It takes more than just one crystal ball to discern which trends will drive fintech innovation in 2017. To this end, here’s a roundup of predictions and prognostications on what the new year will bring in everything from artificial intelligence and the blockchain to payments and banking for the underbanked.
Hot Take: “Whether it’s through IoT devices, fintech platforms, virtual assistants or chatbots, people will likely spend more time connecting to their money through such channels and less time directly interacting with their banks.”
Hot Take: “As much as 80 percent of the (African) continent is unbanked and up to 90 percent of retail payments are made using cash. This opens the door for fintech players to target consumers and workers who do not have access to traditional banking. Because of this banking gap, it is likely that some countries will entirely skip one generation of payment types (e.g. cards and start building a more innovative, mobile-drive(n) payments infrastructure.”
Hot Take: “According to EY, China has now taken the lead as the #1 fintech market in the world. Organizations should be looking east for business model innovations that can drive new revenues and sources of profit. New business models, such as Ant Financial and WeBank services, will start influencing fintech in the U.S. and Europe, as they are driven by mobile money services.”
Hot Take: “Bitcoin moves from its Darknet phase (illegal) to the early adopter Clearnet phase. This is when legitimate people charge in Bitcoin for legal transactions. This will start with cross border digital products. Because this brings new bitcoins into ‘circulation’ with owners who also then want to pay in bitcoin, this starts a sustainable move to mainstream use which supports the price.”
Hot Take: “Innovation in artificial intelligence is set to increase in 2017. AI will provide business users with access to powerful insights before they are available to them. This will be done through the use of cognitive interfaces in complex systems, advanced analytics, and machine learning technology.”
Hot Take: “The rebirth of trust is upon us with the advent of distributed ledger. Many issues such as fraud, verification of true ownership, clearance of multi-party transactions and chain-of-events are easily solvable. Insiders have been calling the distributed database, ‘The New Internet.'”
Hot Take: “2016 brought rocky times for some FinTech lenders, especially in the first half of the year, but through the tumult came maturity. The complexity and challenges of running capital intensive businesses in a highly regulated industry was never more real than 2016, but the top platform weathered the storm, and most are long-term stronger for it. 2017 will continue to be the year where the top players pull away from the pack. At the beginning of 2016, there were an estimated 400+ fintech lenders in the U.S. – in 2017, I expected the supermajority of the lending to come from just 10 or so platforms.”
Last, but not least, this 90+ page report features insights from a panel of more than 100 global financial service leaders from around the world. Includes Don Bergal, Avoka (F16, FD16); Mike Carter, D3 Banking (F15); Scarlett Sieber, Shamir Karkal, Teppo Paavola, Maria Jose Jorda Garcia, BBVA (F13, FD16); Jon Ogden, MX (F16, FD16); Frank Schwab, Sberbank (F16); Sophie Guibaud, Fidor (F11, FD16); Matthew Wilcox and Deva Annamalai, Fiserv (F16); Bob Legters, FIS (F16); John Waupsh; Kasasa (as BancVue F09); Jelmer de Jong, Backbase (F16).
“F” refers to the company’s most recent Finovate conference appearance. “FD” refers to the company’s most recent presentation at our developer’s conference, FinDEVr. Find out more about our upcoming events FinovateEurope in February and FinDEVR New York in March.
In a $460 million deal, Texas-based ATM operator Cardtronics has acquired Canada-based DirectCash Payments. The deal is expected to help Cardtronics expand into Canada and the United Kingdom. DirectCash Payments has 25,000 ATMs around the globe, primarily in Australia, Canada, and the U.K. Once the deal closes in Q1 of 2017, it will boost Cardtronics’ network to 225,000 ATMs across North America, Europe, and Asia Pacific.
Jack Henry & Associates (F10) teams up with Visa (F10)
In a new partnership, Jack Henry & Associates has integrated with Visa to allow customers to send P2P payments directly to a recipient’s Visa debit card. This eliminates the need for a recipient to provide their account and routing number to the sender. With increased competition in the P2P payments industry (PayPal/Venmo (FDNY 16), Square Cash, Zello), banks are feeling pressure to compete by offering faster delivery of funds. The partnership enables banks to offer funds-transfers a day sooner, or even same-day. Jack Henry began offering P2P payment capability in 2005 and expects the new method to boost usage.
