FINTECH DIGEST: Global Fintech Investing Trends
We are now over a decade into the third era of FinTech innovation which rose out of the fallout from the 2008 global financial crisis and the dawn of the smartphone. Since those times, the fintech industry has evolved a great deal over the years and its ecosystem continued to rapidly mature by reaching new heights in funding over the course of 2018 and hitting $32.6 billion in value. With all-time high amounts of investment flowing into the sector again, the innovation train shows no signs of slowing. Big developments that range from the early stages of open banking, more regulatory clarity and AI and blockchain maturation, this surely looks to be another beneficial era for FinTech.
Several key players are moving into high gear by bridging the gap between incumbents, technology, and ever-increasing customer expectations. Constantly launching new products, diversifying technology development, and earning in huge investments. However, in spite all of this, the sector has rounded a curve and started to branch off in some interesting new directions in recent years.
So, what can we expect next?
Investing will become more selective by embracing bigger but fewer deals.
Deal sizes are expected to continue to grow in 2019, as industry focus on FinTech projects coming from teams with a proven track-record and with the potential for a long-term investment, in an effort to reduce risk.
Venture Capital funding for the sector grows year by year but investors are more selective, leading them to spend more money on fewer deals. This tendency has proven correct from recent years reaching the investment top of $39.57 billion on 1,707 deals in 2018, from $13 billion via 3,813 deals in 2017 and starting with $17 billion invested on 5,223 deals in 2016.
This trend is marked by a general need for continued innovation and a true transition from more traditional finance services, which leads us to our next point.
Differentiated projects are the most attractive to investors
The majority of companies that’ve managed to receive capital investments mostly operate in credit sectors, tax, insurance, payments, lending, banking, and personal finance. With this, the quality bar for funding gets raised, making it harder for small players looking to replicate on past projects and draw the attention of investors. Using the top-notch design principles and providing great user experiences is not enough. Customers and investors need more reasons to switch to new market offers.
No longer mere catchwords, “Digital first” and “mobile ready” have become necessary edicts for FinTech companies, stating the end-user preferred method of interaction with service providers, forcing fintech providers to offer novel and strong solutions that make them stand out and proposing more attractive business plans. Blockchain integration is a direction strongly embraced by the industry with AI development and maturation, along leverage trading in cryptocurrency to converge in to next-gen lending and borrowing decentralized platforms. Mobile banking and automated advisors tailored to “on-the-go” millennials who are slowly moving away from traditional merchant accounts and into web-based payments.
Though all of these new exciting directions are starting to shape the future landscape, a large number of well-established FinTech companies have yet to develop a more sustainable model or find ways to gain larger profits to continuously attracting investments.
Blockchain dominance will continue unabated in FinTech.
Emergent technologies like blockchain and distributed ledger technology (DLT) keep gaining traction and increasing adoption rate. By early 2018, traditional venture capital investments in blockchain companies have exceeded the total for 2017. Additionally, the global blockchain market growth is projected to reach over $60 billion by 2024.
Blockchain’s growth and attractiveness for C-level executives, private equity and venture capital firms are due to an increasing reduction of infrastructure costs thanks to the automated nature of the technology. Blockchain can help the banking sector cut more than 30% of middle and back office costs. This means savings of $8 to $12 billion annually, since blockchain-based systems remove the costs of confirming transaction authenticity. This verification is effectively performed in chorus by every node- user on the distributed ledger system’s network. Reducing the need for regulatory entities and for intermediaries in stock trading, remittance services, digital payment, etc. – and getting rid of 45% annual economic crime rate this sector currently suffers.
But it’s not just cost and increased safety what drives blockchain dominance; its uses in the fintech sector are practically limitless, from cryptocurrency and financial transactions to automated contractual agreements.
To summarize, blockchain integration will save costs on finance reporting by 70% as a result of transparency, data quality and automated internal controls provided with a shared source of verified data. This enhanced transparency of transactional auditability on the blockchain, will shrink costs from 30 to 50% on product compliance level. Even when adopted by centralized operations, blockchain is projected to bring a 50% savings just by optimizing digital management and enabling secure inter-bank data sharing across. On a general business operation’s level this %50 cost reduction will positively affect the areas of clearance, middle office, settlement, trade support, and investigations since the need for reconciliation, confirmation and trade-break analysis is rendered null.
And coupled with Artificial Intelligence development and machine learning, blockchain will easily address new complex issues throughout the sector by improving customization, verified data availability, utility and operational effectiveness.
No matter how you look at it, exciting and promising times lay ahead for FinTech. Even with the added difficulty for startups and established project to stay afloat, the landscape and possibilities remain mostly positive for this sector. Also, these difficulties are inherited from the market’s expectations and needs. To stay afloat and be successful, these projects must embrace quality, differentiation, a long-term strategy and innovation if they want to be welcomed by investors.
There’s one company within the sector that takes this approach to heart and it’s currently working in a world changing project for the finance sector in general. A holding for a fintech consortium with a blockchain-based crowdsourcing ecosystem, coupled with a fully global stock exchange market and banking environment, all of it handled by a highly liquid new asset class of intrinsic value that bridges the gap between digital equities and fiat currency.
With projects like this one, the future is still very much a bright one for the FinTech sector and every investor with a visionary mindset, able to identify what makes such a company so special.