Our top 5 fintech predictions for 2019
10 de Enero, 2019
Tiempo estimado de lectura: 7 minutos
We saw considerable scaling in older corners of the fintech ecosystem, especially among neobanks in Europe, while new and emergent areas — including blockchain and distributed ledger technology (DLT) more broadly — have come to the fore
Meanwhile, an onslaught of regulation brought new challenges to the industry that it will continue to grapple with into the year ahead. Based on these developments, our proprietary research, and the trends we’ve seen intensifying as we head into the new year, here are our top five predictions for fintech in 2019:
– We will see a number UK marketplace lenders shut down as regulations tighten:
Marketplace lenders in the UK will likely face a particularly difficult year in 2019. The Financial Conduct Authority (FCA) published a proposal on regulatory changes earlier this year that would limit those who can invest in marketplace lending platforms to certified sophisticated, or high-net-worth investors, and restrict their investments to less than 10% of their net assets. There’s been some uncertainty in the UK marketplace lending space recently, with Lendyreaching out to the FCA with news that one of its biggest borrowers had threatened to sue the company, for example. Such issues are likely what prompted the FCA to take action, which, unsurprisingly, has been met with push back from the industry.
As the FCA enforces these rule changes in 2019, we will likely see a number of players in the UK struggling to find investors, and some will be forced to shut down. This would track a similar trend we saw in China this year, with many marketplace lenders defaulting after the country tightened its regulation of the sector. However, this is likely to be good for the market overall, as it will weed out players that lack sustainable business models or employ questionable tactics, providing more legitimacy for the space.
– US-based trading app Robinhood will go public in 2019 — and it won’t be the only one:
Earlier this year, Robinhood co-CEO Baiju Bhatt said the digital investment platform would pursue an initial public offering (IPO) in the «medium to long term.» However, we think this move will come sooner rather than later, for a couple of reasons. First, the company recently hired Jason Warnick, a former exec at Amazon as its new CFO, a move that indicates Robinhood has a public debut in its sights. Additionally, although the company has not revealed its financials, all signs point to healthy fundamentals — Robinhood had around 6 million customers, who had collectively executed more than $150 billion in transactions, as of October 2018.
It’s also pulling in revenue via at least three different streams: by charging interest on money held in Robinhood accounts, by offering premium paid services, and by selling order flow to exchanges. We expect the company to pull the trigger on a public filing in the next few months, with an IPO to follow by the end of 2019. Robinhood likely won’t be alone in this feat, though — 2018 brought 9 fintech IPOs, and we expect to see many more in the year ahead, as fintech business models continue to mature and prove their sustainability.
– Collaboration between incumbents and fintechs will accelerate:
In 2018, we saw a number of partnerships emerge between financial institutions (FIs) and fintechs. This trend is set to intensify significantly in the year ahead, with these collaborations growing deeper. Instead of simply leveraging technology developed by fintechs, we expect FIs to begin to integrate fintech offerings more deeply into their core products. BPCE’s enlisting of TransferWise to provide cross-border transfer solutions is a prime example of this type of collaboration, and many more similar agreements are likely to surface in 2019.
Partnerships offer a natural platform for achieving the digital capabilities that incumbents by this point know they need, without the development costs. And the benefits extend to fintechs as well, providing them with the resources and access to customers they require to scale their operations. Regulatory pressures will also be a key driver of these partnerships — existing open banking regulation in the UK and Europe, and its introduction in Australia, Hong Kong, and Japan, is forcing even reluctant FIs to take a more collaborative approach. As these firms seek to remain compliant, they will make strategic acquisitions of, or investments in, fintechs with the innovation and talent capabilities necessary to help meet these mandates.
– The digital-only bank wave will hit the US market:
It’s no secret that the US challenger bank market has long trailed its UK and European counterparts. That’s largely because of a stifling regulatory regime, which has made it very difficult to obtain a banking license, and how entrenched incumbents are in the financial lives of US consumers. However, 2019 is poised to be the year that the US market finally takes off. The groundwork for the shift was laid this year, with mobile-only bank Varo Money’s landmark preliminary banking license approval and the nationwide deployment of JPMorgan Chase’s digital-only play Finn. Meanwhile, San Francisco-based neobank Chime passed the 2 million opened accounts mark, and is now adding more customers a month than Wells Fargo or Citibank, according to The New York Times.
In the year ahead, we expect activity in the US digital-only bank market to accelerate, especially as well-known European challengers like N26 and Revolut make their long-awaited entries into the country. Additionally, Barclays plans to launch an online challenger bank in the US in 2019, and Israel’s Pepper is reportedly in talks to enter the market as well. This combination of efforts from homegrown startups, incumbents, and foreign entrants will push digital-only banking to the mainstream in the US next year — and the market may even start to look a bit crowded.
– Blockchain adoption by incumbents will intensify, but ICO funding will plummet:
FIs have been busy experimenting with blockchain solutions to solve a variety of pain points in the industry. We’ve seen these early experiments begin to bear fruit in 2018, with FIs starting to use the technology in live environments — UK-based Calastone announced that it’s moving its entire investment fund transaction network to blockchain, for instance. In the coming year, we expect to see many more similar announcements, as FIs’ blockchain projects increasingly move out of trials and go live. These developments will also likely inspire further exploration of the nascent technology, leading to additional use cases being identified. However, despite ongoing enthusiasm for blockchain itself, ICO funding will likely drop off significantly. The second half of 2018 has already seen substantial pull back in this regard — in September, only $279 million was raised via ICOs, compared with $2.4 billion in January 2018, per Autonomous Research. The picture looks even dimmer for 2019 — in fact, we predict no month in the new year will top $300 million in ICO funding.
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