Fintech is now one of the world’s best-known startup buzzwords, and with good reason.
The fusion of the finance and technology industries has been a long time coming – some might say too long – but now that the union has happened, sparks have really begun to fly.
There are now many recognised elements of this emerging industry that are being prioritised by financial services firms keen to keep pace with the trendsetters, and make sure they have the technology infrastructure in place to stay ahead of the game.
The Digital Banking Report listed 10 such trends in its 6th Annual Survey earlier this year; the most popular being “removing friction from the customer journey”, followed by the “use of data and advanced analytics”, and “improvements in multi-channel delivery.”
These trends are important ones to follow and allocate resource to. But where fintech is concerned, it’s often best to expect the unexpected.
Amongst these steadily growing trends are the sudden developments; the technological or even psychological breakthroughs that have made people sit up and take notice of the industry.
Below, we examine 10 recent developments that have justified the hype around fintech.
Each one possesses the desired fintech “wow” factor, and the potential to transform the way that we view, and perform modern financial services.
Some of the things that Fintech has accomplished in 2017 have been simply jaw dropping, and long may that continue. Let’s hope this is just the beginning.
Bitcoin bursts past $1k – and $2k mark
Bitcoin has transformed its reputation in the past couple of years; from a shady internet currency used mainly by ‘geeks’, or criminals – into a digital currency that is desirable to hold for variety of reasons – and a serious proposition for investors and currency speculators.
Towards the end of May, the price of a bitcoin was up above $2,000 dollars, for the first time ever, which gave the currency a market value of close to $50 billion.
In January, bitcoin had surged past the $1,000-dollar mark, which most observers saw as an incredible performance; to the surprise (and delight) of many, the price kept on getting higher – and higher.
Bitcoin is a notoriously volatile currency; the last time it had exceeded $1,000 per coin was in 2013, before the Mt. Gox bitcoin trading scandal caused a significant drop in value.
The currency seems to be stabilising however, reflecting its growing acceptance by finance companies and their customers across the world.
The Rise and Rise of The Digital Currencies.
It isn’t just the price of bitcoin that has been on the rise – there are now a plethora of rival digital currencies all competing with bitcoin to become the digital currency of the future.
Ethereum and Ripple are two of the best known; both have also been on a phenomenal run during 2017. Ethereum is up 5,000% since the start of the year, to $407.1 dollars. In January, the currency was trading at just $7.98! Its market capitalisation has been estimated to be worth around $36 billion, compared to bitcoin’s $48.91 billion.
Ethereum is well supported by the likes of Investment Bank JP Morgan and Microsoft, so it’s hardly surprising the currency, which is mainly used for smart contract applications using distributed ledger technology, has performed so well.
Likewise, Ripple is attracting the attention of the big banks; there are 34 billion “Ripples” in existence, with conservative estimates suggesting a $7.9 billion market valuation.
In total, analysts say that the valuation of all the digital currencies combined now exceeds $100 billion. And for that, we have the blockchain to thank.
Blockchain-based software realises first $100 million funding round
The blockchain is the digital currency transaction ledger that has underpinned the rise of bitcoin. What is blockchain? There are many different definitions, but put simply it is a publicly owned ledger of all of the bitcoin transactions that have ever been made.
Thanks to blockchain, these transactions cannot be erased, or changed, or faked. This is because each transaction is recorded and verified by a network of millions of different PCs across the world – so-called “miners” – acting independently of the need for a centralised authority. The blockchain is regulated by the people, for the people.
So, although it raised eyebrows in the media, when DLT startup R3 completed a funding round of $107 million to build out its blockchain based technology, known as Corda, few people within Fintech’s inner circle were surprised.
New Distributed Ledger Technologies Already Rivalling Bitcoin
The use of blockchain style technology was a major reason for R3’s successful funding round, but ironically, the platform that R3 is set to build will be seen as a rival to the public blockchain itself.
Think of “blockchain” as a generic term for different types of distributed ledger technology. Just as there are now many different digital currencies vying for supremacy, there are now many different blockchain-based platforms vying to be the dominant player in this new market.
All of these new platforms are “open source”, which means anybody can “plug-in-and-play”; from the big banks, to humble fintech startups.
The platforms making headlines this year include Ethereum, Corda, Hyperledger, and of course Bitcoin.
The biggest problem these platform face is a lack of scalability. They are not yet capable of processing transactions quickly enough – a dozen or so per second, whereas VISA’s platform, for example, generates up to 100,000 transactions per second at peak use times. A blockchain style platform called BigChainDB has been developed in order to try to solve the scalability issue.
APIs Are Getting Serious And Driving Open Banking
Application Programming Interfaces (APIs) are what fintech firms use to access data from the big banks.
Thanks to new payment services directives issued by the EU, European banks can no longer hoard their customers data and use it to maintain a monopoly over financial services.
Now they are forced to share their data, via API calls, which means any enterprising firm can access the data and provide smart solutions to problems traditional financial service providers have been struggling with – like real-time updates, help with savings targets, and recommending products and services impartially.
