FinTech unleashed: Has FinTech outlived its usefulness?
Make no mistake, the FinTech space is booming. But what makes it so important? We invited nine of the world’s biggest FinTech influencers to identify the biggest trends in Fintech and discuss whether it has managed to leave its disruptive label behind.
Going deeper into the belly of FinTech
In the first part of this interview series, we asked nine FinTech influencers what got them interested in FinTech and if they think the phrase “evolve or die” describes banks’ situation right now. We learned that the current state of FinTech represents a natural evolution of this movement and that banks will have to change in order to stay relevant.
However, this doesn’t mean that the future is dark for banks. As David G.W. Birch said, banks will not die — “there will still be a Deutsche Bank a decade from now, but it may work in a very different way, more like a financial utility than a retail proposition.”
But let’s put the gloomy scenarios on hold and focus on FinTech instead. Does it still have the “disruptive” label? What are the biggest FinTech trends to watch this year? Let’s see what the influencers have to say.
9 answers: Has FinTech managed to leave its disruptive label behind?
The FinTech Heroes
Mike Quindazzi: OK, let’s talk FinTech disruption, a new-old idea but one that as I mentioned is accelerating! And yes, since the first microprocessors of the 1960’s, technology innovation has been fundamental to transformation in the financial services industry.
In 2017, new technologies (fueled by another strong year of venture capital and corporate investment in 2016; plus greater connectivity, clouds, storage, APIs, and computational power) are very much poised to drive the next wave of financial services innovation. We are seeing record numbers of startups and legacy financial services companies both searching to acquire and serve the customer more empathically.
FinTech may have outlived its usefulness, or at least be weakened by overuse.
Yes, the customer is king in 2017, growing both in size and numbers. We see an emerging middle-class rise-up in leading emerging markets, yet, 42 percent of the global adult population is still absent from the formal financial system and all the opportunities provided by financial services.
To further the point, the un(der)banked appear to be FinTech’s largest global opportunity. Mobile money services have already proven to be an effective gateway for financial inclusion among the un(der)banked yet this demographic that could evolve into a US$3 trillion payments volume opportunity. Additionally, our team sees US$360 billion in unmet banking deposit demand, with insurance facing more than US$20 billion in un-captured premiums in the U.S. market alone.
While the mobile phone has been the enabling technology, and money services the entry point for the un(der)banked, access, trust, and tapping into evolving consumer expectations will drive the sustainable conversion of this demographic to the formal financial system.
Jim Marous: The term FinTech may have outlived its usefulness, or at least be weakened by overuse since the industry is using the term to describe not only new start-up firms but also the entire concept of financial services innovation. In addition, the connection between ‘FinTech’ and ‘disruption’ is often misused since most new services are more of an evolution of what has been done in the past as opposed to a revolution in banking. Both terms are great descriptors but using them together is often done in error.
Spiros Margaris: Good FinTech start-ups should be disruptive if they want to succeed because why else would someone become a customer if the start-ups don’t offer something better than what’s out there? So, to answer your question, great FinTech companies never stop trying to be disruptive and providing value to customers.
The un(der)banked appear to be FinTech’s largest global opportunity.
Andreas Staub: I think that there was always a disruptive part. Delivering banking services to unbanked or P2P are examples I consider disruptive. These are new business models with social impact. We just don’t know ex-ante what’s next.
Chris Gledhill: The majority of FinTech is about making existing financial services quicker/cheaper/nicer. There are a few startups and projects that are treading new ground — I’d describe these as disruptive.
Pascal Bouvier: There are many definitions of Fintech and many misunderstand the meaning of “disruption”. I hold a maximalist view of Fintech: FinTech = Finserv. This means the entire industry, all of its actors will behave more like technology companies than financial institutions going forward. This is the promise and the power of the internet as well as other enabling technologies. From that point of view, the last five years of “FinTech” have just been the beginning.
As for disruption, one needs to make a distinction between systemic and systematic innovation. As a rule of thumb, systematic innovation (incremental) is always easier to come by that systemic innovation (major). It is obvious that most lending/investing/savings/payments/insurance models will be altered going forward. Some via a series of baby steps, some brutally so. Applying the term “disruptive” in an undifferentiated manner risks diluting the real transformation taking place within the industry which is multi-faceted.
Neira Jones: I think it does, but as mentioned before, it’s more a natural evolution of the industry that has been brought about with the substantial advances in technology. See my post here.
David G.W. Birch: It’s hard to be truly disruptive in a heavily-regulated industry but I think there are companies such as Zopa. Stripe, Fidor and others who have demonstrated new ways to do business that banks would never have brought to market.
David M. Brear: In some areas it has shined and been disruptive. Stripe and Braintree have really pushed APIs in payments further and faster than Visa and Mastercard would have. But we are still at an early stage of FinTech – the banks have not really been disrupted by these small but hyped startups. FinTech companies are starting to realise the size of the challenge in acquiring customers, in gaining scale, and in dealing with complexities of banking for a business model and a regulatory prospective.
We will see more bank partnerships with FinTech than FinTech dismissing the banks.
What are the biggest trends in FinTech right now?
Mike Quindazzi: While many legacy industries are finally making progress with digital transformation, financial services are further down the road on the digital agenda. The difference, today, is the speed and extent of the transition and the acceleration of FinTech.
Artificial intelligence is showing the potential of intelligently automating more and more of the business, from customer service to investment advice. This trend will continue to evolve, both for internal processes and external tasks involving customer acquisition. We are seeing new data sources being analyzed by more advanced machine learning algorithms, providing new insights from players coming out of left field. The number of chatbots, virtual assistant + skills, and more intuitive mobile apps/digital interfaces are rising at an exponential rate.
