Shift and Opportunities in FinTech

FinTechs will innovate and evolve further this year as they continue to compete with traditional banks and/or negotiate for trade in the world’s $25 trillion financial services market.

Global venture investment in FinTech grew by 11 percent to $17.4 billion last year, and many analysts expect another healthy run in 2017.

“The great collaboration between FinTechs and financial institutions is set to continue into 2017,” predicts Lawrence Wintermeyer in Forbes. “Institutions and corporate venture capital funds may give venture investors a run for their money in the spirit of ‘coopetition’ that is FinTech.”

Factors driving FinTech transformation? On news site n>genuity journal, Sean Banks points to several factors: strong demand; the ripe-for-disruption technology at traditional banks; the increasing digitization of financial products; the opportunity for optimized, cross-industry/hybrid business models; a spectrum of facilitating technologies (mobile, cloud, networks, analytics, etc.); and more realistic expectations from entrepreneurs.

Other online analysts predict the following:

  • Greater data intelligence: FinTechs will find new ways to analyze the massive amounts of IoT data, identifying patterns and insights to use in driving decisions, informing product development and better identifying customer needs.
  • More data aggregation: In response to consumer demand, organizations are installing systems that automatically draw together information from disparate sources and accounts, including competitors. The goal: Comprehensive overviews of each customer’s finances. Typical sources include bank, credit card and investment accounts, with data collected via screen capture or direct computer connections. The best platforms recognize, categorize and enrich such data, allowing for efficiencies in lending, wealth management, personal finance management and small business management.
  • Greater innovation: The ability to devise new solutions that cater to customer needs is rapidly becoming a competitive advantage. That’s probably why 29 percent of respondents in a recent PwC banking industry survey cited “research, development and innovation” as investment priorities. Change can be challenging to traditional organizations attached to data silos and outdated back-end software, but building anew is much more efficient than renovation, and banks are capitalizing by offering new, breakthrough products while capitalizing on their history of trust and security.
  • More partnerships and acquisitions: Analysts foresee more collaborations and/or mergers between FinTechs and traditional banks, as each seeks to capitalize on the other’s advantages. For example, some banks are diversifying customer bases by buying loans from P2P lenders or co-branding products with FinTechs. A study last year found six in 10 banks worldwide are open to such partnerships, and in many cases the startups need the capital to survive. “In the face of additional regulations and the costs they imply, smaller players will likely have to merge with others in the industry to mitigate these expenses and compete against the larger platforms, predicts Haskell Garfinkel of PwC.

Some analysts are bearish on 2017 investments; for example, Banks believes a slowdown is imminent, though thinks longtime VC investors will continue to seek out early-stage FinTechs. Others are more enthusiastic.

“While we don’t know exactly what’s going to happen, 2017 promises to be a big year in finance, especially for FinTech,” advises David Klein on “Companies once considered startups will come into their own as companies. The promise of FinTech will move from potential to palpable, perceivable to present.”

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