Sberbank (F16) and MasterCard (F11) partner to launch ApplePay in Russia
Starting this week, Mastercard cardholders in Russia can now pay using ApplePay, thanks to a new partnership between Russian bank Sberbank and Mastercard. In a statement, the bank’s Deputy Chairman of the Executive Board, Alexander Torbakhov, said, “Apple Pay is driving the popularization of contactless payments in Russia and globally. Many of Sberbank clients actively use new technologies, and an increasing number of them will prefer cash-free and contactless payment using their smartphones.”
This is the Russian bank’s second big move this week. On Monday the company inked a partnership with Hyperledger to begin working on the Hyperledger Project.
PayPal (F11) and Vodafone partner for in-store NFC mobile payments
Acting on a partnership it first initiated in February, PayPal partnered with Vodafone to enable U.K. users to make NFC payments from their PayPal accounts using their Android phones. The agreement enables consumers to make transactions of up to £30 ($36.60) at 400,000 retail locations. For more expensive purchases, Vodafone Pay users can use their Vodafone wallet (launched in 2013), which requires a PIN.
The NFC payment capability with Vodafone was piloted in Spain. PayPal also has agreements in place with other global telcos, including America Movil, Telcel, and Claro.
Happy birthday, U.S. EMV. It’s been one year since EMV regulation in the United States was placed into effect. If you live in America, you’ve likely noticed that adoption is low. In fact, according to a recent report from Mastercard, 88% of consumers have been issued chip cards, but only 33% of merchant locations accept them.
Though usage remains low, Mastercard reported this week that it has seen an overall decrease in fraud since the EMV change. The company reports that between April 2015 and April 2016, retailers who have transitioned to EMV experienced a 54% decrease in counterfeit fraud.
Ready, set, ACH
As of September 30, a new rule from NACHA requires all banks to process incoming same-day ACH credits. Most ACH payments are currently settled on the next business day: the new rule-change offers originators the option to send an ACH transaction to any recipient account for same-day processing. NACHA has imposed a same-day fee on every same-day ACH transaction to help financial institutions receiving the funds to recover the cost to enable same-day ACH. Phase two of NACHA’s Same-day ACH initiative will take effect 15 Sept 2017.
Technologies: AI, chatbots, and natural language processing (NLP)
The industry-wide obsession with chatbots continues. Finovate last month showcased a dozen variants on the chatbot theme. One of our newer alums, Personetics (F16), is even holding a Chatbot Bootcamp next month in San Francisco. And our chatbot-banking post in March is our fourth most-read. But the bigger conversation is around natural language processing (NLP) and how it can be used to retrieve information and perform tasks. A new report from Juniper Research estimated that NLP would drive $2.1 TRILLION in annual purchases via mobile five years from now (2021).
The annual Sibos 2016 conference in Geneva took place at the end of September—between the last Fintech Trending meeting and this one. Organized by SWIFT, Sibos is considered to be the world’s premier financial services event covering areas such as payments, securities, cash management, and trade.
So what was big at Sibos 2016 this year? The blockchain. 2016 was the first year that Sibos dedicated a track “exclusively to distributed ledger” technology. And the event’s startup-industry challenge was all about how to use the blockchain in the securities industry. The three startups that won the challenge will develop PoCs using technologies like smart contracts (SmartContract), distributed ledgers (Rise Financial Technologies), and open-source blockchain platforms (Coin Sciences).
Some have ascertained the irony in SWIFT’s embrace of the blockchain: Its $6 billion payment-messaging service is one of the technologies “widely perceived to be at risk for disintermediation” by blockchain technology. And indeed, companies like Finovate alum Ripple (F13) have made great strides in helping FIs like Bank of America, Santander, and Royal Bank of Canada use distributed-ledger technology to provide a global blockchain-payments network with “near-instant” settlement. Interestingly, Ripple recently hired former SWIFT board member Marcus Treacher as its new global head of strategic accounts. Treacher told CoinDesk in September that SWIFT was the “de facto way everyone moves money through countries.” And cross-border payment is something he specifically believes Ripple “can do better.”
Global Banks Partner to Form Blockchain Payments Network—CoinDesk
Speaking of blockchain, a number of companies with blockchain and distributed-ledger technologies will be presenting at our developers conference, FinDEVr Silicon Valley, next week. These companies include PwC, which will present its blockchain-as-a-service technology to improve trade finance, and IBM with its hyperledger implementation in the cloud that helps manage and test blockchain-dev projects. Also on hand will be distributed database specialists Aerospike (FD16) and Cognitect (FD16).
