Finance Magnates editors have been busy with reviews of 2015 and their predictions for next year, and now it's time for the fintech section. In this edition, I provide my own thoughts gathered from covering the sector over the past year. A common link among many of the predictions is that...
Cyberfraud leads demand for mobile Payments – Pretty much every major eCommerce website has been hit with some sort of cyber hack and been the victim of database theft. The result is plenty of customer credit card information and user details floating around where they don't belong. One solution is dynamic card numbers where customer credit card numbers aren’t stored by the retailer. Both Samsung and Apple use these methods in their payment systems to provide more safety for transactions. Due to this advantage versus traditional card payments, it is predicted that retailers, both brick and mortar and online, are going to push mobile payment options for their customers.
Card networks lead mobile payments – Following on the payment theme, card networks will become more important players for mobile payments. Currently, mobile payments are fragmented, with systems such as Apple Pay, Samsung Pay and Android Pay either limited to specific devices or to specific countries. In contrast, anyone with a bank issued Visa or Mastercard can travel pretty much anywhere around the world and use that card. Therefore, we are predicting a universal mobile based payment service to also emerge led by card networks and banks that is device agnostic and that covers most of the globe.
Debit cards and digital banks represent the majority of new millennial bank accounts – Branchless, digital banks are slowly emerging as alternatives to larger traditional banks. Appealing to younger users, these banks connect with account holders using mobile apps and provide useful features and tools, such as personal finance advice. In place of credit cards, most digital banks provide debit cards that are connected to their accounts. For millennials, the digital model follows two major themes: staying off of credit and mobile first- these make the model attractive to this generation.
Crowdfunding backlash – Somewhere, somehow, a negative event is going to hit equity crowdfunding. It could be a hot startup that raised cash by stealing the funds and folding, or notable investors suing a platform for using aggressive marketing tactics to sell a campaign.
Bank-Tech to small banks is hot – Serving banks is expected to be a hot business in 2016 for technology providers supporting Tier 2 & 3 banks. Examples are solutions to help them digitalize their loan process, offer mobile payments and provide their customers with a modern web-based user experience. While larger firms are creating solutions in-house, many smaller banks are finding affordable solutions to license and more efficiently digitalize their business.
Consolidation and M&A – I expected this to occur in 2015, but M&A in the fintech sector was minimal. In 2016, we are again predicting to see deals take place. Expected sectors are in robo-advisory where massive assets under management are needed to operate a business with the 0.5% fees and below that are being charged. Therefore, smaller robo-advisory startups could be takeover targets as they struggle to survive. Also, the above mentioned bank solution providers will become attractive targets to larger technology firms that already serve the bank and investment sector.
Interest rates won’t affect marketplace lending – The Fed tipped us off that they expect to raise US interest rates 1% in 2016. For lenders, this affects their business. But, the changes aren’t expected to cause much Risk Management friction to lenders or decrease borrower demand.
