August 14, 2017
As with any economic recovery, there are always some industries that march ahead, driving innovation and jobs growth. While craft beer space is definitely brewing some serious success stories, it and almost every other industry, pale in comparison to FinTech. Before 2010, few of us had ever heard of financial technology and, apart from CIOs and CTOs, even less of us had any appreciation for its application in consumer facing financial services. To claim there has been a FinTech revolution is no understatement. In less than a decade, online and application based banking have become the norm across the globe. Between the UK, Ireland and the US, its estimated that there are more than 5,000 FinTech companies. Add Asia to the mix and that number rises above 8,000. Meanwhile, global VC investment in the space remains strong, rising by 11% to $17.4 billion in 2016 alone.
A perfect storm
To understand the dramatic success of FinTech we need to look back to 2008 and the economic downturn. Following the credit crisis, the banks were in a state of major flux. Balancing loan books, adjusting to the stack new financial services regulations and a massive PR backlash, created a perfect storm that saw financial services innovation grind almost to a complete halt.
At the same time however, technology continued to press ahead. Smart devices got smarter, high speed broadband became more widespread, and adoption of mobile technology became more acceptable.
Unhindered by the regulatory red tape, legacy software and bureaucracy of financial services incumbents, FinTech startups pressed ahead, creating flexible business models and providing a more efficient, user friendly experience to their clients. The strong market adoption made the banks – and regulators – sit up and take notice.
Has FinTech reached its peak
Back to the present and the question tech professionals and venture capitalists are asking is ‘has FinTech reached its peak?’ The answer is an emphatic ‘NO!’ What we are seeing is an evolution and maturing of the market.
The scope of FinTech is so wide, reaching across payments, lending, currency exchange, stock markets, and so forth, that subsectors are now beginning to emerge. WealthTech, RegTech (regulatory technology) and InsurTech (insurance technology), while falling within the FinTech pool, are all carving out a strong reputation for themselves.
The industry certainly isn’t without its challenges. The swathes of start-ups vying for investment capital, the pressures financial services regulation, such as PSD2 and 4MLD, and the limited talent pool are sure to make it a much more competitive landscape. But that’s not necessarily a bad thing. Tighter regulation means greater protection for customers, as well as a legitimising of FinTech; while greater competition should translate into ever more innovative products and services.
Welcome to FinTech 2.0
Indeed, we are already starting to see this. Where tech initially enabled FinTech start-ups to compete (at a relatively small level compared to the banks), now they are becoming serious contenders and may soon replace traditional banking as we know it. Examples are easy to come by. CurrencyFair and TransferWise have revolutionised currency exchange, offering near market rates. While the likes of Monzo and Revolut, who initially offered just one small element of banking, are now expanding their product and service offerings that are far more competitive and user friendly than bricks and mortar retail banks.
The other big driver for FinTech 2.0 is Cryptocurrencies. Blockchain – the foundation for the much talked about Bitcoin – has the potential to completely do away with physical money and wipe out money laundering. While there is still some way to go in terms of building trust and standardising how its federated.
If the last decade is anything to go by, it is clear that consumers are increasingly willing to try and adopt new financial services tools if they can prove themselves to be of value. FinTech has a long way to go before it reaches its peak.
John MacHale is Consulting Director at NashTech Ireland.