options until they find the one that fits them best.
I'm seeing an opportunity for employers to turn that practice around. Just as most modern companies provide healthcare management for their workers, organizations can start putting their data to work by providing customized "wealthcare" management to their teams. Employer-provided financial assistance is not new, of course, but traditional options such as pensions and 401(k) plans have been expensive, limited, and "opt-in" by default. A new wave of customized (and even automated) financial support would help employees in a truly innovative way.
With that kind of collaboration, workers would no longer have to shoulder arduous financial decisions on their own. The data that employers already collect from employees could now be used to develop personalized solutions tailored to each individual's needs—both short- and long-term. From home mortgages to retirement accounts, there are plenty of personal finance demands that progressive employers can now facilitate in-house, instead of forcing their employees to shop for trusted assistance outside the organization.