Another exciting year for fintech has passed, and I will once again attempt to say something about the how fintech and the future of financial services will develop in the coming year. By now it is clear that the changing landscape for financial services is an evolution rather than a revolution, and many of these as well as my 2016 predictions will have a long-term perspective before we see any potential impact. No matter the case, attempting to predict the future is a surefire way to being wrong.
The battle for mobile payments wages on, and the jury is still out on who will emerge as victorious out of this space. Alternative finance and marketplace lending lost some of its luster last year, and what’s in store for 2017 could go either way. Insurtech is on the rise, but is still at an early stage.
Blockchain became mainstream in 2016, and will surely maintain much of its appeal in 2017. However, the interest may come from other sources than banks, such as the music industry. My friends at Dailyfintech.com even predicts that 2017 marks the end of the bank-driven phase of blockchain. The attempts by banks to coopt blockchain were like music CD retailers getting together to run MP3 music sharing sites or Post Offices setting up email services. The defections from the R3CEV consortium signals the end of this phase.
SME and business banking is ripe for disruption. The majority of fintechs has so far focused largely on retail banking and consumer-facing application, which is already a highly-saturated market. We should expect to see both incumbents and challengers targeting SMEs with digital only solutions that are designed to reduce friction in everyday banking and accounting for small businesses.
Collaborators becomes partners. As fintech companies has transitioned from challengers to collaborators over the last couple of years, the next natural phase is to formalize those relationships as strategic partnerships where fintech companies take on a vendor role towards the banks. These B2B relationships will require a different approach to growth and competence, where trust and resilience is favored over coolness and rapid user adoption.
Traditional banking software vendors are the new targets of disruption by fintech companies as a result of banks partnering with fintechs. Fintech startups have so far been focused on innovating around the traditional core of banking. However, fintechs are targeting core banking software and challenging the hegemony of traditional core banking vendors.
Artificial intelligence has been one of the hottest trends in the digitization of banking for a while now, and is showing no signs of cooling down. Most banks are already well on their way with robotic process automation, and this is only the beginning. AI is set the affect almost every aspect of financial services, and it is inevitable that intelligent automation will displace many of today’s banking jobs.
Open Banking should by now be a familiar concept for everyone in the financial services industry. Last year I said that Open APIs will become the norm for incumbent banks, and in order to stay relevant banks should offer APIs for third party integration. In 2016, the details regarding PSD2 implementation was revealed, and it became clear that banks opening up their APIs is inevitable. There is still much uncertainty regarding the future landscape of financial services, but it seems like a safe bet that successful banks will become open platforms in that future.
Digital ecosystems will gain predominance in order to stay relevant to customers. Conversational user interaction through messenger services and chatbots is just a premonition of things to come as digital ecosystems blur the lines between traditional industry boundaries, and engulf payments and e-commerce services as integrated parts of the everyday customer experience. Every digital ecosystem starts out as a digital platform, and according to World Economic Forum the platform economy is expected to disrupt all existing industries.
Security and privacy will become even more important with the promise of open APIs, intertwined digital ecosystems, distributed ledgers and machine learning based on vast amounts of data. The upcoming General Data Protection Regulation (GDPR) is intended to give people more control over how their personal data is used to prevent the usage of user data without consent. The European commission has already filed charges against Facebook for providing misleading information regarding data sharing between Facebook and WhatsApp. Cyber crime is on the rise, and cyber security should be every banks top priority. Banking is built on trust, and bank-level security and transparency in use of personal data is imperative to maintain that level of trust. Fortunately, innovations in machine learning and identuty management will help cope with some of these issues.
Macro trends will impact fintech as well as the traditional banking industry. Last year UK voted leave in the Brexit referendum and Trump got elected president. 2017 may prove to be the year we see the effects of those incidents. Trump will be inaugurated as president, and the UK has announced that they will finally turn in their divorce papers with the EU. The relationship between the US and China is a play, and it is uncertain how UK free trade agreements will be solved post-brexit. The upcoming elections in the Netherlands and France are subjects of uncertainty. Consumer debt is all-time high in many economies, and it is expected that interest rates may rise in 2017.
Less talk, more action. As incumbents as well as fintechs are growing weary of attending the endless fintech conferences and events as well as reading the same headlines at all the fintech blogs and tech news sites, the time has come to act upon that knowledge. There are no lack of opportunities and ideas, the key is to understand which of those will benefit your customers. According to Jack Welch, there are only two true competitive advantages, the ability to learn more about our customers faster than the competition and the ability to turn that learning into action faster than the competition.