Traditionally, the financial sector has been slow to invest in and adopt groundbreaking technologies. However, in 2018 we saw a number of well-established institutions kick “tradition” out the door to make way for the real world results produced by a number of fintech applications that have established their proof of concept as well as their viability in today’s market.
In the past few years, this “let’s keep things the way they’ve always been” approach has been uprooted and replaced with a revived focus on not only incorporating new technologies into previously traditional workflows but also exploring and investing in applications that normally would be reserved for the fast-paced and volatile technology sector. We saw this reach a near fever pitch with blockchain and cryptocurrencies dominating headlines in 2018. I mean let’s be real, it has to be a little crazy to see bitcoin go from something your nerdy college roommate wouldn’t shut up about to being a common topic of discussion between Jamie Dimon and a panel of CNBC talking heads.
While these cryptocurrencies and the resulting mania that ensued encapsulated much of the public consciousness, there were major strides made in many other areas of fintech that should make waves over the next few years, resulting in fintech becoming a much more recognizable term. From first-hand experience, I can tell you that even typing the word ‘fintech’ a year ago would have resulted in a red squiggly in any word document; something that isn’t the case today.
Fintech will continue to transform the financial services industry especially with many industry movers and shakers fostering innovation through corporate innovation endeavors, new startups founded by ex-Wall Street suits, and …
We’re seeing fintech applications appear in a number of subsectors including compliance, insurance, and of course portfolio management and client services.
With that being said, these are 5 of the biggest trends that our team at AssetBook have identified as elements that are sure to shake up the landscape and propel the financial services industry into the future.
One trend that a number of thought leaders in the industry tend to agree on, is that industry consolidation is bound to rise. According to an article posted by Bloomberg, “there are plenty of startups [that] have gained enough footing for incumbents to take notice, but have stayed small enough that an acquisition is still feasible.” In most walks of life, we refer to this as the sweet spot.
Not only do experts believe that traditional incumbent firms will move to acquire “digital first challengers” but they also expect to see some of the larger fintech startups take steps to acquire similar companies, looking at acquisitions made by Stripe and Credit Karma (more on them later) in 2018 as proof that this trend is about to take off. It’s logical to denote that in the case of the incumbent firms, these companies have spent millions investing in upgrading their technological foundations over the past several years while hiring more and more talent on the tech side. One needs to look no further than the seemingly overwhelming number of finance-related IT jobs that exist today. These moves to improve their in-house technological landscape while bringing on more tech-savvy talent has set the perfect stage for these companies to take larger steps in innovation, which we predict will take place in the form of quality acquisitions.
Corporate innovation is an interesting subset of this phenomena. What if I told you that VISA actually describes itself as a tech company? If you visit their corporate innovation office in Singapore, that’s exactly what they’ll tell you. There are some bright and talented individuals at these firms and it seems like they’ll now finally have the resources to bring their big ideas to the eagerly awaiting consumer.
Concurrent with the rise of fintech over the past several years is the rise of fintech related startups that have seemingly come out of nowhere to seize what appears to be an un-relinquishing grip on market share while becoming household names. Some of these companies could be primed for major growth in 2019, with a number of industry pundits predicting looming IPO’s. And while a majority of fintech companies that went public in the recent past haven’t been too successful, these are a few of the companies that could potentially buck the trend.
Robinhood – This aptly named company which originally began as a fee-less trading platform opened the doors to investment for many people who normally wouldn’t have access to the market. Over the past year, Robinhood has continued to innovate debuting a cryptocurrency trading platform and currently has the plan to launch a Robinhood “Bank” in this coming year. While some still harbor concern over the security of this type of platform, it’s popularity has skyrocketed among millennial investors, and an IPO in 2019 isn’t out of the question.
Stripe – According to the company, “Stripe’s ultimate goal is to expand internet commerce by making it easier for companies to process online transactions and manage their online businesses”. They are able to achieve this by having what has been referred to as “several explosive lines of code”. This code allowed Stripe to create a “streamlined payment system [that] eliminates the need for small businesses to spend hours on the phone with banks or negotiate for credit card processing accounts. It also cuts out a great deal of red tape pertaining to online payments fraud, such as for-payment card industry data security standards and know your customer anti-money laundering rules.” As we’ll see in the following section payments will be a huge trend in 2019, which is one of the reasons why we see the potential for a Stripe IPO.
Credit Karma – This company was founded in 2007 and offers the user the ability to view their credit score in an ongoing manner without damaging their score. Transparency is a core tenant of this company and their mission is to be able to help people better understand their financial health. What’s impressive is how the company has become very profitable while doing this. According to Investopedia, “its revenues come from tailored, targeted advertising by financial companies on creditkarma.com. Its business model is based on finding a win for everyone – the consumer, the financial institutions that advertise products and Credit Karma’s own bottom line.” With 80 million users it’s easy to see why the heads of this company would want to take it public.
