The 7 Decade Defining Fintech Trends that Will Set 2018 Alight!

20 December 2017

What are the Fintech trends that will drive the biggest impact on Financial Services in 2018 and beyond?

 

Fintech 2.0.1.8

Fintech is a portmanteau of the words finance and technology and describes the prevalent disruptive, nascent tech-enabled innovations reshaping financial services. Currently, a powerful nexus between modern technologies, regulation and consumer centricity is converging into revolutionary ways of transacting and interacting with financial services. Costs are coming down, time is being saved, adaptability and flexibility are increasing, inefficiency gaps are being closed and it's all happening at an incredibly rapid pace. If one understands the trends driving Fintech, one will gain a better view on where financial services is moving towards. Furthermore, when one understands the major problems being experienced within an industry, one can use this to predict the future. This article briefly unpacks the evolution of Fintech, the current problems within financial services and aims to provide a view of the major Fintech trends for 2018… Brace yourself, the revolutions is nigh!



Fintech (re)Evolution

Fintech is growing up - adoption is increasing, collaboration is the key and maturation is evident - in some regards. Disruption (an all too familiar word these days) in financial services looks different than it does in other industries. Media giants were eradicated and replaced. Financial services giants still stand, and are using their network strength and regulatory compliance prowess to evolve into new and improved forms that better service the digitally savvy consumer. Nascent technologies that include mobile, cloud, big data, AI and blockchain have led the evolution (and in some cases the revolution.) Regulators are scrambling to keep up, whilst incumbents incubate and accelerate to stay afloat, abreast and ahead of the insanely quick growth curves that only digitally enabled progress can provide. Use cases have been explored, fragmentation has turned into consolidation and ‘puppy dog enthusiasm’ has matured into a pragmatic process. Jobs are being lost to machines, yet new positions are opening up that blend technological prowess, data sense and finance like a cocktail called progress. It is at this point that 2018 is shaping up to be as powerful as it’s prominent predecessor, 2007.

 Source: Forbes

Problems Predict the Future?

The easiest way to predict the future trends is to analyse the major problems being experienced within a certain industry, in context with the people and processes that may solve these problems. Financial Services is experiencing some key challenges, the top 10 are listed below:

  1. Customer Friction - It’s no surprise that the expected seamless customer experience that tech giants have facilitated has trickled over into all online interactions. Customer expectations for a valuable, seamless, efficient online experience is at an all-time high. Customers switch if their time is wasted. Time and attention have become prized assets in this digital economy, waste a customer’s time and the attention that they have given your brand and pay the price of potentially losing many more customers from that bad experience being shared. Financial services business have started to focus on this pain point, but still have a long way to go.
  2. Overpriced Financial Services (E.g Insurance) - Outdated pricing methods with undeservedly fat margins are being exposed by smarter Fintechs. Regulations protecting consumers are also putting pressure on the unfair pricing of financial services products, but there is still more work to be done to bring costs down.
  3. Expensive, slow back offices - Manual processing is painfully slow when compared to modern automation alternatives. When time equals money this translates into unnecessary additional costs being passed onto consumers - exacerbating the aforementioned overpricing problem.
  4. Transparency of Finserv - Opaqueness within wealth management, banking services and insurance has led to financial market crashes, overpricing and corrupt business practices to pervade finserv for too long. Transparency within the system will bring more accountability and ultimately more efficiency.
  5. Regulation Too Slow - Technological innovation is happening at breakneck speed and is only speeding up, whilst regulation seems stuck and behind the times. The wild west is analogous to the number of gaps that exist for tech-savvy opportunists in this digital equivalent of a Clint Eastwood western.
  6. Regulation Too Expensive - While necessary, the costs to enact many regulatory compliance requirements are onerous. Without technological innovation in this space, the system would be too expensive to operate for Fintechs and incumbents would have to pass to high a cost onto the consumer (as previously discussed.)
  7. Cybercrime - Cybercrime is now a strong enough force for it to get a seat at the conversation table.
  8. Outdated Authentication (Identity) Systems - We still use archaic, static identity systems that do not withstand the rigours and dynamic nature of the tech economy. Our need for multifactor, dynamic, 100% safe identity systems is now more prevalent than ever. Furthermore, the addition of IoT systems entering the financial services space compounds this need. By 2020, Gartner estimates that there will be 25 billion internet-connected devices globally.
  9. Financial Inclusion - Too many humans are still without access to essential financial services.
  10. Cryptocurrencies - As much as they represent a revolutionary opportunity to upgrade the current financial services operating system in many aspects, there exist just as many risks and challenges that are still to be addressed. (More on this in next article E.g 5 things that need to happen in the world of cryptos in 2018)