When Payment Services Directive 2 comes into force in early 2018, the big banks will be forced to share even more data, and accept payments instructions from sources as diverse as mobiles, wearables, and even voice activation.
Voice Activated Banking
It seems incredible that we can command our smartphones to complete transactions for us using only our voices, but that is what has begun to happen.
In South Korea, people can use Bixby, Samsung’s voice controlled assistant, to check their balance, ask about exchange rates, and send money to contacts.
The service is only available from a few selected Korean banks so far, but when Samsung perfects Bixby’s ability to understand the English language, we can expect to see this service made available worldwide.
Doubtless, we will soon see more and more companies offering the same services – Santander, for example; but the really interesting thing is that many developers, like Samsung, will not be banks at all.
Anybody can be a bank
2017 may well be remembered as the year that it became possible for almost any determined entrepreneur to start a bank.
Granted, firms still have to meet strict criteria, and have a lot of safeguards in place before they are awarded full banking licences, but technology, as discussed above, is making it easier for agile fintech firms to provide all the same services as major banks.
Accepting deposits, providing overdraft facilities, giving a real-time view of users’ accounts, processing transactions and authorising payments – all of these services have never been simpler to set up.
We are currently witnessing the rise of the “Challenger bank” – the likes of Starling, Atom, and Monzo in the UK, for example – that will slowly start to take market share from traditional high street providers.
When we talked about voice activated banking, we really skipped a vital link in the chain of development. Mobile banking.
Mobile banking has been a revolutionary development that has been most keenly felt in less developed regions, such as Africa, for example, where only a small percentage of the continent’s population have active bank accounts.
To use a mobile bank (or mobile wallet), all that is needed is a smartphone, and smartphone penetration in underdeveloped parts of the world has been significantly on the rise.
Farmers or villagers who may previously have had to travel hundreds of miles to visit a bank branch can now open accounts in minutes – all they need is a smartphone, and an internet connection. They can independently send and receive money, pay bills, and manage their finances on the go.
Bill Gates has said that he believes that by 2030, 2 billion people will use their cell phones to save, lend and make payments. In Sub Saharan Africa, 12% of all adults now have mobile money accounts.
It may take longer in places like Europe and North America for mobile banking to catch on, because habits like using payment cards are more entrenched, but catch on it will – most of us are already using mobile apps provided to us by our high street banks, as well as contactless payments. From there it is a small step to using a fully mobile service.
And where physical stores are concerned, there are fewer and fewer reasons to visit bank branches now we have all the information we need in the palm of our hands.
The conversion of the unbanked
Mobile banking was not specifically developed to help the “unbanked”, but it has taken a major step in that direction.
The “unbanked” refers to people who have never opened a bank account – because they did not have access to one, because they dealt in cash only, or even because they were unable to officially identify themselves – which is the case for more than 2 billion people around the world, research has showed.
During 2017, many firms, products and services have sprung up with the goal of reaching the unbanked, and providing them with the benefits that have been missing up until now.
Humaniq is one such agency; based in the UK and backed by financial services consultancy Deloitte, amongst others, Humaniq has raised $3.8 million of funding.
Created by two blockchain evangelists, Alex Fork and AI expert Dmitry Karminsky, Humaniq say that they want to “help establish sustainable and structured operations to enable more financial inclusion, justice and strong institutions on a global scale.
This strikes at the heart of what the Fintech industry is all about, not just disrupting the major players, but developing new products and services that can make the world a fairer, more empowered place.
Democratisation of overseas money transfer
One of the great things about the rise of disruptive fintech firms is the way that they have highlighted products and services that the public has simply been paying too much for. Nowhere is this truer than within the overseas money transfer industry.
High, unnecessary fees, and exchange rates skewed to benefit banks and money transfer agencies were once features of the industry. But today thanks to peer-to-peer matching services like TransferWise, streamlined services like Revolut, and easier access to the competitive rates offered by brokers (from services such as our comparison engine at The Money Cloud ), they can no longer get away with overcharging customers.
The world’s diaspora, that is people living outside their countries of birth, is vast, and growing – and nearly all require some way to send money home to family or to pay for products back in their home countries.
Businesses, too, can benefit from more competitive rates, which are driven by increased competition between providers in what is becoming a crowded space.
According to the World Bank, remittances totalled $538 billion in 2014, involving 250 million plus migrant workers. If the costs of money transfer could be reduced by just 5%, says the World Bank, developing countries would stand to gain an extra $16 billion more each year.
Disruptive fintech startups are making sure that customers can complete transactions at a more favourable exchange rate – and not just in emerging countries, but across all currencies.
Money and personal finances services should always be transparent, instant, agile and simple. Thanks to Fintech, this is finally starting to happen – and it is fascinating to watch as every tiny breakthrough contributes to a snowball effect, getting bigger and bigger as it completes every revolution, or virtuous circle, of movement and development.