Big Tech x Big Finance
Fintech is inherently the amalgamation of technology with finance but it creates this interesting dynamic that pits big tech against big finance. It’s easy to see why with big tech wanting to capture a new market segment and with big finance chasing after worthwhile innovation that will keep their customers and clients happy.
We’ve already mentioned several companies above that are entering more and more into the financial service space with the Bank of Robinhood and the Venmo “Debit Card” directly taking a bite out of the big finance apple. But what about big tech? This is where it gets interesting because Google Pay and Apple Pay pose legitimate threats (or so it appears) to traditional financial services. According to experts at Bloomberg, Big Tech’s parlay into financial services will happen slower than we think; however, this will be a very interesting thing to keep an eye on.
A similar tennent holds true for Big Banking entering the tech space. The crytpocurrency phenomena has without a doubt opened the eyes of a number of people in the financial space. Blockchain technology is now being adopted by banks, chief among those being Ripple, which was recently approved by the Bank of Saudi Arabia for transactions. The behavior of cryptocurrencies is notoriously hard to predict, so this is another thing where you’d be encouraged to wait and see versus placing any bets. One thing is for certain, banks are now, more than ever, open to newer technologies.
One of the more visible trends in the fintech world has been the rise of mobile payments. Mobile payments have been around for a while now, with China doing $5 trillion dollars in mobile payments volume in 2016 alone! With more and more countries catching on in with the introduction of Apple Pay, mobile payments have become less “sketchy” and is becoming more and more accepted in the mainstream.
But user adoption isn’t the only thing that qualifies this trend; especially as we head into 2019. For instance, over the past couple of years we’ve seen big banks like Bank of America and Wells Fargo adopt the Zelle platform to better facilitate mobile payments between individuals, directly competing with platforms like Venmo and PayPal. With big traditional banks finally catching on to this consumer trend, we can expect a few things to happen.
One of those things is faster payments. Banks now know that individuals like the experience of contactless cards and mobile apps, and they are working to make that experience faster. This includes trying to make real-time payments, which would cut down on the time that it takes for money to transfer in and out of your account, giving you more control over your money.
According to some experts, this decision by big banking to enter this space isn’t one of necessary innovation but more out of fear. Big banks don’t want tech companies commanding the space and will invest their time into solutions and products that allow them to retain control over payments and bankings. It will be very interesting to see how this trend drives competition in 2019, and the big winner could be the consumer.
This often seems to be one of the most talked about topics not only with fintech but with any industry that involves connected devices and a high volume of users. To be perfectly honest, it’s almost a shame to relegate this topic to such a small paragraph in this article, and anything short of 2000 words wouldn’t do it justice (keep an eye out for that blog later)!
For the sake of this article, we’ll just stick to the high-level trend of AI in fintech. One of the interesting subsects of AI that has the fintech community buzzing is RPA’s or Robotic Process Automation software. RPA’s are essentially “programs that automate repetitive human processes by utilizing the exact same application interface a human would, eliminating built-in human inefficiencies.” For your sake, we’ll leave the rise of robots and the downfall of humankind to the YouTube channels of those peculiar tinhat wearers.
In the financial services industries, this will be a huge boon as a number of repetitive tasks like data entry will be made more efficient to the nth degree, creating a much more streamlined process and quicker results for the end user, a.k.a. you. This will directly affect industries like compliance, insurance, and lending.
According to a report by the G2 Crowd, “Robots cost around $15k annually per unit, with an initial implementation cost of $40k-$50k per robot.” And while that’s a lot of money upfront, “companies typically see 40-100% ROI within 3-8 months” with the annual cost of running these robots being minuscule compared to paying a person to do the same thing in a less efficient manner. The same G2 Crowd report predicts that RPA software will be widely used in 75% of financial services institutions by the end of 2019. And while that’s a high number, we can’t help but think that they might have a point.
As a bonus, we’ve included this interesting trend that we think will be on full display in 2019. Due to a number of the concepts that we discussed above such as the efficiencies made by AI, faster, global mobile payments, and traditional firms’ willingness to invest in new technologies, financial inclusion should be on the uptick in 2019. A number of emerging markets across Africa and Latin America now have access to financial technology applications that will allow them to compete and thrive on a global scale.
Our team at AssetBook really believe that this is one of the major benefits of bringing fintech to the forefront of the conversation. Every day our mission is to find a way to help people achieve greater financial health through the tools that we’re able to build for the people managing their hard earned money. It’s easy to see that if done right, this is really the goal of any well conceived and well-executed fintech property. These innovations will lead to a future where people will be financially in control of their lives, leading to a more fulfilled and enriched life. We’re glad to be a part of this movement, and we’re excited about what we have in store for our partners and users in 2019.
Editor’s Note: One of the things that we’re looking forward to bringing you in 2019 is a renewed dedication to consistent and valuable content. If you liked this article and would like to read more like it, feel free to subscribe to our newsletter and to follow us on LinkedIn. If there’s a topic that you’d like to discuss, drop us a line, and we’ll try to make it happen!