In recent years, the financial services industry, which has been historically averse to change, embraced technology with open arms. This coupled with new regulations and stable growth created a number of new opportunities for established players and startups alike.
In 2017, the FinTech segment evolved at an accelerated pace creating new FinTech hubs and new hotspots around the world like Toronto, Sydney, and Zurich (to name a few).
As digital expectations increase, the industry has started to leverage technologies such as artificial intelligence, the blockchain, and augmented reality, but this is far from the whole story.
So what can we expect from the FinTech space this year? Here’s a summary of the latest findings made by the Business Insider Intelligence Research Team.
1. Recent FinTech Partnerships Will Start Showing Quantifiable Results
Over the last couple of years, we saw many agreements across geographies, FinTech centers, and regulators. These agreements were driven by the need to leverage local resources in different regions across a variety of financial markets.
While we have yet to see these partnerships produce any tangible results, experts believe that we will start seeing it this year.
For example, the earliest of these agreements was the agreement between the People’s Bank of China and the UK's Financial Conduct Authority. As enough time has now passed for it to grow and mature, it’s highly likely that we will start seeing many partnership deals supported by funding in partner countries this year.
To make regulatory compliance easier, you can expect these participant countries to align their own FinTech regulatory regimes with major players in the business.
2. European Financial Markets Will Be Disrupted by Open Banking
The European Union’s PSD2 and the UK’s Open Banking regulations will see financial institutions both big and small struggling to maintain compliance. It’s going to be a significant challenge as they have to ensure technological compliance while trying to hold on to their customers and revenue.
Any major change will come with some come with some inevitable problems, so banks and other financial institutions will have to pay special attention to this and iron them out before each new technology is released.
This has been in the works for quite some time, so banks in the region have been testing their open application programming interfaces to see if they can work seamlessly with third-parties. As a result, these firms will probably have a competitive advantage over those who are less prepared.
In contrast, the U.S. will move forward at a much slower pace. Having said that, banks that are quick to democratize their data will have an advantage over the competition.
At the same time, Latin America will grow in prominence within the FinTech space (especially in emerging markets such as Brazil). With a huge unbanked population in the region, alternative financial services are expected to boom with a lot more freedom.
3. Initial Coin Offerings (ICOs) Will Be Uncommon
While ICOs have been revolutionary in helping blockchain-based startups raise much-needed funding quickly, BI Intelligence suggests that we’ll see a lot less of them this year.
While ICOs have been a great vehicle to raise funds much faster than traditional equity funding, they have also been plagued by many scams. As a result, more regulators around the world will be forced to step in and protect investors.
While ICOs won’t completely die out, we will probably see less of them as government regulations will make it harder to launch. While some startups might miss out on much-needed funding, this is a good thing as it can lower investment risk (considerably) over the long term.
On the other hand, traditional funding is expected to boom within the FinTech segment with established companies attracting finances to help them scale. We will probably see a lot of this within the InsurTech space (and it will probably attract high volumes of corporate investment).
While the predictions above have a good chance of becoming reality, sometimes things just don’t happen as expected. For example, last year’s BI Intelligence report predicted the proliferation of alternative banks (like online banking startups) in the U.S., but this didn’t really happen.
As a result, it’s important to pay attention to these predictions, but also with a (large) grain of salt. However, one thing is for certain, FinTech will continue to evolve, accelerate, and drive this traditional industry forward.