Customers will no longer settle for the technology they “can do things with”, but will gravitate toward AI-infused technology that “will do things for them”. Design around the user interface and overall user experience will continue to serve as a new area where financial services will find a competitive advantage. FinTechs in other regions will continue to take a page from the Silicon Dragons in China by further integrating FinTech with mainstream social media and messaging apps.
Customers will no longer settle for the technology they “can do things with” but will gravitate toward AI-infused technology that “will do things for them”.
Another area that is clearly appealing is digital labor, which includes robotic process automation (RPA) and intelligent process automation (IPA). While on-boarding digital labor in the past has created stumbling blocks for financial services, new tools and advances in RPA are providing the opportunity to automate a wide range of activity without the need for complex programming. 2017 is a new start to deliver efficiencies, reduced headcount, and find quicker payback on RPA investments.
As more sensitive data moves to the cloud, financial institutions will need to improve cybersecurity against new threat vectors. 51 percent of US financial services respondents in the 2017 PwC GSIS survey reported that they use managed security services for solutions like authentication and real-time monitoring and analytics. It’s time for institutions to start considering an integrate cybersecurity, anti-fraud, and anti-money laundering effort as a competitive advantage.
Institutions can look to ward off cyber-threats by combining analytics from pooled data, strengthening the risk management environment, and implementing controls more effectively. Also, by integrating cybersecurity and privacy in the beginning stages of a FinTech project, they can avoid costly breaches and remediation.
Jim Marous: The standout solutions that are the most important have focused on the use of data and advanced analytics to improve the customer experience. The consumer is not looking for a new lending product – they are looking for a solution that will anticipate their need and provide the most seamless way to act on that need … in real time. The challenge is to not only change the delivery of the service but to reinvent all that happens behind the scene to improve the digitalization of the entire operation.
The most important trends in the next several years will be the partnership between non-bank solutions and legacy banking organizations, the continuing change in regulations, and the transformation of delivery from consumer requested solutions to predictive delivery by providers. While more subtle, the industry will begin to deliver on the consumer demands of “know me, look out for me and reward me” … in real time.
Spiros Margaris: As people who follow my tweets and comments probably know, I am a big believer in the InsurTech (insurance technology) space because I am convinced it is an industry in which we will see big disruptive changes happening. The insurance industry future will look very different from what we know now or even from how most insurance people assume it will look in the future.
The open banking movement is finally gaining traction.
The insurance future will be crowded with incumbents, InsurTech players and tech giants (not necessarily the tech giants we know now). However, the tech giants will increasingly take over the insurance industry because they are much closer to the clients, especially the next generation of customers from Millennials to Generation Z (post-Millennials) to future generations. Whoever controls the gatekeeper, now the smartphones, will have the first access point to customer needs and therefore will be the first to offer whatever they need. In my view, the tech giants have a compelling business case, which is very hard for the traditional incumbents from banking to insurance to replicate. Now, you know the dilemma the incumbents are in. I believe, for the incumbents, it must feel like being between a rock (FinTech) and a hard place (tech giants).
Andreas Staub: The biggest trend is the human being. Why? Trends are predictable. We cannot predict the tech progress in an accurate way that we can deliver real value for management. Most of the predictions were wrong in the past. And what we see now is an exponential progress. So why should we be able right now to predict the future better than in the past? All we can say is that we can predict human behavior. There is enough evidence based knowledge about that. We know what drives human behavior and we know how to change behavior. So in comparison to tech, there is less danger to be wrong with predictions…by the way when was the last update of our brains? 50K years ago? No progress in sight if we don’t start to implant chips into the brain to become cyborgs…
Chris Gledhill: The move to cashless societies is exciting and worrying at the same time. The open banking movement is finally gaining traction. Chatbots and conversational interfaces are pushing UX boundaries. China is drifting westwards with some very exciting social media/banking mashups.
Pascal Bouvier: The potential for deregulation coming from the US with the new administration — what I call the data wars between various trading blocks and jurisdictions (who owns, controls, is responsible for data, data privacy, security, monetization). Data being the new asset class off of which financial institutions and FinTech startups will trade, these data wars are particularly important. The move to loosen the grip banks have on checking accounts thru open banking, API banking, banking as a service, and the legislative directives such as PSD2. Edge computing + AI which will see the decentralization of computing data from the cloud to nodes (connected things) and how will the industry be impacted. Finally the rise of digital identities in financial service.
Neira Jones: For me the three trends that are exciting at the minute are Artificial Intelligence (not only for new ways of interacting and operational efficiencies, but also to combat fraud and cybercrime), Regtech in all its forms given our current complex regulatory landscape (e.g. PSD2, 4 & 5AMLD, ePrivacy, MIFID, GDPR, etc.), and of course Real-Time Payments which benefit consumers and businesses alike.
David G.W. Birch: The top three? Regtech, digital identity and “Amazonisation” (shifting to API-centric business models).
David M. Brear: Open APIs and the promise of them being provided by banks. The smart FinTech firms already have them in place and understand their power. They are enabling smart partnerships between smaller players to build powerful product ecosystems that banks cannot match today but will need to be part of if they are to survive tomorrow. Bud and Pension Bee are great examples of small companies joining forces to make a bigger and better service for customers.
In the third part of the interview series, we talk about the relationship between FinTech and entrepreneurship and we add a new element: blockchain.
If you’d like to know more about the latest trends in finance and meet the top movers and shakers in the global financial scene, join us in London between April 3-6, 2017.