The financial industry exploded in 2015, with fintech companies raking in an impressive $7.6 billion in investments – a considerable increase from $4.7 billion in 2014 and $1.5 billion in 2013.
All eyes are on fintech as we advance through 2016. We’re already seeing some exciting patterns emerging for the future – closer links between banks and alternative lenders and the push for open APIs, to name a few. Here is our pick of the top 10 fintech trends that entrepreneurs like you need to watch out for:
1. Blockchain is Not Going Anywhere
Last year was widely considered as the year of the blockchain app. “The blockchain infrastructure was reinforced in 2015, with strengthening involving mining, exchanges, wallets and processors. 2016 is about innovating on top of it,’ said Jay Reinemann, managing director of BBVA Ventures.
Therefore, further innovation is expected to take this rapidly evolving technology to a whole new level in 2016.
2015 was also the year when banks started to discover blockchain. In fact, the R3 consortium was established to bring together leading banks to collaborate on blockchain experiments. It is predicted that 2016 will see an institutional adoption of blockchain by banks.
2. Change in Traditional Banking
After initially dismissing the rise of fintech, banks have recently begun to leverage technology to improve processes, customer experience and security. There has been a convergence of banking and fintech, especially since both are evaluated on the same metrics by regulators, investors and consumers. This trend will continue in 2016, as the difference between traditional banking and fintech disruptors gets less distinct.
In fact, banks and online lenders are already partnering together. For example, JP Morgan Chase and OnDeck came together to offer small business loans. “Banks want to better serve their customers, as well as reach new customers they otherwise couldn’t with existing products and footprint. Online lenders benefit from banks bringing customers and capital to their platforms,” says Reinemann.
However, it won’t only be alternative lenders that will partner will banks.
Not just lending, but payments, insurance, data and wealth management will also see more collaborations.
3. Focus on Open APIs
API-based financial services are on the rise. In fact, APIs are the main reason that startups are able to build their products faster. Open APIs enable developers to build customized applications that cater to users across the board. They can be used by any developer who needs a quick and proven solution to perform a software operation.
As fintech startups continue to benefit from open APIs, banks are also waking up to the fact that offering an open API is the way to engage and retain their digital customers.
Xignite’s CEO Stephane Dubois says, “The use of APIs by today’s banks is becoming increasingly common as they help to drive speed and cost-effectiveness compared to traditional legacy systems.”
Banking institutions like Citigroup, BBVA Compass, Bank of America and Capital One have already acknowledged the benefits of opening internal systems for third-party developers. New banks such as Fidor bank are also reaping the benefits of open APIs.
We will see an increased push for building open APIs and making banks programmable in 2016. Has your fintech startup benefited from open APIs?
4. Rise of Insurtech
Inspite of bringing in huge revenues, the insurance industry fails to win the loyalty and trust of customers. Outdated services and lack of transparency in a world of smartphones are the primary reasons for this gap.
2015 saw the rise of a number of insurtech startups that tried to leverage technology in order to bring in a much-needed disruption in this industry. In 2015, there was awave of investments in insurance tech startups. Attempts were made to use technology to customize products, increase security and analyze individual customer behavior for better risk management.
The emergence of insurtech as the new frontier of fintech is going to further continue in 2016.
5. Mobile-centered Services
In 2015, the time we spent on mobile devices went up by 117% when compared to 2014. This means that any financial digital service will have to be centered around the smartphone in order to be successful today.
In the words of James Allgrove, head of UK growth at Stripe,
Moreover, the total mobile payment transactions are expected to reach $27.05 billion in 2016!
Mobile is the future of fintech! Are your fintech products or services centered around the smartphone?
6. Proliferation of Artificial Intelligence (AI) Programs
Robots and artificial intelligence (AI) programs have already begun to disrupt banking and the financial advisory services. Barclays believes that AI is the future of banking.. AI programs can reduce costs and enhance customer experience, while working alongside or instead of humans.
Robo-advisors, or fully-automated online investment platforms, are also disrupting the financial advisory services. Fintech startups such as Betterment and Wealthfront have attracted early investors with their robo-advising platforms. Leading banks, such as Deutsche Bank, have also launched their robo-advisor services.
In 2016, we will see a proliferation of AI programs, across all areas of financial services – from customer service to financial advising. Fintech startups that are dabbling in AI can expect to see increased investments.
7. Biometrics to Become Commonplace
Banks and financial institutions started seriously experimenting with biometrics only last year. For example, American financial provider USAA already offers three different biometric login options for its mobile customers.
In 2016, we have begun to see an increase in biometrics for authentication.
As the year progresses, you can expect more banks to adopt voice, fingerprint and facial recognition. It is predicted that one third of the largest U.S. banks will be using biometrics by the end of 2016.
8. Wearables Grab Attention
The demand for wearables such as smartwatches and smart fitness wristbands has escalated substantially over the last few years. In fact, many financial institutions have displayed a deep interest in wearable technology. Eighty-two percent of financial professionals believe that smartwatches will facilitate financial transactions in the future! What’s more, 72 percent of these professionals have wearable applications on their three-year road map.
9. Greater Financial Inclusion
PayPal’s Schulman says,
However, the reality is that 2.5 billion adults worldwide are excluded from traditional banking services. A large percentage of this population is in emerging markets.
Fintech allows financial services to percolate down to all income levels. As financial services get more accessible, the marketplace will expand simultaneously. In this year, tech innovations will increasingly foster financial inclusion on a worldwide scale.
10. Predictive Analytics Through Social Media
Twitter has proven to guide and help predict the stock market. We’ve seen how tweets can move stock prices. For example, Twitter’s stock plummeted nearly 20 percent after disappointing quarterly earnings were tweeted ahead of their expected release. On the other hand, Tesla’s shares jumped four percent when Elon Musk tweeted about a new product line.
A new industry is arising where companies use computer algorithms to automatically read and interpret tweets to try and predict the stock market. With the right algorithms in place, profitable investment strategies can be built. In the words of Gautham Sastri, president and CEO of iSentium, a social media analytics vendor, “Twitter is a big pipeline of emotion and we’re providing a snapshot.”
With around 85 percent of U.S. equity trades being executed by algorithms, the trend of predictive analysis through social media is only going to grow in 2016.
What other key trends will the financial technology industry see in 2016?
Have you checked out the VentureClash Entrepreneurship Podcast? We’re interviewing leading edge companies taking advantage of trends like these in the fintech, insurtech and digital health spaces. Find it on iTunes, Stitcher Radio and the VentureClash blog.