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Fintech trends
Disclaimer: Please note that the article below expresses my personal views on what constitutes trends in Fintech industry and might be attractive for investors to support their growth. This in no way represents investment and/or financial advice.
I have been active in financial services for more than two decades, and in Fintech for some time; but I started following the trends only in 2018. It has been a very interesting road and I plan to continue doing so in the future as well.
Let’s look back at my 2018 predictions and make an analysis of the drivers behind the change. I must admit that, at the time of writing, I had in mind a bit longer time horizon than just one year; so, many of the drivers will keep driving changes in 2019 and several more years.
- Digitalization is still key.
· I believe this was a strong driver in 2018 and will probably continue to be in 2019.
- New technologies, such as blockchain and AI, are increasing efficiency of systems as well as the number of choices for end-users and are inevitable.
· Yes, we have seen significant growth of ventures tackling low efficiency.
- Higher automation means lower costs and more affordable financial services, and has to be implemented.
· Again, I went back to the main drivers from the angle of a service provider; and yes, it was an important driver behind digitalization and innovation in 2018, as well as years to come.
- A movement from mass adoption towards profitability is expected.
· comment – Taken out of context, it sounds ambiguous, but it refers to the blockchain mass adaptation. Although some movements were made, I was not spot-on about this.
- New forms of peer-to-peer and crowd-funding services are emerging, and there is a strong place for them in the market.
· I would say that I was also not spot-on about this; perhaps, like above, I was 50/50. Some movements were made, but still, there is room for significant growth in this one.
- However, all Fintech participants share the end-goal: a seamless, affordable and comfortable user experience; and they will do everything to achieve this.
· Spot on. One of the main drivers of the change in financial services is better and more affordable user experiences. This will remain to be so in 2019 as well.
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In order to take a look at the Fintech trends prediction for 2019, I believe it is always useful to go back to the basics and check the main drivers of innovation, and even disruption, of financial services.
Things are usually simple.
- Users want:
o simpler and better user experiences,
o lower fees.
- Service providers want:
o lower costs,
o higher profitability and efficiency,
o simpler and cheaper maintenance effort.
It is also important to mention that financial services — in particular: banks, insurance and pension institutions– are suffering from a long list of problems with legacy systems. On average, 80% of the IT budget is spent on maintenance (source American Banker) and only 20% on innovation. That is one of the main reasons for slow adaptation of changes and new ideas; however, that is also an opportunity for many start-ups to add value and get on the scene.
So, my trends to follow are:
1. Technology used: I believe we are still on the same trend as previous years.
a. Blockchain,
b. AI/DL/ML,
c. platformization of services is still a big trend in the financial sector.
2. Industry innovation and tech
a. Boring tech – focus on automation of back offices and administration.
Yes, many solutions that will add value in automation, digitalization of the legacy systems, improving reporting, etc., will be very attractive in 2019. Financial institutions are under huge pressure from newcomers to digitalize and increase efficiency, reduce costs of their services and improve user-experiences. So, in the words of a friend, “boring” tech and handling its problems will remain hot in 2019 and some years ahead.
b. RegTech – on the rise
Often mixed with its elder brother LegTech, RegTech remains a hotspot for many financial service providers. We shall be in need of automated risk management, operational management, underwriting, compliance functions, GDPR compliance functions, various reporting to supervisors and external controllers, etc. This area needs improvement and some of the upcoming technologies — like blockchain and its derivatives– should bring a lot to this area.
c. Cybersecurity, digital identity, ratings, KYC, AML – at rise
Reaping the benefits of blockchain technology and the rise of data to be fed to AI, I perceive that this is a ripe moment for putting cybersecurity, digital identities, ratings, KYC, AML —and all related fields– in the centre of the scene. I am putting this immediately after RegTech, since there is a possibility that these two segments are overlapping.
With constant increases of the digital economy, digital money, and online businesses, this becomes of core importance. There is a need to mitigate fraud and risk posed by financial transactions and identity documentation. On the other side, cost-cutting and boosting efficiency of these solutions is up to 70%.
d. Real-time payments – still on the scene albeit slowly exiting
Payments have been a relevant trend for many years. This part of the market is a rather low-fee feeder, so there is only as much innovation that can attract the brains and capital in there. We have seen significant progress in this area in the past year, in particular, with blockchain currencies and coins. The last on the scene, in early 2019, was JP Morgan Coin to be used for payment settlements benefiting from real-time settlement. We shall see many good companies coming to this part of the stage, but I do not see it as a hot trend. It is entering its own stable and more mature phase which I like to call “business-as-usual.”
e. WealthTech – Security Token enters the scene together with improved robo-advisory and other DL tools
This is another segment that is closer to being disrupted. The cryptocurrencies, coins and tokens have opened up new horizons for wealth management changes. I believe that 2019 will be a year of setting up infrastructure for security tokens and all other types of new forms of digitalized assets, such as: real estate, collectibles, art pieces, and even cars or yachts. However, 2019 is too premature to be called “the year of the security token,” according to my humble opinion. On the other side, this is an on-the-rise trend that will continue rising.
For more on why I believe that Security Token is important for the Wealth management industry, and in what manner, please read my article ‘The Importance of Security Token.”
f. Slower industry trends in 2019
g. Digital lenders – still maturing in both product offering and liquidity capacities
h. Inclusion tech – unbanked and underbanked are huge potential markets; however, many barriers are present in this segment — in particular, fragmentation by local regulatory systems. We have seen some bright solutions, but there is a long way ahead to solve this in a structured and systematic global way.
3. PropTech or RealEstate Tech Solutions
This is still a significant market and it is being reshaped with smart contracts and blockchain solutions. Tokenization of assets, like Harbor or many others, are a significant move ahead and this is one trend I will be keeping my eye on.
4. New business models
With blurring lines between Fintech and e-commerce that enable innovation — e.g. Latin America and South East Asia– this will bring some more innovative solutions in 2019, as well. I look forward to seeing new models inspired by Go-Jek, WeChat and others.
5. Funding trends
The Fintech sector is —for the third year in a row– hit with all-time high funding. It can trigger a bit of an alarm, as trends represent a bit of a heating and are not sustainable in the long run. On one side, we see record massive funding rounds —mostly in later stage Fintech companies– and that trend is to continue in 2019 as well. On the other side, we see a steady decline of interest in early stage start-ups. I believe this is still trending in 2019 as well. However, as a result, we have a significant number of unicorns in this area and I do expect a few more to emerge in 2019.
6. Market consolidation
The whole Fintech industry is maturing and consolidating. With massive funding rounds in later stage start-ups and so many unicorns, it is only natural to expect the growth of M&A activities.
I also think that few Fintechs are coming closer to the IPO stage, as they rightly understood the need to shift focus from scaling up, product over profit phase to profit phase; that is a pre-requisite for potential IPO.
However, I do not see big tech turning to big financial services providers in 2019. They will come to this point, or not, at their own pace. With all good reasons, big tech will stay close to their customers and their needs. In reality, there is no need for them to rush into any solutions.
So, this is how I see 2019 ahead of us in the Fintech space. I am looking forward to 2020 and seeing how I have been faring.
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