Financial technology has continued to grow exponentially in 2016, is still trendy and attracts a lot of investments. These different financial industry trends have helped new financial service products to change the way consumers interact and deal with their banks and banking.
This article highlights a few of the key trends from this report to give a better understanding on the future of fintech.
Payment Services Industry Trends
Global fintech funding hit a total of $19 billion in 2015, by mid-August 2016 the worldwide fintech funding already reached 15 billion dollars. The U.S., Europe, and the Asia-Pacific (APAC) attracted the most fintech investments.
Accelerators and incubators encourage fintech growth, as they place fintech companies on the cutting edge of business ideas. By acquiring fintech companies first-mover advantage is an important edge for the financial sector players.
Fintech funding surged throughout 2016 due to huge funding rounds by Chinese fintechs, along with expanding interest in new fintech areas such as insurance techs (insurtech). Fintech funding has changed in a geographical sense as well. It specifically grew in China and a move of the European investments out of London could also be detected. Furthermore, the sources of funding in the fintech sector are changing. VC's have dominated fintech funding but a large portion of the largest funding rounds in the first two quarters of 2016 were private. Corporate investors are also starting to increase their fintech investments in competitions as well as collaboration with VC's.
Banking Fintech Trends
Many new retail banks are moving away from the brick-and-mortar branches and standard ATM networks and favoring services delivered exclusively online and through apps. Examples of digital-only banks can especially be found in the U.S. Ally launched in the U.S. in 2008, but new players have entered the market in the last few years, these include Monzo, Tandem, N26, and Fidor in Europe, along with Digibank in India and B1NK in Kazakhstan.
Digital-only banks have several advantages over legacy players, such as freedom from historical tech restrictions and the costs tied to brick-and-mortar branch networks. In many countries, financial regulations also help these banks flourish, in Europe for example, these digital-only banks will soon be able to access customer data from traditional banks.
New players can almost always offer better rates and lower fees to customers, and they typically provide innovative services that can be tailored to individual customers' needs more easily.
However, digital-only banks face major problems in terms of customer acquisition, because the competition in the sector is growing and customers hesitate to leave a well-known and trusted bank for a fintech startup. Due to this, digital-banks haven't yet posed an urgent threat to legacy banks.
Investment & Stock Fintech Trends
The business insider intelligence forecasts that robot-advisors will manage around $8 trillion in global assets by 2020. They are becoming the biggest disrupter within the investment and stock space.
Robot-advisors use algorithms to recommend stocks and manage portfolios and can be used to target everyday consumers who don't invest and often have low minimums and fees. Hybrid robot-advisors combine computerized recommendations with in-demand advice features from a human being. Legacy banks and companies can offer products and tools like this for existing investors.
Advanced standalone firms use more complex algorithms to create and manage portfolios actively. Companies can use this model to target wealthier investors.
Insurance Fintech Trends
Insurtechs are currently booming, because the industry has only now started to modernize, when compared to the rest of the financial services industry. This is due to a combination of multiple factors, such as capital requirements and increasingly complex regulations. As these factors are changing towards a more amicable direction, insurtechs are seizing the opportunity. VC-backed funding for insurance technology companies grew 225% between 2014-2015 and made it the most active segment in fintech that year.
Insurtechs can be dealt in two categories: disruptive and enabling. Disruptive insurtechs are licensed to underwrite and issue their own policies. These companies (such as Oscar and Lemonade) are more and more capable of taking business away from traditional players. For example, China's first digital-only insurance provider has already written 630 million policies since it launched in 2013.
Enabling insurtechs encompass most of the companies in the space and partner with legacy insurance companies to optimize the traditional players' operations and help them reach customers through new distribution channels. Due to the predominance of the enabling insurence technology companies, insurtechs are more likely to modernice the industry, rather than threatening its' existence.
Currency & Markets Financial Services Trends
When we think about currency, markets and fintech, the term "blockchain" immediately comes to mind. The technology, best known for powering cryptocurrencies, is getting traction among finance companies because of its potential to streamline processes and increase efficiency. Blockchain can cut costs by up to $20 billion annually by 2022, according to Santander.
Fintechs that focus on blockchain continue to get plenty of investments and legacy players within the sector are conducting live experiments with the distributed-ledger technology. In the beginning cryptocurrencies were the focus on the market, but the attention and the money has shifted towards blockchain startups, because the technology fits financial service usage better. Blockchain is able to accelerate and automate transactions, simultaneously create multiple copies of a ledger and enhance transaction security.
Financing Industry Trends
According to Business Insider Fintech companies that specialize in payments were some of the first to attract funding, and in turn, customers adopted many of their products first. Companies such as TransferWise (remittances), Stripe (payment gateways), and Mobikwik (mobile payments) all disrupted the financing industry in the early days.
The payment segment of the financing industry is much more developed than the other fintech areas, and a small handful of companies dominate the space. PayPal is the undisputed leader in digital payments in Europe and in the U.S., while Apple Pay and Android Pay have taken over the top spots for in-store mobile payments. Finally, Alipay and WeChat are the top contenders in China.
However, some of these fintech companies are struggling with profitability and have altered their course as a result. TransferWise, for example, pivoted away from its original peer-to-peer model as it expanded into markets where payments primarily flow in one direction.
The B2B segment hasn't reached its full potential yet. Great opportunities for B2B fintechs still exist in the payments sector, but many of the companies in this market have been considered too small to be profitable customers for legacy players.
All in all there are more and more trends to discover within the fintech sector and it should only continue to grow in the forthcoming years.
Based on a Fintech Report 2016 by the Business Insider: