A FINTECH DECADE: REFLECTIONS AND PREDICTIONS

FINTECH VERTICALS

The FinTech landscape can be divided into several different sub-segments, which mostly corresponds to that of the wider Financial sector. 

Payments and transactions

The Payments sector is one of the largest FinTech verticals in terms of revenue. Reflecting the maturity of this sector, the first half of 2018 saw the acquisitions of WorldPay ($10.4bn) and iZettle ($2.2bn) by Vantiv and PayPal respectively. New regulations in the form of the PSD2 and Open Banking is expected to foster further innovation and opportunities within this sector.

Lending

Stricter regulatory capital requirements post-financial crisis caused many banks to tighten their lending, which resulted in a funding gap for retail consumers as well as SMEs. This subsequently led to the rise of alternative credit providers, such as P2P and crowdfunding lenders RateSetter and Funding Circle, with the latter completing an IPO in September this year ($2bn). 

Banking

Following the financial crisis, the UK government encouraged the development of ‘challenger banks’ to foster competition and help address areas underserved by the larger banks. The first half of 2018 has seen successful fundraisings by Revolut ($250m), Atom Bank ($207m) and N26 ($160m).

Wealth and asset management (WealthTech)

The wealth and asset management sector has seen many changes in the UK since the financial crisis, be it through process compliance requirements (eg. RDR, MIFID II) or changes in personal financial and tax rules (eg. Pension Freedoms). 

This has led to a mass adoption of technology, mainly in the form of wealth platforms, to support processes that meet new regulatory requirements and service propositions. FNZ has played a key role in serving these needs, by partnering with major financial institutions to enable them to provide the latest WealthTech services to their clients.

Earlier this month, FNZ’s current private equity backers General Atlantic and HIG Capital agreed to sell their shares to CDPQ and Generation, valuing the company at $2.2bn and setting another milestone in its continuing growth story.

Insurance (InsurTech)

The InsurTech sector is fairly nascent compared to its other FinTech counterparts. There have been many new entrants into this space, playing the roles of product aggregators, insurance managers, P2P intermediaries and direct insurers – however the Insurance sector remains difficult to disrupt. Cyber security insurance has been a notable new area of early-stage FinTech investing following increased demand in this type of protection. The first half of 2018 saw investments in Oscar Health ($165m) and Lemonade ($120m) led by Founders Fund and Softbank respectively. 

Regulatory (RegTech)

The Financial sector is very regulatory driven, and investment in this area of FinTech has seen a pickup in the past year following the introductions of various new regulations – Dodd-Frank in the US and PSD2, MIFID II, MIFIR and GDPR in Europe.

Emerging Technologies

There are several main technologies currently emerging within the FinTech space:

Data-Focussed

The use of predictive analytics via machine learning enables companies to make better recommendations to consumers based on their own historic behaviour or that of other consumers with similar backgrounds. Read more about our approach to Predictive Analytics

Front-End Interface

Improvements in front-end interfaces enable increased customer engagement. For example, the WealthTech start-up Advicefront has developed a slick onboarding interface for what is normally a time-consuming process for financial advisers and their clients - read more

Operations

Increased efficiency in operations can create significant cost-savings for the product provider, which in turn results in lower costs for the end consumer. Blockchain or DLT in particular has the potential to eliminate transaction reconciliation errors between two or more financial institutions by creating a single shared ledger of records. Read more about the Blockchain Revolution taking place at FNZ.

Infrastructure

Open APIs allow for the sharing of data points between two or more different software or web service, enabling the appearance of a single platform of services for the end user. Read more about FNZ's core services 

FUTURE TRENDS

One of the main challenges for FinTech start-ups is achieving scale and profitability. It is therefore anticipated that further consolidation of the market will occur as it continues to mature, with more M&A deals predicted in the near future.

Governments and regulators are also expected to continue to introduce policies that promote innovation within the Financial sector. The UK has been leading the way with its much-emulated Regulatory Sandbox concept, and its implementation of Open Banking is now also being replicated across the globe.

More partnerships between major financial institutions and FinTech providers are likely to take place, as each party look to leverage the strengths of the other whilst sharing their own. This can only result in a win-win-win situation; for the financial institution, the FinTech provider and – most importantly – the end consumer.

Din is a chartered accountant and M&A professional, with experience in corporate finance and investments within the Financial Institutions and Technology sectors. He is part of the Corporate Development team at FNZ, responsible for setting out the group’s global strategy and undertaking new ventures to help grow the business.