Six fintech trends to look out for in 2018

Six fintech trends to look out for in 2018

Whither startups?

Startups put together by neophytes in cramped basements are probably not going to be the exciting stories in 2018. Could it be about consolidation around companies that have been around for three years or more and have achieved scale? Are the investors likely to come from banks or ecosystem players like Ant Financial instead of traditional sources of startup funding? Banks seem to be more sure of themselves. They still have legacy cost structures but are dismantling them rapidly. Innovation could come as much from within as from outside.

Banking on digital?

This is an interesting one. Easy to get people to sign up for a digital bank account. But for those who’ve toiled in the trenches of customer lifecycle management, getting people to trust you with their money is not the same as getting them to use a chat app or a telco brand. Is it that the handful of digital bank players which are led and/or advised by banking and payment practitioners are more likely to succeed than the next cool looking app linked to a prepaid card?

Banks are building substantial digital banking business models that are premised on a reinvention of the model from the ground up. Automation of backroom operations, AI-based lifecycle management and credit scoring, KYC based on biometrics and integration with national ID databases, blockchain based reconciliation and validation. And of course, the cool looking front-end app and web interfaces.

Does it look like the odds are that traditional banks going truly digital will see more traction and success in 2018 versus neo-bank disruptors?

Will it pay to go cashless?

Yes, of course. But even in the more advanced economies of Western Europe, cash still accounts for over half of payments (Nordic countries apart). This is despite overwhelming evidence that the cost of accepting cash is roughly twice that of accepting electronic payments (Survey on Merchants’ Costs of Processing Cash and Card Payments, European Commission 2015).

It does not help that attempts to take cash out of the system have been via some not-so-convincing user experiences. The Reserve Bank of Australia reports indicate that mobile device-based contactless payments are declining versus plain vanilla contactless cards. On occasion, many of us have fiddled around with our phones at grocery checkouts and petrol pumps to make payments. And then there are payments based on QR code, sound, biometrics. Based on these trends, does it increasingly appear that card-based form factors including contactless and location based payments, like the Amazon Go experience are more likely to succeed?

Lending credibility to startups?

No doubt, there are brilliant new players in Lending and Crowdfunding. A couple have been featured in this column. Excellent value propositions and consumer experience. The challenge is two-fold – awareness and trust. There are companies that are built on solid propositions and are well governed by excellent central banking regimes. However, scale is an ongoing challenge. Perhaps the market will develop as a number of small lending startups, each with its niche segments. These will consolidate over time, similarly to the path that banking has taken in some parts of the world.

Will traditional banks increasingly lend credibility to startups as is happening already or will the ecosystem players like Facebook and WeChat become alternate sources of consumer credit? Are you likely to borrow from either of them for a new car or even a house?

Will machines personally manage your finances?

It depends. Would it boil down to which set of algorithms is better? One entity’s gain is another one’s loss. Therefore how do we as individuals decide which machine is better to trust? As long as there are human factor-based inefficiencies i.e. operational as well as intellectual, the vision of logic-driven algorithms is attractive. Take the human factor out and will we end-up with a bunch of machines playing digital chess with our hard-earned money? Is that a possible scenario? Or are there enough checks and balances in the system? What do you think?

Will customers relate to machine management?

How many of us have got frustrated with Chatbots that get into really odd conversations – “I do not understand that word. It seems like you are getting angry. May I help you?” Some of the bots out there are merely today’s version of Interactive Voice Response trees. Combined with well analysed data, these could be really powerful tools. Despite the promises of efficiency and singularity, it just seems so much better to have a real human voice at the other end of the line or chat. Inefficiencies, mistakes and all. Somehow, there is a species-level familiarity.

