Brace yourselves for the next wave of fintech

After an all time high for fintech funding of  USD 16 billion in 2015, followed by a strong Q1 of 2016 with global investments of USD 5,7 billion, investments suddenly dropped in Q2 2016. Despite a drop in Q2 investments, KPMG claims that 2016 is on track for another all time high for fintech investments. While some speculate that UK fintech funding could have been affected by Brexit uncertainty, another explanation could be that we are now seeing the undertow before the next wave of fintech.

After a cool-down in soaring valuations, there has been fewer mega rounds and investors have started looking for proven business models instead of inflated unicorns.

While the first generation of fintech companies were set out to eat the banks lunch, collaboration between fintechs and banks has proven to be mutually beneficial and even self-proclaimed breaker of banks, Moven is now breaking bread with the banks. Payments and consumer oriented services has dominated until now, and innovation in the B2B space has just begun. Fintech entrepreneurs are starting to realize that regularoty compliance is here for a reason and banks aren’t going anywhere anytime soon.

The next wave of fintech will in many cases approach banks and insurers as collaboration partners and customers, and incumbents acknowledge the possibilities within co-creation through accelerators, incubators and collaboration efforts. These are some of the areas that are gaining traction (in addition to payments and alternative finance continuing at a steady pace).

Insurtech has been looming for a while already as a disruption waiting to happen. The global insurance industry  (size and profits) and according to World Economic Forum the most imminent effects of disruption will be felt in the banking sector; however, the greatest impact of disruption is likely to be felt in the insurance sector. Investments in the insurtech sector is picking up pace, and in UK alone investments has nearly tripled the total investment for 2015 of USD 8 million.

Regtech is fintech’s less noisy sibling and is aspiring to be the savior every compliance officer has been waiting for. Regtech companies seek to harness the capabilities enabled by new technologies such as cloud computing, big data, and blockchain to lower time and resources spent on reulatory compliance, as well as boost responsiveness to future regulatory changes. Behavioral biometrics and machine learning is utlizied by Behaviosec for KYC and identity verification. German  fintech startup, Figo is offering XS2A  and PSD2-compliance as a platform. Signicat has launched a fintech starter pack  to help new fintech companies ensure immediate regulatory compliance. For most of the past century, risk management and calculations were an end-of-day operation, post-market close; post-execution, and long behind profit and loss. Near real time data processing and distributed ledgers where banks, insurers and regulators share the same immutable truth could easy the pain of complex compliance issues such as audit trails for  Solvency II pilar 3 and the coming Basel IV just to name a few.

Artificial intelligence funding is reaching new heights in 2016 and is now moving beyond robo advisory and algorithmic trading. Artificial intelligence is a collective term for many technologies, and the various applications of these technologies are moving into chatbots and virtual personal assistants, credit and risk analysis, fraud prevention, predicitve analytics and more.

Blockchain investments and bank-led initaitives shows no sign of slowing down, and the number of potential use cases are expanding. Ranging from faster payments to digital identity solutions, banks are forming consortiums to explore blockchain and distributed ledger technology even further.

So far, fintech startups have been focused on innovating around the traditional core of banking. However, ThoughtMachine is looking to change that with a banking operating system called Vault OS. Core banking systems are decades old, and is widely considered a obstacle for innovation. Will we see more fintechs taking a swing at the core of banking?

As we may be seeing the end of the beginning for the first wave of fintech on the horizon, it becomes clear that this is merely the first of many waves  in what should be considered a constant state of change in the years to come.