Top 10 Fintech Trends and Predictions For 2017
“Fintech” has just made it into the online Oxford Dictionary in 2016. Suppose that’s a good merit to grade its popularity, especially within the startup community.
The fintech industry is already changing how we live and do business, and 2017 will bring even greater disruptions. Many of the fintech trends for 2017 are continuations of what has already begun in this industry, but, certainly, there will also be new technologies and new opportunities for fintech startups and for existing entrepreneurs to take advantage of. Here are 10 trends that experts see for fintech in 2017 and beyond.
1. Banking Automation Will Propel
Many say it all began with PayPal’s launch in 1998. The company operates a global online payment system of money transfers and was the first major alternative to paper methods. It is predicted that by the end of the fourth quarter, 2016, it will have moved $348 billion in 28 currencies and through 190+ countries. Also, during the 3rd quarter of this year, PayPal’s revenue hit $2.67 billion. The company, now spun off from eBay, is valued at close to $50 billion.
Of course, everyone will not be a PayPal. On the other hand, since the concept was introduced, large numbers of online banks and banking services have launched. They offer the consumer efficiency, lower costs, and greater speed. Further, in an increasingly global economy, online banking services solve the problem of getting money across borders, with currency exchanges being a part of the services. Thus, Sally can make a purchase from Omar in U.S. dollars, and Omar will receive the payment in his home currency.
But traditional banks are not “asleep at the wheel” over this. They are looking for financial software companies that can automate their services, in order to compete with online fintech banking enterprises. All of this will mean major changes for the traditional banking industry, not the least of which will be a potentially 30% decrease in banking employment over the next decade.
2. Investment And Financial Planning Services Are On The Rise
Traditionally, stock purchases were made through brokers who took a commission on every trade. Then, along came online trading services (e.g., E-Trade), and investors could make their own trades for much lower fees. The era of day-traders was born. And a great deal of money was lost by individuals who fashioned themselves knowledgeable but who did not have access to the data that the “big boys” had.
All of this has changed now. With big data technologies now publicly available, and robo-advisors to interpret and analyze that data, the world of investment trading has been essentially democratized. Essentially, robo-advisors will turn big data into meaningful data for the individual investor. And as Bernard Lee of HedgeSpa has stated, one of the most obvious fintech predictions for 2017 is that brokers and financial planners/advisors will be in far less demand. Big data financial services, provided by small, smart fintech companies will take a much larger share of the investment market in years to come.
Artificial Intelligence is clearly a part of big data technologies, and it will continue to become more and more sophisticated, as machines can analyze economic and financial patterns and make predictions about “winners” and “losers” in the markets and financial trends in general.
3. The Blockchain Will Remain “Hot”
One of the biggest problems with digital currency movement is the issue of “double-spending.” This is best described by an example. Sally sends an amount of digital currency to John. It is really just a line of code that represents the amount. John is then free to spend that amount, using a password to access it. The problem is that that line of code could be duplicated again by Sally and used to purchase something from Susan. The money has been “double-spent.”
In 2008, a presumably Japanese tech whiz came up with a solution, which lies in cryptography. He developed a system by which a piece of software was built on “public-key cryptography algorithms” and would keep track of every digital exchange of currency so that none could be duplicated. If Sally attempted to “double-spend,” the transaction would be blocked. The idea was adopted by Bitcoin, and anyone who wishes to trade in bitcoin must have the software to do so.
Other financial institutions have seen the value of a blockchain as more and more digital transactions occur within their enterprises. By using blockchain technology, they can continue to automate their services and allow their customers to make use of more expansive digital transactions.
In 2017 and beyond, fintech companies that develop increasingly sophisticated blockchain software will be in high demand.
4. Disruption of Legacy Software Providers
For the past several years, the discussion of the banking disruption of financial technology companies has centered on a “war” of sorts with banks. In fact, only about 20% of fintech startups are really in the business of disrupting banks. The other 80% are actually doing something else entirely. They are developing software that helps banks digitize their processes. As a result, banks can operate at less cost and provide better services to their customers.
The problem is that banks are overburdened by the legacy software that has been developed for them by giants such as IBM. And development, approval, implementation and training for new software can take years. The processes themselves are cumbersome too.
What fintech is doing for banking is not so much developing new products. It’s still the moving of money from one point the next. It’s still about making loans. The difference is in the processes and the customer experiences, which are infinitely improved.
Right now, fintech is serving customers in ways that banks cannot. As banks make the moves to change their architecture, using fintech vendors, they will retain their customers. The real disruption during 2017 and beyond will be to the legacy software developers who cannot supply the convenience and efficiency that fintech can.
5. Fintech Funding is Ripe
During the first quarter of 2016, fintech funding reached $5.3 billion. This amount represented a 67% increase over the same period last year. Obviously, fintech is a hot sector for venture capitalists. But as we finish out 2016, it appears that there is another emerging trend – crowdfunding.
