2016 was a very tumultuous year for fintech, starting off with a crash in the lending sector which took me by surprise. But fintech ended the year on a high note with a stock market rally in the banking sector caused by the Trump election. I think 2017 will be even more exciting with hopefully more ups than downs – and plenty of surprises.
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Sonny Singh, CCO, BitPay
Thanks to the recent rise in the stock market for the financial sector, I think we will see a lot of acquisitions. Large banks will finally stop trying to make mobile wallets that no one uses and start making acquisitions. I also expect the IPO window to be in full swing as fintech companies will decide between going IPO or being acquired. It should be a great year, and it's started off with a bang when the price of Bitcoin hit $1,000 on the first day of 2017.
Here are my top 10 predictions for 2017:
1. Banks will become more aggressive
The Trump presidency will allow banks to start getting more aggressive and leverage their inflated stock price and start acquiring new companies. For context, JPMorgan has seen an increase in market cap of almost $30B since the Trump election and could purchase Stripe, OnDeck Capital, Square, and Wealthfront combined for around $15B.
- a). Banks will turn to acquisition over competition
The battle between banks and startups will end as banks will decide that it's better to buy than build their own products. In the lending space, I could see Goldman Sachs purchasing Lending Club or Prosper to complement their Marcus lending platform. In personal finance, I would expect large brokerages like Charles Schwab or E-Trade to acquire companies like Robinhood, Wealthfront or Motif Investing. In the insurance space, traditional insurance companies like State Farm or Geico would be interested in startups like Metromile or EverQuote.
2. The tech giants will enter fintech
Tech companies will finally start to enter fintech in a big way. I expect Amazon, Google, Facebook, and Microsoft along with Chinese tech companies like Baidu, Tencent, and Alibaba to purchase fintech companies. Google is already an investor in OnDeck Capital, Robinhood and Gusto (formerly ZenPayroll), so those could be prime targets. Lending marketplaces would make great acquisitions because of their high customer acquisition costs. Lending sites spend a lot of money on acquiring new customers, and companies like Google and Amazon already have large customer bases they could leverage.
3. Fintech leaders will reach IPO stage
The payment processing company Adyen will have one of the most successful IPOs in 2017. Over the last couple years, Adyen’s valuation grew in accordance with their revenue, so all their financials match up to that of a public company. This is what Wall Street analysts are looking for. Other IPO candidates include Ant Financial (owner of Alipay), SoFi, Stripe, and Credit Karma. However, while there will be a lot of IPO’s, many of them will go public at a valuation less than their last round, similar to Square. I think Stripe will actually delay their IPO because their financials won’t justify their recent $9b valuation.
4. The Blockchain hype will end
Blockchain hype will start to fade as banks realize that it will be several years before their blockchain projects can go live. A lot of blockchain startups will struggle to raise new funding and will fold. The R3 banking consortium will also make little progress this year. There will be some successful blockchain rollouts, but they won’t be in the financial sector. I expect to see some successful product launches in other sectors like supply chain or biotech.
5. Bitcoin will find its long-term footing
Bitcoin will become cool again and is officially here to stay. Bitcoin will continue to grow as it's slowly becoming accepted as a store of value as well as an important currency for international transactions. Recent currency issues in China, India, and Venezuela have raised brand awareness internationally.
The launch of the Gemini ETF will open up bitcoin trading to mainstream traders, family offices, and hedge funds in the USA. Other digital currencies will fail in gaining any significant market share as all the focus will be on bitcoin.
6. Mobile Payments will continue to grow internationally while still struggling in the USA
Mobile wallets like Alipay, Paytm, WeChat, M-Pesa will continue to expand their user reach internationally and add more functionality. In the US, the public still hasn’t showed much interest for mobile wallets or in having their watches or wearables make payments. Apple Pay, Google Wallet, Chase Pay, etc have all struggled to reach critical adoption in the US market, and US consumers are quite comfortable swiping their credit cards.
However, the recent roll out of chip and pin could give mobile payments an unexpected boost. As chip and pin cards add friction to the checkout process, consumers may start trying payment options like Apple Pay as easier and faster alternatives.
7. Artificial intelligence (AI) will become the new buzzword in fintech
2017 will be the year of AI, machine learning, and chatbots as financial institutions will rush to create AI labs. It will be very similar to all the hype that was created by blockchain last year when all the banks created blockchain labs. Robo-advisors started the trend. Now look for banks to leverage AI for investment analysis, consumer behavior patterns, and customer service. Banks opening up their APIs will be the norm, which will benefit companies like Yodlee and Plaid. While tech companies like Google and Amazon will go live with some interesting AI products, I don’t think the financial institutions will get anything out of their labs and produce anything meaningful besides getting Amazon Alexa to tell users stock prices.
8. Fintech companies will take on real estate
Real estate will be the hot new space in 2017. The current process of purchasing a house is completely outdated and needs to be redesigned. Startups like Opendoor are making it easier to sell your house, while Lending Home and Point are both making it easier to get loans. Electronic signature companies like DocuSign need to be adopted in the signature process as soon as possible. Real estate lending marketplaces will continue to grow, but several of the smaller marketplaces will find it hard to reach critical mass and will struggle to raise new funding. This will lead venture capitalists to replace the tech founders with real estate executives who understand lending and regulations.
9. We'll see a venture capital explosion in fintech
Venture capital investing in fintech will increase dramatically as acquisitions start happening. 2016 was a slow year for venture capital in general, but I expect fintech to emerge once again as one of the leading destinations for venture capital. Corporate VCs will continue to be more active, and more fintech-focused VC firms will continue to launch. Traditional VCs will start hiring fintech specialists to compete with fintech-focused VC firms, as was evident when Andreessen Horowitz and Trinity Ventures both hired fintech specialists.
10. Square will be acquired by Amazon
Square has built a great brand and customer base but will struggle to obtain the profit margins that Wall Street is looking for. Payment processing is a commodity business, and Square’s high-margin loan business is still too small to make its stock move much higher. Google will take a serious look at acquiring Square while Visa won’t be able to move fast enough to beat out Amazon. AliPay might also take a good look at Square.
Summary
2017 should be a very interesting year for fintech as Donald Trump takes office. I’m not sure which of my predictions will be right, but I am sure that the traditional financial landscape is changing as banks start to embrace new technologies. I was correct last year for around half of my predictions, including when I predicted that bitcoin would hit a high of $1,000 (well, I was actually off by one day). Unfortunately, I was wrong on several others, but being wrong is what makes predictions fun. I can’t wait to watch all the excitement in 2017.
Sonny is the Chief Commercial Officer of BitPay, the largest processor of bitcoin in the world. Previously, he was the VP of Business Development at Jumio. Sonny is also an adviser to and investor in several VC funds and startups including Lumia Capital, Getaround, EstateAssist (acquired by DocuSign), Civic Technologies, TubeMogul (IPO), Narativ, etc.
