New opportunities through
disrupting finance

New opportunities through disrupting finance

As innovations transform various industries new business models arise. With the appearance of 5G, Internet of Things (IoT), Industry 4.0, Blockchain and other new technologies, this trend is set to continue well into the future.

riginally, the term ‘FinTech’ was used to describe t echnology that was used by consumer and trade financial institutions to manage their back-end, but today, it refers to a broad range of developments in the financial services sector. When internet banking and online shopping first made their appearance some twenty years ago, a significant number of critics were convinced that technology and trust issues were too significant to overcome and that these innovations would never be adopted on a large scale. As we can see, these predictions turned out to be entirely wrong.

Consumers are used to fast, accessible online experiences and have come to expect this from financial services providers. Banks and businesses, on the other hand, can benefit from the vast efficiency improvements that new payment, lending, transaction, analytics and automation services available today.

Countless ‘traditional’ banking processes have already been reshaped and enhanced through technology. Innovation has revolutionized trading and banking processes, giving rise to new developments such as peer-to-peer money lending, mobile wallets and crypto-currencies such as bitcoin. The next step will be widespread adoption of technologies such machine learning and data-driven marketing. Smart data predictive analytics and AI are likely to be key areas of focus for many investors. According to a report from Santander, IoT can have an impact on risk management and pricing, understanding customer needs, streamlining contractual processes, or trade finance underwriting. BI Intelligence has also forecast that robo-advisors - digital platforms that provide automated, algorithm-driven financial planning services with little or no human supervision - will manage $8 trillion in global assets by 2020.

Benefits and infrastructure requirements

Besides direct user advantages, FinTech brings indirect benefits in areas such as job creation and increased accessibility to financial services. In its relatively brief history, it has delivered new jobs, contributed to economies, stimulated competition and enhanced productivity across various economies and markets. New technologies and approaches are also making financial services accessible in developing regions, helping small businesses grow.

Key developments driving the vast uptake of FinTech-based solutions include mobile computing, from smartphones to hand-held payment devices, and digitalization.

These developments have marked consequences for network technology. Security, uninterrupted uptime, redundant energy, low latency wireless bandwidth availability and a state-of-the-art wired backbone have all become essential. After all, without these elements, none of the current and upcoming FinTech applications and services will work reliably. As there are still many legacy mainframe systems around in the finance world, there may also be some updating to take care of in order to ensure FinTech can realize its full potential across all regions and market sectors.

In the US the top ten banks (by assets under management) have participated in 72 FinTech investment rounds totalling $3.6B since 2012.

New partnership models

We see traditional banks continuously rethink their service offerings and strategies in order to compete with the startups and smart service providers that are entering the consumer and business markets.

Recent IDC research indicates that approximately a quarter of all major banks see FinTech firms as potential acquisitions. Another 35 % indicated they would be open to collaborating with FinTech companies.

According to former Barclays Plc CEO Antony Jenkins, banks could become obsolete in the next 15 years as a result of the rise of new FinTech companies. Perhaps unsurprisingly, banks are actively investing in private FinTech companies. In the US the top ten banks (by assets under management) have participated in 72 FinTech investment rounds totalling $3.6B since 2012. The three most active Fitch investors are Citi, Goldman Sachs, and JP Morgan Chase.

All of the top ten banks are investing in blockchain technology. This offers a transparent, decentralized and secure method for tracking the exchange of assets and (financial) value, making it highly suitable for payment and transaction recording.

Increasing investments and continued growth

According to BI Intelligence, global funding for FinTech continues to grow. Worldwide FinTech funding, which totalled $19 bn over the full year 2015, had already hit $15 bn by mid-August 2016. The US, Europe and Asia-Pacific attracted the highest level of FinTech investment. Last year, Ant Financial, the digital payments arm of China’s Alibaba, $4.5 bn in a single funding round.

According to KPMG International’s Q1 2017 Pulse of FinTech report, corporations and corporate venture arms continue to participate in Venture Capital financing at an elevated level, with 39 completed rounds reaching $1.2 bn in VC invested in the first quarter of 2017. In Europe, the highest level in years was reached in this period ($610 m). Throughout the remainder of 2017, FinTech investment should continue to grow.