Reflecting upon the past year, and looking forward into 2020
Last January, the FinTech team at KAE predicted the key trends that we thought would drive the advancement of the industry in 2019. Last year was full of significant developments from players all across the world and in many different sub-sectors, but we thought it was time for us to hold our predictions up to the microscope and see how accurate we were.
Incumbents catching up
- Prediction: Incumbents will improve their offerings in 2019 in an attempt to match, or even exceed, the experience offered by their FinTech counterparts and further enhance the pace of innovation in financial services
- Reality: The payments industry saw several mergers and acquisitions around payment processors, for example, Fiserv acquiring First Data, enabling the traditional players to expand their product offerings without having to reinvent the wheel. Meanwhile, in banking, established players tested their own digital banking solutions to compete with the rise of digital-only banks such as Monzo and Revolut. We saw Natwest launching its digital challenger Bó as well as its digital business bank Mettle and HSBC launching, Kinetic, its app-only business bank, to mention a few. Whether via M&A activity or through developing solutions to rival FinTech competitors, 2019 saw a firm response to the momentum of FinTechs. This year, we can expect collaborations between FinTechs and corporations to grow asbanks turn to FinTechs to fill the gaps in their offerings, ultimately giving a much richer proposition to their customers.
- Prediction: 2019 will be the official start of open banking; Europe’s PSD2 Regulatory Framework will come into force with several other regions waiting to follow suit.
- Reality: Implementation was found to be more challenging in Europe and in countries such as Australia were deadlines were pushed back in order to give banks more time to prepare amid security concerns. Nevertheless, players including Lloyds and Tink both made moves to enable players across Europe to take advantage of open baking functionality. We would predict that we will see the API marketplace model grow. A good success example of this is Starling where 3rd party developers are free to integrate their own products into Starling’s marketplace, ultimately allowing its customers to use all integrated products through their Starling app. Open Banking has unquestionably opened a multitude of opportunities for connecting individuals and companies to banking data, and the way in which large organisations are transforming themselves to compete with new entrants will continue to be an area to watch in 2020.
FinTechs go global
- Prediction: 2019 will be the year that more established FinTechs will prioritise expanding globally in pursuit of growth
- Reality: The market saw various expansion developments, including, Revolut and Monzo expanding to the U.S., Klarna expanding in EMEA and Alipay setting its sights on Europe. Additionally, Visa’s FinTech Fast Track Program hit a milestone as its expansion into the U.S. established the programme as totally global. Despite the fact that FinTechs have indeed become more global, domestic markets remain the chief source of revenue. For example, 70% of Ant Financial’s Alipay users are based in China.
Gearing towards a TechFin future?
- Prediction: 2019 could be the year when technology giants of the likes of GAFA (Google, Apple, Facebook, Amazon) really start to make a mark on the financial services industry.
- Reality: Some of the largest technology companies have been highly active in the financial services arena; Apple launched its credit card with Goldman Sachs and Facebook announced its controversial cryptocurrency payment project (Libra) last year. On the other hand, we are yet to see significant product launches outside of payment solutions, with many of the current examples using a financial incumbent as an intermediary to bypass additional financial regulation. All things considered, the question of “How far into financial services do technology giants want to go?” remains unanswered, at least for now.
Blockchain’s reality check
- Prediction: 2019will likely to be the year when even the strongest Blockchain enthusiasts concede that the technology might not be the solution for everything that needs improving in the industry.
- Reality: Blockchain still has not revolutionised the industry. 2019 saw a decrease in funding from the previous year for the first time since 2012, though this is more than offset by the vast growth between 2016-17. Despite the 2019 investment slump, many industry experts are still feeling bullish about Blockchain’s prospects in the coming years; Blockchain solution spending was expected to increase by 80% in 2019 based on H1 data, while the forecast for 2018-2023 suggests compound annual growth above 60%.
But do the numbers correspond to the reality? For many, the real-world applications of Blockchain are still equivalent to the boom and bust of cryptocurrencies. The real benefits of seamless cross border transactions and traceable supply chains that eradicate fraudulent activities are still yet to establish themselves. 2019 was a mixed year for Blockchain but it seems all hope is not lost yet.
The battle for security
- Prediction: Automated solutions addressing security challenges are likely to attract significant attention in 2019 as the battle between customer experience and trust persists.
- Reality: With security and fraud prevention top of the list, payment processors were, as predicted, actively working to prevent and minimise the occurrence of fraud. There has been a rise in the number of significant trials around the use of biometric security technology as it can be used to process an individual’s physical traits to authenticate transactions with a high degree of success. Push payments fraud and other more intricate forms are still endemic, but with the rapid growth and enhancement of AI to detect and prevent suspicious transactions, 2020 may be the year that the financial industry finally takes control of fraud.