After an exciting year for fintech in 2015 with investment levels at least doubling from 2014, consolidation in payments, continued growth in marketplace lending and blockchain becoming the hottest subject both in- and outside of finance. Now that we are facing a new year, everyone is trying to figure out what is next. Predicting the future is always a bold move, but I decided that I would give it a shot.
Payments will continue to consolidate and focus on user adoption. Apple is rumored to enter the already crowded P2P-payment space, aiming to challenge Facebook on global P2P-payments. Mastercard will roll out Masterpass for one-click payments, and there are several initiatives working on integrating payments in smart devices and wearables. Payments will become “invisible” and integrated into services. Have you ever pulled out your credit card to pay for an Uber ride?
Marketplace lending will mature and consolidate. P2P-lenders with high default rates and grey area lenders are facing an uncertain future and leading P2P-lending platforms will increase their market shares. More P2P-lenders will follow SoFi and move into mortgages. Banks will acknowledge that alternative finance is here to stay and explore P2P-lending and crowdfunding either in-house or through partnerships.
Blockchain will become mainstream in 2016. More and more banks are joining the R3 consortium and the use of blockchain in capital markets and cross border payments is already here. It is highly probable that blockchain will become a viable option for domestic interoperability between banks and smart contracts will be applied in trade finance and securitization of for instance mortgages.
Biometrics will continue to replace passwords as default security and login procedures. Fingerprint identification is already becoming the preferred way to log in to your mobile banking service, and promising fintech startups like Zwipe is implementing biometrics on credit and debit cards. We will also see the emergence of multifactor biometrics relying on several biometrics sources as heart rhythm, facial recognition, and other behavioral biometrics as wiring pace on a user’s keyboard and angle of cell phone when you place your thumb on the fingerprint reader. At the same time as cybersecurity area is growing at rapid pace, cybercrime is becoming more organized and sophisticated. While phishing and Trojans have dominated the last ten years of cybercrime, malware like ransomware will become an even bigger threat in 2016.
Regtech will become a hot topic during 2016 as the amount of regulatory challenges and reporting required to run a bank seems never ending. A new breed of fintech startups will try to exploit technology to ease the burden of staying compliant in an increasing complex regulatory landscape.
Artificial intelligence will continue to affect the industry. In addition to robo-advisors and the use of robots and algorithms to automate manual tasks previously performed by humans, the use of AI will see new use cases in banking and finance. With recent breakthroughs in quantum computing, the use of AI in managing large portfolios with complex derivative structures seems like a viable use-case.
Credit scoring and risk modelling will be challenged as innovative challengers utilize artificial intelligence and various data sources ranging from social media data, such as your Facebook friend list, LinkedIn profile or whether you use correct capitalization when filling out forms online. The growth of wearable technology and Internet of Things represent a new world of data sources, and the Telcos are exploring the use network data to determine a customer’s credit worthiness. Will 2016 be the beginning of the end of traditional credit models such as the FICO model?
Open APIs will become the norm for incumbent banks. In order to stay relevant banks should offer APIs for third party integration even though this is a cultural tough decision for bankers.
Insurtech will start to gain traction. While challenges to banking are more imminent, insurers may face bigger threats in the long run. The big venture companies are starting to turn their focus towards insurtech, and 2016 will be the year we start to see how the insurance industry will be transformed.
Collaboration between incumbents and fintech startups will become common. We will also see more fintech startups pivoting away from trying to disrupt the incumbent banks and will become software vendors catering to said incumbents.
The only certainty when predicting the future when technology is the main driver for change is that we will be wrong on one or more of the predictions. We tend to underestimate the significance of emerging technologies and overestimate the impact of the hype.