15 Major Fintech Trends in 2015/2016
Vladislav Solodkiy, Managing Partner of a Singapore-based Life.SREDA VC, was featured in TOP35 most influential fintech-persons in the world.
2016 Will, without a doubt, be remembered as a watershed year for fintech! However, now that the dust from 2015 has settled, it’s a good time to take a look at what the last year thought us.
From Apple and Samsung getting into the act to Square’s IPO and the rise of Asia, there has never been a better time to get into the world of financial technology. Overall, these are the 15 main takeaways I had from 2015 that I believe will still be relevant and important in 2016.
1. Believe the fintech hype!
Fintech’s main achievement over the past year has been that the industry has transformed from a hypothetical hotspot to an actual one. It is not a stretch to say that Fintech’s obituary was written many times. In 2012 the sector was simply called “financial innovation” or “financial online services” and only in 2013 was the word “fintech” used for the first time along with the hope that the sector could be a hotbed for Unicorns.
As of the end of 2015 there are 46 companies in the «billion-dollar club» (with a total capitalization of US $98.1 billion) and 36 more unicorns “coming soon” (although I’m sure that the number will at least double over the next year). While the number of fintech-conferences and hackathons have become incredibly commonplace. I am actually skeptical about the problem of “unicorn bubble” as a whole or “overvalued fintech startups” in particular.
Startups have fundamentally changed the way we use technology and will continue to do so for years to come so in my opinion, the more startups the merrier, the market and the users will cull the herd and the best will remain. (Read more)
2. M&A rather than IPO is the main “exit” strategy
Statistical analysis makes it clear that if all the unicorns enter the stock market the funds that are invested in shares of new companies over a year won’t be sufficient (in addition not only unicorns enter the stock market!). Some companies, such as Uber, do not seek to go public and want to remain private, citing the example of IKEA.
Giants should acquire most of the “new stars”. Especially when you consider that giants like Apple, Google and Facebook have accumulated a large amount of cash and the expansion of product lines and customer retention are always on the agenda. The fintech sector has followed this trend and the majority of deals actually account for mergers\acquisitions (PayPal – Xoow, Alibaba – Paytm, Optimal payments – Skrill, BBVA – Simple, Samsung – LoopPay, Northwestern Mutual – LearnVest, BlackRock – FutureAdvisor, etc.), rather than IPOs (LendingClub, OnDeck, Yodlee, PayPal, Square, WorldPay, etc.).
Venture funds are starting to grow fintech companies at the early stages, while banks, telecoms and Internet giants are actively investing in/acquiring fintech startups at growth stages for a variety of reasons and the profit from them is far from being in the first place.
Another aspect, which has become particularly topical in the past year, is industry consolidation. Whereas in most countries and fintech spheres there are successful projects, they are too small to be interesting for strategists, and their organic growth will take time. This is where smart investors will come in. These investors can use their networks and experience to show companies complimentary paths creating a more homogenous market place which will in turn make it easy for the tech giants to figure out who to invest in.
3. Asia is sexy
The Fintech wave may have started in the US and further refined in Europe but it is in Asia that the true potential of the sector is becoming evident.
The large populations, sub-par banking infrastructure and proliferation of cheap smart devices has given countries like China, India and Indonesia and prominence on the Fintech scene that is hard to deny. Add to this the pro-entrepreneur stances of government in financial hubs like Singapore, Hong Kong and Seoul and you get a perfect storm of circumstance that is contributing to a massive fintech boom across the continent.
Leading the way in Asia is the remittance business with India, China and the Philippines all transacting billions of dollars a year in remittances alone. Over 2015 and into 2016, I foresee more nuanced fintech services targeting needs beyond basic billing and banking services. I also see legacy banks getting in on the fintech game and investing heavily into new technologies and new initiatives. (Read more)
4. mPOS – acquiring
Despite the number of issues concerning Square’s monetization of the customer base and inflated capitalization, in the end its IPO proved successful. All shareholders earned a decent profit, and after a technical drawdown the stocks went up comparing to the initial offering price so that the skeptics were confounded.