Neo Capital Holds 2018 Finance Summit to Discuss Worldwide Investment Trends

Neo Capital Holds 2018 Finance Summit to Discuss Worldwide Investment Trends

Thomas Sargent Spoke at Neo Finance Summit

At the summit, Thomas Sargent gave a keynote speech titled “How Do Artificial Intelligence and Blockchain Create New Opportunities and Challenges”, and stated repeatedly that artificial intelligence (AI) and blockchain would be promising in the future. According to him, blockchain is a reliable technique for the financial system, since it is a very stable system that is not randomly formed, but based on all the previous e-signatures created. It provides good technical support for the overall financial system, and is an exciting technology for investors. “China currently is a gathering place for talented people, especially young people proficient in statistics and computers. I believe that AI will gain a foothold and achieve integrated development in different companies and organizations,” Sargent said.

Regarding the issue of how to do well in asset allocation according to the economic trends in 2018, Fan Gang claimed: “Globalization won’t stop; foreign exchange risks should arouse attention while Chinese enterprises are going global, and so is personal capital. In the long term, exchange controls will be loosened step by step, and the exchange rate will fluctuate greatly.”Fan Gang continued: “As for asset allocation, our focus shouldn’t be on the trends of the RMB exchange rate, but on other currencies. Only in this way can our market develop better in a more open way. As it will definitely be more open in future, it is suggested to look at asset allocation from a global perspective.”

Regarding investment opportunities in 2018, Qiu Sisheng, the chief economist at Neo Capital and Vice President of Neo New Wealth, pointed out that the coming year would be the best time for China. Wealth would be redistributed in the next five years, not in the real estate market, but rather in the equity market. “It has been said that Chinese real estate market will no longer be the place for wealth creation, while the equity market will be. Why? When urbanization attains a certain height, real estate will no longer bring about high profits, but equity will still be vibrant, so equity allocation will be very important in the future,” Qiu Sisheng said.

In recent years, driven by the real economy and financial markets, the number of high-net-worth individuals has been increasing in China year by year, bringing about enormous demand for wealth management. In addition, according to market data, an increasing number of high-net-worth individuals that usually make big investments are making decisions with advice from investment institutions. Over 70% of the investors that make investments of over 3 million yuan cooperate with professional institutions. As their demands are increasingly diversified and integrated, high-net-worth individuals are seeking increasingly professional financial services. According to Qiu Sisheng, professional institutions will surely cut a conspicuous figure in China’s wealth market. Especially as high-end investors put forward diversified, integrated and individualized demands for investment, third-party wealth management organizations that aim to meet customers’ financial demands have a brilliant future.

Need a global standard for APIs

Need a global standard for APIs

Change is needed
However, before banks even think of opening up their systems to newcomers, they need to first untangle their old and inefficient infrastructure and streamline their core banking processes. Each API should then be designed to sync up with the core architecture.

The problem at the moment is that every bank is defining its own set of APIs, thereby hampering connectivity, easy integration and openness, which sort of defeats the purpose. There is currently no universally adopted reference model or taxonomy to lay out clear standard definitions for all the various banking business functions. Without this, it’s almost impossible for banks to visualise the different information flows within all the banking capabilities within their model, let alone how these are connected and which should be taken up for API enablement.

Need-a-global-standard-for-APIs-2Following on from this conversation, banks will then also need to decide whether to keep these various business capabilities in-house, or simply consume them off the cloud as and when required.

Without clear sight of what they have in play at the moment, how can they possibly move ahead? A global standard and model for API development will be crucial in taking this innovation forward and allowing banks to realise their full potential.

A global agenda
PSD2 is a European directive, though I hope that it will be the prompt that the international banking arena needs to start really looking at these challenges on a global scale, and in earnest. Rather than waiting to see whether the regulation itself travels beyond Europe, banks outside of this jurisdiction should address the opportunities presented by open APIs today. Regulatory push apart, there are strong business compulsions for bringing about standardisation and interoperability among APIs en route to open banking.

Aside from the ‘building block’ approach to innovation that this technology affords, there is a huge opportunity for banks to start embracing partners from overseas. The problem of tangled and complex systems through years of layering on technology products is by no means limited to Europe. This issue is particularly prevalent for Islamic banks for instance, which have traditionally developed tailored, in-house banking technology systems to ensure they comply with Shar’iah, Islamic legal code.