From Brexit in the UK to Trump’s election in the US, this year has been a wild ride for global capital, financial markets, and political institutions. As we look forward to 2017, let’s take a moment to step back and assess the impact of these changes on the financial technology marketplace. One thing 2016 taught us? Forces of convergence and divergence continue to push and pull at our interconnected world, generating new opportunities and risks for the fintech sector. Here’s what to watch in 2017:
The World Is Breaking Up…Or Is It?
The December TechCrunch Disrupt London agenda reminds us all that global fintech innovation threatens to disrupt traditional financial services across all national borders — even in markets where large banks have strong legacy relationships. Payment companies such as mPesa have become critical to certain state economies and are growing their reach in emerging markets. Technology companies like Amazon have launched robust, revenue generating application program interfaces (APIs) and are winning significant market share from banks, even if they have not previously focused their services towards the banking sector.
The Trump and Brexit mandates seem to represent a voting public upset with the current state of trade and globalization. However, while certain countries may shift policy focus internally, global technology trends are counterbalancing this movement offering instantaneous transactions and communications from remote parts of the globe.
Opportunities in the Grey Areas
Last week, the London School of Economics Investment Society held a FinTech Innovation Challenge hackathon. The most intriguing student project pitch ideas reflect a shift in perspective and perceived opportunity from western markets to grey markets. Grey markets, which traditionally lack strong regulation and credit scoring, also lack access to capital. Grey market peer-to-peer (P2P) lending systems could offer higher rates of return, higher growth rates, and lower regulatory constraints. In another example, one group of students viewed India’s recent demonetization and currency changes as an opportunity to offer digital savings, payments/receivables, and even tax collection applications.
Will Technology Help Smooth the Bumps or Become Our Achilles Heel?
In 2016, blockchain technology was hyped to be the major savior (and disruptor) to all things finance, fintech, and insurance. Will 2017 see the advent of blockchain’s killer app? It’s hard to say. Goldman Sachs recently pulled out of the R3 consortium, dealing a blow to collaborative R&D. Bitcoin, alt-coins, and Ethereum (pre-DAO bust) all sustained reasonable growth over the year but have a long way to go before they reach market ubiquity.
Uncertainty throughout the crypto world reigns, especially after one of the largest IoT hacks in history took down a large portion of the web. In addition to potential blockchain breakthroughs, the IoT security sector is ripe for disruption. In a world where light bulbs can be hacked, prudent Fintech companies must address such critical system flaws.
In 2017, a new cast of politicos will attempt to shift regulations across many different sectors. Bank stocks are already surging in anticipation of expected deregulation. Regardless of how regulators respond end up responding, however, banks and Fintech firms must not lose sight of global marketplace threats and opportunities. While capital constraints and compliance oversight may be reduced, competition from non-bank entities and Fintech firms will continue to shrink available market share across every border with open Internet.
Our bet for 2017: firms that focus on API collaboration, seamless bank integration, and customer needs will win the year.