Fintech thus has two relationships with crowdfunding. On the one hand, crowdfunding is a part of fintech sector, as it develops sites and software to assist other startups in obtaining the funding they need. Now, fintech startups are themselves looking for crowdfunding for their financing needs. The face of fintech investors will change in 2017 and beyond. And how those planning to enter crowdfunding as a business, here’s a detailed guide outlining how to build a platform like Kickstarter and the likes.
6. Consumer-Driven Products And Services For Less-Developed Countries
While people in the developed world have been accustomed to traditional banking for decades, people in the developing world have not. Fintech holds the same privileged position in these parts of the world that cell phone and Internet providers have.
Because the infrastructure of telephone and television lines was never built, people in developing countries have skipped over the transition to technology industry trends that developed societies have made and are still making. And in the area of fintech, this is just as true. Most of these populations have had no experience with brick and mortar banks and traditional banking activities. What they have are Internet connections and online banking services. The fintech share of this growing demographic can be substantial, particularly in the areas of paytech as they make purchases and pay their bills.
The financial technology company that can come up with the latest innovation software and/or app to provide banking and payment convenience for these populations will stand to garner lots of goodwill and loyalty. However, marketing such products will be tough and a lot of investment will go into educating the public and building up their trust in your solution.
During 2017, the growth of fintech opportunities will continue to increase relative to inclusion of this demographic.
7. More Advanced Security Management
Given data breaches in government departments, major retailers, and even some financial enterprises, security is a major concern and will definitely be a trend as we move into 2017.
With digital payment technologies and banking growing at the rates they now are, managing the security of billions of daily transactions will be a challenge indeed. Those companies that can develop solid security and collaborate with fintech enterprises will be in demand. And any fintech startup must have security as a major factor in its software development.
Ripple, named as one the hottest fintech startups in 2016 by Fortune, has already signed up Santander and UBS to test their newly developed secure protocol for cross-border payments using blockchain technology. The transactions can happen within seconds in this case and cost banks one-third less to process. In general, the blockchain technology is expected to get more traction in 2017 onward as a safer and cheaper solution for money transfers.
Nymi – an innovative authentication solution provider – has teamed up with TD Bank Group and Master Card and are now developing a new wearable solution that would authenticate payments using the user’s heart beat rate. The pilot test has proved to be successful and it’s curious to see whether this technology will head to the mass marker.
8. Rapid Mobile Expansion Into Investing
One of the biggest trends, according to Kerri Martinek of Scoutfin, will be in the development of mobile technology for investing and trading, for both professionals who are in the business and for individual investors/traders who want access to the data and analysis quickly, while they are on the go. These apps will be cheaper and will provide far more information than the older software that was primarily designed for desktops. Fintech apps that provide this capability and do it well, will see big revenue increases.
Here are few of them:
- Kensho promises to become the next finance answer machine for stock traders. This AI-powered app is capable of gathering and analyzing piles of Big Data to spit out actionable reports on different markets.
- Nutmeg is a rising UK wealth management app featuring intelligent portfolio management functionality now run by human advisors, yet expected to go “robo” next year.
- BUX app has build up a community of some 450,000 wannabe investors, who use this stock trading app to practice before investing any real assets.
9. Regulatory Activity
Governments are far behind the developments in financial technologies. While they have agencies that regulate banking and all other traditional financial transactions, they have not moved into regulatory action related to digital transactions as rigorously. This will change as we move through 2017, and fintech could be impacted. Take, for example, the new U.S. Department of Labor rule on fiduciary responsibility. It attempts to make financial advisors more accountable for the advice they give their clients, especially when that advice results in investment losses. At what point might they consider a piece of investment software to be advice from the owners of that software? No one is certain exactly how far-reaching this rule may be.
Reporting digital transactions that are, in some countries, considered to be taxable is another avenue not yet fully travelled. Digital transaction processors, such as PayPal, may be forced to require more detailed information from senders and receivers, so that taxing authorities have the information they need in order to determine if a transaction is taxable under their laws.
10. Mobile Payments Become Mainstream
This is not a new technology. Shopping cart payments, via use of one’s debit/credit cards or immediate ACH withdrawal from one’s bank account, have been standard procedures for quite a while. Many finance startups are involved in making mobile purchasing and banking, as well as the money transfer globally, more efficient and streamlined, by reducing the steps involved. Already we are seeing innovations such as fingerprints being attached to credit cards and bank accounts for purposes of making payments and purchases.
This technology holds a great deal of promise, even in security management, and the top finance innovators in this area stand to significantly increase their revenues over the next couple of years.
Do You Have an Idea?
The number of news surrounding fintech is growing daily. And it gives many creative individuals ideas about new and innovative products. Perhaps you are such a person. Sit down, draw out your ideas and let’s talk about how Romexsoft can develop that piece of software or app for you. Our team has lots of experience in fintech development, and we can probably have an MVP for you in a matter of a few weeks. So let’s talk!
Written by Romexsoft on December 13th, 2016