The future of Fintech

Financial technology has been the back office support function for bankers and traders. Venture capitalists have barely invested in the sector. The industry’s public companies have rarely been compared to the high-growth Silicon Valley broadcasters.

But things have changed dramatically. Over the past decade, private venture capital has exploded, along with the proportion of investment dollars going into fintech. Fintech has found its place in the innovation economy and has grown so much that it is increasingly difficult to differentiate hype from reality. For several years, chatbots and artificial intelligence, blockchain and cryptoassets, roboadvisors and neobanks, and many other digitised tokens have become buzzwords in the commercial media.

Large global banks have created corporate business arms and digital incubators, investing in start-ups, acquirers or copiers. Around the world, Eastern technology companies have launched premium messaging apps with hundreds of millions of users and integrated financial services, outpacing the potential of Western-controlled jurisdictions. US high-tech companies have also been looking deeply into ways to offer financial products without contacting the third regulatory railway.

Over the past decade, private venture capital has soared, along with the proportion of investment dollars going into fintech.
To make things more competitive, major shareholders such as JP Morgan Chase & Co, Goldman Sachs Group Inc, Banco Bilbao Vizcaya Argentaria, Banco Santander and others have launched new solutions for their product-based solutions.
Investors such as Softbank have invested billions of dollars in direct-to-consumer financial technology companies for the opportunity to serve the currently unprofitable Millennial customer.
Direct automation has created a lot of vertical competition between different industry sectors.
Technology companies are deteriorating financially and directing their billions of website visitors to partners and suppliers.
From product to consumer
Finance is much simpler than you might think. There are factories that manufacture products: banks with interest rate deposits or investment managers that create investment funds, or lenders and insurers that underwrite some of the customer’s risks with capital. Then there are the shops that sell the product: bank branches, financial advisors, insurance salesmen or loan officers.

Between these two extremes are complex value chains of people, balance sheets and software, intertwined by regulatory and industry habits. But at the end of the day, customers visit a shop and buy some financial products.

The impact of digitalisation
Digitalisation is happening all along the value chain. At the front office, consumer relationships are moving from physical conversations to mobile phones. Examples include European neobanks like Revolut, US roboadvisors like Betterment or Asian insurtechs like Ping An.

Gross automation is being implemented in the assessment, on-boarding and customer service process. More speculative interfaces use machine learning and natural language processing to generate conversation and speech, rather than allowing people to interact with a live agent.

This simple automation has led to intense vertical competition between various sectors of the industry as they seek to bundle and sell their services. The best digital lender now competes with the best digital payments app for the opportunity to offer the best digital bank account.

Direct-to-consumer fintech
Investors such as Softbank have invested billions of dollars in direct-to-consumer financial technology companies for the opportunity to serve the currently unprofitable Millennial customer.

Many mobile apps have millions of small accounts as customers. Traditional financial investors are sceptical that the economics of these companies can work over the long term and return capital.

Direct automation has generated a lot of vertical competition between different industry sectors. The best digital lender now competes with the best digital payments app for the opportunity to offer the best digital bank account.

 

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