2017 has been a strong year for fintech. Venture-backed funding climbed to $4 billion (£2.99 billion) across 278 deals in Q3 with deals rising for both Europe and North America. More consumers are also getting on board as the demand for cheaper, safer, and more convenient financial transactions increases.
With 2018 fast approaching, we take a look at the trends over the past year and what the new year will bring for the industry.
Challenger banks saw rapid development both in the UK and globally. Platforms for Artificial Intelligence also saw an increase such as for enhanced customer personalization in banking, AI-powered trading engines, and AI for security measures.
One of the most exciting trends was the continued growth of bitcoin and blockchain technology. The industry gained popularity with ICO’s, as well as new ways to apply the technology. The Bitcoin hard fork was called off, but the cryptocurrency was recently introduced on the futures market, quickly rising to $18,000 (£13,468).
blockchain will continue to grow
The blockchain boom can be compared to the Internet boom of the 1990’s. The industry has seen massive growth, especially over 2017. Although prices have been soaring lately for bitcoin, the future remains unpredictable.
Deutsche Bank recently issued a list of the 30 greatest risks markets face in 2018. Along with Brexit, bitcoin made the list. Chief Economist Torsten Slok warns that a crash could be in the near future for the cryptocurrency.
Despite dramatic price fluctuations, the rise and use of cryptocurrencies does not appear to be slowing down. Other cryptocurrencies have grown in popularity over 2017 such as Ethereum, Ripple, Dash, and Litecoin.
Along with new startups, the use of blockchain should only increase for larger financial institutions as greater security measures are implemented. 90% of payment companies are planning to incorporate blockchain technology in their services by 2020.
Increased fintech funding
Asia is proving to be the next major region for fintech growth. The second quarter of 2017 shows 5 investments of more than $50 million (£37.4 million) made to VC-backed FinTech companies in Asia.
VC firms will most likely invest in fintech companies that meet regulations and have strong success records. There will be key investment opportunities in 2018 for technology areas such as cyber security, robotics process automation, data analytics, etc. Asset and wealth management companies are also predicted to spend more in fintech technology.
AI on the rise
Due to the accuracy, efficiency, and lower costs of Artificial Intelligence, increased use of AI is in the fintech forecast for 2018. The application of AI has the ability to make various areas of the financial industry such as insurance, debt collection, regulatory, compliance, and fraud detection more stable and efficient.
For example, Mastercard is now using Decision Intelligence AI to analyze consumer account behavior to increase security. Credit cards with AI augmented chips should only continue to grow.
Other Fintech developments
anuary 2018 also brings the implementation of the EU Payment Services Directive (P2D2) and UK Competition and Markets Authority’s Open Banking Standard. What will this mean for the future of banks? Third parties will now have access to banks’ customer data through open API’s.
This change will mean that banks won’t have the monopoly on finances that they have had in the past. Challenger banks such as Monzo should do well in the new open banking system. The company is already transparent with their data. For example, Monzo exposed its API’s earlier this year.
However, consumer trust will first have to be built by new entrants in the financial services sector. According to a report by Accenture, 53% of consumers said ‘they will never change their existing banking habits and adopt open banking.’
Brexit has already had a negative impact on fintech development in the UK with major fintech companies such as TransferWise relocating elsewhere.
There are also major concerns that Brexit will harm collaboration for fintech in the UK. According to Marta Piekarska, director of ecosystems at Linux Foundation’s Hyperledger project, “We face a world where all of a sudden startups in the UK will not have an easy time collaborating with the outside world. And it poses a threat to London being that hub [of fintech] as it might not be as attractive as it used to be.”
UK’s fintech sector is worth £7 billion to the UK economy. The sector also employs 60,000 people so the need to innovate and determine the affects of Brexit is crucial. Brexit should not impact the applicability of P2D2.
From fluctuating bitcoin prices and a greater adoption of AI to new open banking regulations and the looming Brexit, 2017 brought new challenges and opportunities for the industry. With the fast pace that these changes are occurring, 2018 promises to be another eventful year for fintech.