The turn of the new year gave many experts in the fintech industry the time to reflect on the developments of 2016 and look to the future to predict what's in store. So we decided to take a look and round up those that stood out.
2016 in reality
The predictions made by industry commentators this time last year, some of which ultimately turned out to be prophetic:
- The addition of new, non-financial, entrants to the financial services industry – New entrants such as Google, Facebook, Apple and Amazon proved this was well-founded, launching their own financial service offerings, for example, Facebook’s US launch of basic banking and payment method services as part of its mobile app services.
- The take-off of regtech – A lot of work had been done on the regtech front at the back end of 2015 and this continued well into 2016.
- The introduction of digital insurance start-ups – Few predicted the scale of the "insurtech" boom, in which, it is estimated, over $4.7 billion has been invested since 2011 but with most deals taking place in 2016.
- A unanimous prediction which ultimately did not get traction was Bitcoin becoming a mainstream corporate backed currency. Experts have put this down to the political difficulties faced by Blockchain in 2016 and, more generally, as a result of economic and political uncertainty.
2017 pundit predictions
PSD II. Challenger banks. Open Banking. Regtech. Insurtech. These are currently the buzz words in almost constant circulation, but which of these feature as common predictions from industry experts for 2017?
1. The rise of insurtech
2016 saw a huge, early stage investment in insurtech and experts are now expecting it to deliver on its promise. Established incumbents will acquire start-ups specialising in claims processing or risk management while insurance start-ups will act as disruptors to the value chain. Can the UK find its growth capital mojo to back this?
2. An insurtech failure
Hot on the heels of bumper insurtech growth is a prediction that the honeymoon period for P2P and social insurance will come to an end and that budding start-ups will be faced with the challenges of implementing their ideas; particularly where their business models are based on administrative processes not yet in place. This feels a bit premature, but that’s what the experts are saying!
3. Blockchain passes Go and collects £200
2016 was not the year for blockchain, but experts predict that a blockchain tried and tested concept will go mainstream in 2017. The clues are there with (i) the Royal Mint announcing the Royal Mint Gold (RMG) where blockchain will be used as a secure digital record for the trading of gold and (ii) Overstock announcing the world’s first blockchain based trading platform, T0. However, the consensus is that many blockchain start-ups will remain stuck in the experimentation phase during 2017 and that it is likely to be 2018 before we see any major success stories based on this architecture.
4. Shift from fintech to regtech
Putting aside that regtech is just part of the broad church of fintech, experts predict a shift from fintech to regtech in the short term. Two reasons: cost of regulation is disproportionately high (e.g. AML/KYC acts as a barrier to entry or requires an army of compliance ants) and regtech is high on the political agenda. Some predict that AI and big data will have a role in solving this problem, and revenue-generating regtech proposals will begin to gain traction because of their obvious financial up-sides.
5. PSD II false start
Prepare for PSD II disappointment as experts predict that the new wave of open API businesses will flop, initially. But, as Challenger Banks start to scale up, it is thought that this trend could change and we could see similar levels of API success.
6. Traditional banking stripped bare
Retail finance will shift: payments will emanate from chat and social media and point of sale lending, and Challenger Banks such as Tandem, Monzo and Starling will increase competition with digital products backed by promises of greater transparency. This will apparently see the first serious migration of customers from traditional banks. We can’t seem to go for a skinny single-shot soya vanilla latte without seeing Monzo’s hot coral logo being brandished – but most banking customers are not early-adopting hipsters and migration may take a bit longer.
7. AI rescuing banking incumbents
While banks get to grips with blockchain and open APIs, they will also be adopting AI to enhance their banking performance, create intuitive user interfaces and a smarter customer service. The words “lipstick” and “pig" come to mind, but given the stickiness of most customers, it might just be enough.
8. Cyber security in full force
Fintech innovation will coincide with the evolution and frequency of online hacking. Flourishing fintechs will incorporate special security measures and biometric ID will become the norm for phone based applications. Banks will also be attacked with increased frequency – given the greater complexity of bank ops, it feels like a matter of time before black hats penetrate the patches. If that’s right, the consequences are likely greater than any breaches of fintechs.
And the unpredictable…
Experts agree that known unknowns will come from China but also from emerging markets like Africa and India. They put this down to the lack of existing financial infrastructure which is likely to breed an environment of financial creativity (out of necessity, e.g. India’s cashless experiment). Whether these advances can be replicated in the West will be seen.
2017 – another exciting year in the fintech space. We’ll revisit each of these predictions in December to see how prophetic they were.