 

#Trending

The financial services field is wide open for those companies that are savvy and fast enough to position themselves in front of the prevailing trends. The winners will survive and thrive. The slow movers will suffer lost revenues and lost opportunities to leverage the most powerful technologies in finance, with no deus ex machina moment to speak of. What trends will provide the biggest forces for change and transformation? Which problems will drive the most impact within the finserv space? Below are the 7 major trends steering the world of finance in 2018 and beyond.

1. Genuine Value vs Pies in the Sky 

You miss 100% of the shots you don’t take is an old basketball adage that seems apt to describe this trend. What is often overlooked here is that shots should not be taken from the furthest corners, with a blindfold on, simply because the shooter has enough power to do so. According to CB Insights’ Blockchain in Review report, early stage punts on Blockchain technologies displayed a higher rate of failure than any other investment. Additionally, with the introduction of ICOs and their lack of regulation (7) many investors have been swayed into unprofitable solutions looking for a problem, where no problems exist. Granted, there are genuine winners across Blockchain, ICOs, AI, Quantum Computing and the other nascent technologies firing Fintech that have emerged (and will still emerge.) The pain of the recent failures, however, has served to ‘savvy up’ investors and the ecosystem as a whole, whereby stronger, more viable innovations, showing genuine value through non-vanity metrics and measurable fundamentals will attract early-stage investment and make it through to follow on rounds and ultimately market success. “Fool me once, shame on me, fool me twice shame on me” rings ever truer in 2018 and not only are investors more streetwise but they’ll be better educated on the subject of Fintech thanks to programs such as:

  1. The Oxford Fintech Programme built by David Shrier and Nir Vulkan, of Saïd Business School.
  2. CFTE’s Around Fintech in 8 Hours course, built by Huy Nguyen and a team of well-respected leaders in Fintech.
  3. Open University’s Understanding Financial Technologies course
  4. Singapore Management University Certificate in Fintech and Innovation
  5. The Fintech Circle’s many courses on Fintech related subjects
  6. Numerous MOOCs and online courses on Fintech related topics such as cryptocurrencies and Blockchain.

2. ICO Maturation 

What do the elderly, cab drivers and hedge fund managers have in common? They’re all looking to invest in ICOs and have the same access to information to do so. This will start to change in 2018 as regulation firms up (see next trend,) investor ‘upskilling’ increases ability to measure value (see previous trend) and winners and losers are sorted through a digital version of natural selection. Maturation of the ICO sector bodes well for the future of finance, too much and innovation will be squashed, too little and the ecosystem will lack the credibility and necessary levels of trust to effectively blossom.

3. Regulatory Tensions & Tussles 

Maintaining the tension between progress and protectionist policy amidst the breakneck pace and potentially perilous vicissitude that faces finserv is no enviable task. The natural dissonance between pragmatic preservation and revolutionary innovation is a divide that regulators and Fintech aficionados are having to cross - the great crossing is expected to gather meaningful momentum in 2018. Regulators will solicit specialist advisory boards covering a host of hot topics and questions including, but not limited to:

  • AI - How to protect jobs? How to create more jobs? How to ensure job losses and negative externalities are adequately offset? How to treat AI decision makers (directors even)?
  • Quantum Computing - How to protect against a new kind of warfare waged on ‘quantum unsafe’ encryption? How to promote safe investment into the space and to dissuade nefarious use cases from emerging?
  • Privacy & Cybersecurity - How to promote the upgraded storage of sensitive information systems to curb the enthusiastic rise in costs associated with data breaches and hacks?
  • Evolution and Protection of Personal Information - How to evolve identity as a service in the digital era? How to promote financial inclusion through accessible identity systems? How to enforce punitive regulation across industries and businesses of varying size?
  • Blockchain - How to be the authoritative third party in a system designed to not need a third party authority? How to adapt old regulations to protect against the constant threat of terrorist financing, money laundering and illicit trade?
  • ICOs & Cryptocurrencies - Equity or utility token? Standardised foundational elements? Regulated autonomous organisations an oxymoronic challenge for the new year? Fiat reserves regulated? Transparency required? Taxes collected? Central Banks to buy cryptocurrencies?
  • IoT - Morphing juristic persons to represent inanimate smart objects? Who is accountable for liabilities accrued? How does the civil legal system adapt to include smart objects?

 4. Cybercrime 

Despite the best regulatory efforts, the gap between new safer solutions required policy and a safer infrastructure is still be wide open for cybercriminals to exploit. The proliferation of the IoT network only serves to exacerbate the problem. Cybercrime is exploding, according to Gemalto’s latest report “More and more organizations are accepting the fact that, despite their best efforts, security breaches are unavoidable.” Not only are breaches becoming more common, but the data being breached remains exposed and accessible by criminals in perpetuity. Access and security systems will begin to take the leap to become more dynamic and preventative than ever before in 2018 - cybercrime will be big business on both ends.

5. East vs West  

West the overtaking be may East the seems It. (Read from right to left.) The East has quietly gone about building Fintech prowess on a gargantuan scale and will begin to become the outsourcing destination for many a ‘western Fintech requirement’. Below are a few mind-boggling stats to hang one’s hat on:

  • Mobile payments in China (led by Alipay & WeChat Pay) rose to $5.5tn. The U.S pales in comparison with a mere $112bn recorded for 2016
  • Alipay has over 450m users, with WeChat almost doubling that at 800m+.
  • India’s Paytm, claims around 260m users followed by MobiKwik at 60m+.
  • According to Chris Skinner’s blog:  ”Ant Financial is a structure that can process 250,000 transactions per second today, and is architecting systems that will scale to over 100 billion transactions per day. To put that in perspective, Visa and MasterCard handle just over 60 billion transactions per year combined, and average near 2,000 transactions per second.”

 

 Source: FT

 6. Developed vs Developing 

There is a big difference between incremental evolution and transformational revolution. This difference used to be best evidenced by the developed nations’ iterative progress versus the developing nations’ technological leapfrogging (cashless economies and skipping chip and pin and straight to mobile payments are two cases in point.) Developing and developed nations better brace for transformation as 2018 is poised to deliver some 0 - 1 type jumps across both worlds. Access and inclusion will begin their upward, exponential rise in 2018, for the developing nations. Open, real-time, contextual transacting will represent a Pandora’s Box of evolutionary jumps in financial services in the developed world. Notwithstanding the leaps that the “Intelligent Digital Mesh” promises

7. Identity Crisis

To quote Stephen Covey, “nothing is as fast as the speed of trust.” This rings truer than ever as we fully immerse ourselves in the digital epoch. Trust forms the foundational fabric that enables this interconnected, remote access world. Where it’s lacking, costs go up, efficiencies are lost, delays are inevitable and risks increase exponentially. At the heart of this ‘trust fabric’ lies the evolution of identity, to match the dynamic requirements we face in this machine age. We’ve made progress over the past few years and the progress, coupled with the enormous, rising losses suffered due to outdated identity systems and policies, has fast-tracked the future of digital identity. To solve this crisis, the likes of self-sovereign identity and new identity systems will become more mainstream in 2018 - we cannot continue to rely on static, archaic identity numbers and rudimentary 2-factor authentication methods.

Conclusion

Using this methodology, coupled with a large amount of ‘educated guesswork’ to match the timing of these predictions, 2018 is set to be a memorable year filled with more revolution, transformation, regulation, valuation, maturation and potentially devastating than any other year beyond 2000 (other than 2007.)

Collaboration will continue to be the key. The slow movers will pay the price.

Hold onto your hats, 2018 is geared to be a rollercoaster ride that jettisons us into the future of finance.

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