At the same time, Square opened doors to its followers in the segment – those getting ready for their IPO, and those negotiating with potential acquirers, that are trying to bring down the price. Speaking about mPOS-acquiring in general, it is turning into a customer attraction channel, while the integrated POS management and customer relations systems are becoming the core business.
In Asia, there two main drivers of mPOS development: rising number of bank cards (coming along with the growth of the middle class and its purchasing power) and the boom of e-Commerce (the giants are trying to replace the prevailing cash-on-delivery pattern by card-on-delivery). (Read more)
5. Online – acquiring
John and (especially) Patrick Collision, Stripe founders, became pop stars last year. They are featured in the list of the youngest billionaires and on the covers of magazines, they have managed to achieve a huge growth in company market capitalization in spite of a very small staff, they also look good and participate in talk shows.
Speaking seriously, unlike mPOS-acquiring online-acquiring is simply following the growth of e-Commerce as it’s not the product, which creates the demand. It is, in particular, growing rapidly in Asia, where e-Commerce is booming, especially among small merchants. (Read more)
6. Crowdinvesting and Crowdfunding
We have only hit the tip of the iceberg with crowdfunding. As a passionate fintech evangelist, I believe crowdfunding is one of the great things the fintech revolution has created.
Now, all of a sudden, people are able to bring their ideas to the public en masse instead of relying on the good graces of a few investors.
Platforms like KickStarter and Indiegogo are just the beginning. The beauty of the crowdfunding model is just how simple and adaptable it is. You ask for an investment, offer an incentive and let supply and demand do the rest, it’s gloriously capitalistic.
Digging deeper still, once crowdfunding by everyday people into startups becomes more commonplace, the effect it will have on the established VC model will be truly profound.
7. Blockchain Blockchain is dead…
long live blockchain. So, the Bitcoin party seems to be over with analysts and industry insiders circling its carcass like buzzards in the hot desert sun to see if it comes back to life. My money is on the buzzards. However, while Bitcoin itself may have crashed and burned, the underlying blockchain technology powering it has huge amounts of potential.
Recently, the US Securities and Exchange Commission has approved a plan to issue company stock via blockchain. This opens it up to whole new world of possibilities including disrupting the way stocks are issued and traded.
While we cannot assume to know the end goal for block chain tech, some immediate applications I see lies in tasks like: remittances and currency conversion, cloud bank processing and ABS, solutions for art-banking (provenance and value of paintings, joint ownership, rental, etc.), insurance.
What Blockchain needs is a Netflix or an AWS (Amazon Web Services) type of company. It needs to be able to disrupt traditional financial services in a big way and bring more democratized services to a larger audience. (Read more)
8. Online lending
The first successful fintech IPOs we have witnessed in this sector still amaze me with their growth. The prime movers for this success has been new funding platforms that have turned into marketplaces for attracting external capital.
For users of such platforms, many of them part of the developing world’s ‘unbanked’ population, online lending in conjunction with online credit scoring is a valuable avenue to access the funds they need to build better businesses, take care of their families and provide for their communities.
For the platforms themselves, the loan amounts are often small and generally prove to be low-risk investments making this a win-win in my opinion. (Read more)
9. Big data and online scoring
In the past, the hype and excitement about “big data” was left to mathematicians and their models and actual monetization could be seen only in the distant future. But in the past year we have witnessed a huge number of new players in this sector, and all of a sudden practical applications for big data technology started popping up everywhere.
The growth of online lending services, a lower barrier to entry and the proliferation of cheap data created a demand for online scoring, which takes into account not only traditional data (a passport and banking history), but also data from social networks, smartphone manufacturers and mobile operators to allow lenders to more peace of mind when giving out online-loans. (Read more)
10. Payments and remittances
A lot of talk over the past year was how social networks and messaging would begin to integrate fintech solutions into their platforms allowing for a more seamless implementation of finance services into technologies that people are familiar with. Quite simply, the revolution didn’t happen and former leaders (such as TransferWise, Azimo, CurrencyCloud, Remitly, Dwolla, etc.) continued to expand into new countries and currencies, as new players didn’t surprise us.
There was one exception to the rule however, Chinese messaging service WeChat. The Tencent owned service is the Swiss army knife of messaging platforms integrating things like an e-commerce platform, micro-payment ability and a full suite of finance services all within the app itself.
