In the last year, FinTech has moved from an industry niche, to an established and undeniable ‘movement’ that is attracting national news headlines on an almost daily basis.
This umbrella term for financial services in a digital age – challenging and disrupting the incumbents to create a new world of finance – has driven market momentum, increased competition, and impressive company valuations. The UK is now firmly on the map as a global centre of innovation in this space, evidenced again just recently by the line-up of companies in KPMG’s annual FinTech 100 list, which features more ’emerging firms’ from the UK than any other country in the world.
So where next, for this $12 billion dollar industry that now boasts its own UK ambassador, and government support of a five year plan to make the UK a world leader in Financial Technology by 2020?
Time in transit – when speed counts
The global economy, and the technology required to underpin and support it are inextricably linked. Although FinTech conversation doesn’t tend to hover for long on monetary policy such as interest rates, these factors have an enormous bearing on the supporting infrastructure. For example, low interest rates over a period of several years have lulled high street banks into a false sense of security. Why? Because it hasn’t mattered too much where money is stored, as earning potential has been negligible. Once these rates begin to rise, time in transit will become much more important when considering international money transfer. For the first time in years, customers are more likely to start to truly shop around for their savings accounts and banks will have to face the competition of alternative account providers.
The changing nature of global payment flows, spurred by the cross-border micro-payments of the on-demand economy – is now shining a light on the importance of speed, transparency, and predictability of cross-border payments. In recent years, we have seen the emergence of alternative solutions seeking to disrupt the whole infrastructure. Innovative distributed ledger technologies such as Blockchain enable the instant transfer of money, and have exposed the inefficiencies of the traditional infrastructure. SWIFT’s recent innovation initiative to improve customer experience in correspondent banking is testament to the power and influence of alternative solutions to drive fundamental change in the traditional architecture. In the coming year, I expect to see much of FinTech’s power evidenced through the change it is able to provoke and inspire amongst incumbents.
The rise of on-demand and FinTech partnerships
The success of on-demand businesses depends on ensuring that payments are collected and processed fast and effectively between parties. To provide this streamlined experience, direct debit is becoming a critical functionality, particularly when it comes to the in-app user experience. This removes the need for users to produce a card and allows quicker and cheaper payment acceptance for the service provider, often on a subscription model.
As payments become increasingly embedded within other services, on-demand businesses will be able to offer the seamless experience they are promising to customers, whilst ensuring that each transaction is just as smooth. In other words, we are likely to see a rise in the number of businesses in the on-demand space partnering with FinTech companies this coming year, as they realise the benefits they can gain by working together. This echoes the thoughts of Warren Mead, global co-lead of KPMG’s FinTech practice, who views 2016 as the year of the "enabler" rather than the "disruptor" in the FinTech ecosystem.
Big data – big opportunity
The Internet of Things is one of the most exciting aspects of the digital revolution that has the potential to fundamentally change the way we live and work. Many organisations are already adopting strategies to take advantage of this data deluge, but its true value lies not only in its collection, but its careful analysis.
With customers expecting an increasingly personalised service from their banks and regulators clamping down on their oversight of data integrity and use, the financial services sector has in many ways led the way in monetising this insight over the past few years.
Beyond collection, and analysis however, lies action. Are businesses effectively deriving genuine insight from the data, and more importantly, using this to inform and change the way they interact with customers, competitors and the market in general? It seems to me that from this perspective, there is still room for improvement.
In the coming year, it is likely that FinTech providers will look into ways to get cleverer in maximising the use of this data for commercial gain and enhanced user experience and loyalty.
What about the FinTech bubble rumours?
While the huge scale and momentum in this space is promising for the future of the industry, many industry analysts believe that this could be reminiscent of the Dot-com bubble and scepticism around the future of the whole FinTech space persists. As with any market, only the strongest players will survive beyond the current boom we are experiencing.
With this in mind, smart FinTech companies next year will need to look at how to ensure their offering maintains its relevance and demand to ensure they survive the boom. Alongside the growth of the FinTech industry, we have seen an evolution in the relationship between banks and these new players. Despite the ongoing popularity of an ‘us versus them’ debate, this is no longer an accurate description of the relationship between banks and FinTech innovators – or at least, it shouldn’t be. More to the point, it looks like it won’t be in 2016. Cheers!
Mike Laven is the CEO of Currency Cloud