An op-ed by Stephanie Brennan, Founder & CEO of Evarvest, a Lithuania-based fintech start-up working on the first ‘Spotify-style’ trading app
In 2019 the fintech sector continued to change the face of the traditional finance industry.
According to the KPMG report – A Pulse of Fintech in 2019 – last year might turn out to be the second-most investment-rich year of the decade, following a record high in 2018, when the global value of investment in fintech companies amounted to approximately 112 billion U.S. dollars.
With significant investments and dynamically developing technological solutions, fintech companies are strengthening their role and shifting from disruptors to industry leaders. This phenomenon will continue in 2020 – month by month fintech solutions will play a more significant role, setting the trends and shaping the future of the financial services sector.
There are 5 key trends that will influence the fintech industry in the year ahead.
Trend 1: Prices going to zero
With increasing consumer awareness regarding costs and cost-efficiency, the finance industry has recently realised that to compete and meet clients’ needs, they need to change the way they monetise by cutting consumer facing prices. This shift in consumer facing pricing has already begun. With increased competition, price becomes a defining factor in a consumers decision making process. But, an industry going to zero on price is a recent phenomenon in the fintech space, especially among large US brokerage firms. In November 2019 Charles Schwab, the largest publicly traded e-brokerage firm, announced that it would cut trading commissions to zero. More recently, Vanguard, J.P. Morgan and Interactive Brokers have also announced their own free trade options. Who will be next?
One thing that is for sure is that when an industry goes to zero on price, the competition between brokerage firms will no longer be on price but on value - a great step in the right direction for an industry that’s needed changing for a long time! Value, accessibility and awareness will be the three defining metrics for the future success of fintechs.
Trend 2: Growing number of partnerships and alliances between traditional financial institutions and fintechs
Year by year traditional financial institutions feel the increased pressure from fintech competitors that provide consumers with innovative products and cost-efficient and easy to use alternatives to traditional options. Today people expect their financial institutions to offer them a seamless digital experience when handling their funds. As a result, in order to remain competitive, and more importantly, relevant, traditional banks and other financial institutions are forced to continue to invest in their digital transformation either by developing digital products and services in-house or by partnering with fintech firms. In a recent study from Finextra, 81% of bank executives surveyed said that collaborating with fintech partners was the best strategy to achieve their digital transformation goals. With bank/fintech partnerships already established by the biggest market players, including Goldman Sachs, Deutsche Bank or Westpac, the second-largest bank in Australia, I expect this trend to grow in the coming year. And this will happen despite the fact that according to an Accenture report released in June 2019, banks’ investments to improve their technology have not yet delivered the revenue growth that had been expected among the banking sector.
Moreover, in a reversal of the trend for banks to buy fintech start-ups, in 2019, we saw the first fintech acquire a bank. With a German fintech start-up Raisin taking over its long-time service bank, MHB Bank of Frankfurt, the tables have turned making us suppose that while banks are partnering with fintechs in an effort to achieve their digital transformation goals, the trend of fintechs buying banks will continue to rise as the ‘disruptors’ continue to become the ‘leaders’ in this space. The key reason for this shift is digital fluency. Millennials and Gen Z are two generations that have grown up with a smartphone in their hand. Couple this with fintech founders largely being from the same demographic as these target audiences, they have the greatest insight into their needs and wants.
Trend 3: The rise of fintechs expanding globally
Previously the fintech sector was aligned with a local ambition, meaning fintech start-ups that were first focused on developing their position in one country or one region, before eventually expanding to other locations. With efficient RegTech solutions facilitating the use of new technologies to comply with regulatory requirements, we are about to observe a new generation of fintechs that are going global from day one. The use of the latest technologies, including Cloud Services and Artificial Intelligence (AI) makes fintech companies more agile and faster in implementing the required compliance, market localisation and customer support to scale internationally. Eventually, local only players will become redundant and lose market share. We’ve already seen this trend in other sectors with companies like Slack, Uber, Google, Spotify etc., that are globally accessible and widely trusted and therefore adopted.
Trend 4: Fintech regulations to expand
With new technologies, new solutions and a growing number of fintech start-ups, the regulators of the finance industry – both local and global – will continue to adapt the regulatory frameworks in order to protect organisations and investors from dangers, including cyber threats, GDPR violations and data leaks, while also supporting the globalisation of fintechs – current examples are the EU Fintech Agenda, PSD2 and Open Banking. From the EU regulatory perspective we’re already seeing a shift to less known EU countries that are replacing the UK as post-Brexit fintech destinations, such as Lithuania which, according to the Global Fintech Index, is now ranked 4th in the world as a fintech hub. I expect regulatory environments to become more forward thinking as they attract fintechs to their jurisdictions.
Trend 5: Growing popularity of fintech-related studies
The increasing significance of the fintech sector in the global economy is starting to be reflected in the growing popularity of fintech-related studies. Fintech-dedicated courses are now available at major universities, for example at the University of Oxford in the UK, University of Warsaw in Poland and Vilnius University in Lithuania. In the near future similar studies will be offered by the majority of European post-graduate schools. The rise of fintech educational programmes will result from the growing demand for highly qualified specialists, who not only have an in-depth business-oriented knowledge of the fintech sector, but also know how to move within the constantly changing fintech and regulatory environment.
Stephanie Brennan is a creative and challenge-driven entrepreneur and investor, also known as Australia’s Youngest Property Tycoon.
Being an investment enthusiast committed to inspiring people to want more out of their life and their future, at the age of 26 she came up with an idea of revolutionising the finance industry by providing an easy to use, transparent and low cost way to access stocks, bonds and ETFs in the biggest stock markets around the world, and that’s how Evarvest, one of the leading European FinTech start-ups providing the first ‘Spotify style’ trading app, was born.
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