Time will tell if companies like Facebook owned Messenger and WhatsApp or smaller apps like Naver owned LINE will begin wide-spread implementation of financial services. I have a hunch though, that the journey to a full-fledged global fintech-powered messaging service is till many, many years away. (Read more)
11. FinTech for insurance companies
At first, fintech startups used to be about disrupting traditional banking services. Now though, such technology is a welcome additional to any financial institution’s arsenal. In fact, we are seeing other large legacy verticals adopting fintech.
One example is in insurance where companies, witnessing the changes fintech has brought to banking have begun, in earnest, researching and collaborating with existing players in fintech.
I must admit though, that I am quite skeptical about a separate fintech for insurance companies, just like there is no special fintech for mobile operators. There will be a lot of products in the online insurance; PFM-services have been actively cooperating with insurers even before; blockchain will be useful (safekeeping of insurance history, the issue of policies and their “journey” between those who issue them, buy them and request them) – but nothing more. It’s just a new class of market players interested in fintech. They now have to understand how to integrate current services in their core business, and thus enter the allied industries instead of inventing fintech for their own.
The abovementioned mobile operators are active around the world. In the past year all major players launched internal competence centers, responsible for analysis and cooperation with fintech startups. The most striking of the cases, in my subjective opinion, is the example of the Philippine operator SMART\PLDT. (Read more)
12. Fintech for SMEs
Small and medium businesses have traditionally, always been neglected by traditional banks (compared to corporate business and retail customers). Now though, everyone has turned its attention to SMEs and banks have realized that they can make the same margin as on retail customers, while while at the same time, enduring smaller risks.
Fintech startups have jumped on the bandwagon and are now actively integrating technologies and products for merchants, such as alternative capital sources (crowdinvesting, p2b-lending), mobile banking tech, tablet-based cash registers, POS management systems, cloud accounting and payroll services.
As SME’s continue to expand into non-traditional verticals, we will see an even greater proliferation of fintech services to cater to this ever-burgeoning market. (Read more)
In some countries, fintech development is hampered by the lack of companies such as the US Bancorp, providing middleware-platform (licenses, processing, integration) for a fast and cheap launch of startups.
In some places it’s practically impossible to obtain banking licenses for new market players; some places it takes too much time and money. Banks believe that innovators threaten their own business and don’t want to open access to their backend for security reasons, they also don’t invest in the development of open API’s, and are not that interested in cooperating with licensing and distribution.
In addition, it’s not enough to provide only integration with a banking platform. For the emerging markets due to the large number of unbanked customers; it is also important for banking platforms to integrate with retail, pawnshops, microfinance institutions, mobile operators etc. (Read more)
14. О2О (offline to online) and IoT (Internet of things)
One of the most interesting trends of the past year, for me, is at the intersection of e-Commerce and fintech – about how to combine the experience (not only) of offline purchases (and brand promotion, consumer education, consultation) with online technologies (interaction of devices and applications, contactless recognition of clients, their preferences and payment).
So far, companies like Tesla, Burberry, Line showed the most interesting cases, but giants such as Alibaba and others, have already announced they will actively develop this trend. It has a truly enormous potential to improve the quality of customer service in sectors like retails, F&B and even sales. (Read more)
15. The role of consulting companies in fintech
In many ways, consulting companies “introduced” insurance companies to fintech. These giants, one after another started conducting internal fintech research and training conferences for their clients from the banking, insurance and telecommunications industries, bringing the knowledge and techniques of the fintech world to legacy companies.
The motivation is clear – the industry is changing and fintech startups do not use the services of traditional consulting companies, and if the current customer business will start to stagnate, it could be disastrous.
Their response was very smart and believe it or not, beneficial to all parties! Consultants offered fintech startups (often in exchange for a small proportion of their shares) to introduce them to banks in different countries (required for the hosting and distribution of services). Consulting companies are also discovering new monetization models (consulting-for-equity), their customers are getting access to innovation through a familiar channel, and fintech startups are getting easier access to bank managements and negotiations with them..
Life.SREDA VC is a global fintech-focused Venture Capital fund with HQ in Singapore