This time last year, FinTech was finally making its way onto the government agenda and into mainstream consciousness. Throughout 2015 it’s since been a regular topic of discussion in Osborne’s Budget Statements, we have a dedicated FinTech Envoy in the UK and the industry is estimated at a value in excess of $12 billion. With that in mind, what can we expect from the space this year?
Impact of interest rate rise
Analysts are continuing to deliberate over when the Bank of England will eventually raise interest rates and this has renewed focus this year, following the Fed’s decision to raise rates in December.
All the while rates have been held at a record low, high street banks have been lulled into a false sense of security. Until now they haven’t faced competition from alternative account providers in the truest sense of the word, as it hasn’t mattered too much where consumers’ money is held. However, with the introduction of a rate rise and renewed earning potential for stored funds, customers will start to truly shop around for their savings accounts for the first time since the financial crisis. This will provide a strong opportunity for alternative providers in this space to grow and thrive and competition in this sector will likely heat up in 2016 as a result.
With banks forced to bring their cost to serve down in order to compete with the favourable rates afforded by their streamlined FinTech counterparts, we can also expect to see traditional banks starting to consider ways to address their lumbering core legacy infrastructure to remain competitive. With this will come another wave of activity around blockchain technology. Until recently, blockchain was associated solely with Bitcoin. With the ecosystem finally getting to grips with the idea that this technology can be used to streamline the moving of money more generally, banks will start to consider how they can use this as a fast-paced platform on which to operate. We will consequently see a substantial ecosystem of app developers, systems houses, banks and start-ups making noise in this space. However, it will likely be just that – noise. Conversations will flow, but real moves towards relying on blockchain will not be realised in 2016.
The role of FinTech in the on-demand economy
With Uber heralded as the success story of 2015, there is little doubt that this year will see a host of new talent breaking out into the 'on-demand economy' – developing new services based on a business model that offers seamless user experience and maximum convenience. With this trend, we will also see a boost in demand for streamlined payments services. With expertise in customer experience and the peer-to-peer model, developers of on-demand services can create a streamlined in-app user experience. However, unless this is underpinned by robust and flexible payments technology that ensures each transaction is just as smooth and seamless, their service will not offer the on-demand experience promised to customers. Over the course of the next 12 months we can expect to see a number of partnerships across the on-demand and FinTech space as the two parties realise the benefits of working together.
The next wave of FinTech innovation: Boosted by the Internet of Things
The Internet of Things as a term has been discussed widely for the past two to three years. But with the technology and smart sensors increasing in sophistication, Gartner predicts that 2016 could be the year it finally takes off.
The Internet of Things in the truest sense of the word refers to devices that are empowered by vast amounts of data to ‘know’ what we require, before we have to ask them for it. The financial services sector, starting with insurance, capital markets and actuarial information, has always led the way in the collection and analysis of personal data – such as for KYC and compliance, which requires an understanding of customer habits in order to detect warning signs of unusual behaviour. FinTech providers will be looking at how they can maximise on this and more specifically how to monetise the use of that data this year.
Making 2016 a success
As technology becomes increasingly sophisticated, there are fresh opportunities arising for the FinTech sector in 2016. Despite this, there are many who will question whether the space is already becoming overcrowded – talk of a FinTech bubble has taken off this year and is unlikely to be put to rest in 2016. The truth is that, as with any market, only the strongest players will survive beyond the current boom we are experiencing. Smart FinTech enterprises will be looking at how they can embrace new developments in 2016 to ensure their offering maintains its relevance and demand in the New Year. Embracing existing infrastructure will be equally as significant.
Traditional banks may be slower to adapt than their younger counterparts, but their deep roots in the economy mean they are here for the long term. Uncovering opportunities to support banks to boost their tech and customer offerings will be key to making this year as successful as 2015 for the FinTech space.
Mike Laven, CEO Currency Cloud