From FT Partnersrecent report on the boom in insurance-technology innovation, to InsurTech Rising’s event, Informa, to launch on 21 Oct, this area of financial technology is garnering increasing attention.
Why? As FT Partners pointed out in their 247-page report, the insurance industry is one of the areas of finance that so far has been least affected by the technological disruption nearly commonplace elsewhere. The insurance industry is a multitrillion dollar business; property and casualty insurers alone generated more than $64 billion in net income in 2014. And it sits at the nexus between the drive to better engage customers (is there anything enjoyable about insurance from a consumer perspective) and the need to accommodate complex and shifting regulatory landscapes (something the rest of finance is becoming increasingly familiar with).
What are the focuses of insurtech? Most technology innovation in the area revolves around trends in distribution and administration: data and analytics, and marketing and customer engagement. This includes everything from the kinds of products offered to consumers, such as micro-insurance, to using mobile channels and interactive technologies to make insurance products easier to understand, choose from, and purchase.
How are industry players responding and what to watch for? From partnering with innovative startups to acquisitions, incumbent insurance firms are increasingly aware of the challenge. FT Partners reports that more than 40% of traditional insurers surveyed by Ptolemus Consulting said they were planning to “acquire, or have already acquired, innovative startups to help them expand their digital capabilities” and more than half say they have already invested in social media, data mining, and predictive modeling. Nearly 70% have embraced mobile technology.
Wave Mechanics: FT Partners Report Highlights Trends Driving Rise of Insurtech—Finovate
Prepare for the InsurTech Wave: Overview of Key Insurance Technology Trends—FT Partners
Note: Finovate alums have the year of their first appearance listed after their name. For example, FIS first appeared at Finovate in 2009, so there is a (F09) after their name, with a link to that first demo.
U.K.-based challenger bank Atom opens to the public. The bank’s iPhone and iPad app is built on the Unity gaming platform and is the only way to access the mobile-only bank. Atom has a customer service team equipped with AI and machine learning, and has bolstered its security using voice and face biometric login. Atom Bank is the first of a handful of U.K. challenger banks set to launch this year, including Mondo, Starling Bank, and Tandem. Atom is headquartered in Durham and is already valued at almost $190 million. Check out Business Insider’s coverage.
Akamai (FEU 15) acquires Soha Systems, which offers secure access as a service for enterprises. This matches well with Akamai’s aim to offer cloud-based services to enterprises, and places it in a good position for a potential acquisition. See our coverage.
Jack Henry & Associates (FF 15) collaborates with Visa (FDSV 14) to accelerate P2P payments to debit cards. This may help banks compete with other services that have sped up settlement times, such as Zelle (formerly clearXchange) and Venmo (FS 13). See the press release.
IBM (FF 16) announced a $200 million investment for a new global headquarters for its Watson IoT business. The headquarters will be located in Munich and is one of IBM’s largest-ever investments in Europe. This move is part of a $3 billion initiative to bring Watson’s computing expertise into the world of IoT. See IBM at FinDEVr Silicon Valley, 18/19 Oct 2016. See VentureBeat’s coverage here.
Banking Technology reported that Misys (FEU 15) is preparing to issue an IPO in Nov 2016 with a $6.9 billion float. Advisory firm Moelis will be overseeing the move. Misys was delisted from the London Stock Exchange in 2012 when it merged with Turaz. Misys CEO Nadeem Sayed says going public is a “logical step in our evolution.” See Banking Technology’s coverage.
Aire (FEU 15) raised $2 million. Along with the funding announcement, the alternative credit-scoring platform announced it is now authorized and regulated by the Financial Conduct Authority (FCA), the U.K.’s financial regulator. This places it on a more level playing field to compete with the big three credit bureaus. See our coverage.
Thomson Reuters (FF 12) unveils blockchain-dev platform, BlockOne ID. Built for Ethereum, BlockOne ID is an experimental framework in which app owners can manage access to their blockchain contracts in a controlled environment. See Banking Tech’s coverage.
The Russian bank, along with Hyperledger’s founding organization, the Linux Foundation, have signed a deal for the bank to participate in the Hyperledger Project. A group of Sberbank’s 9,000 developers have formed a dedicated team to work with the nonprofit blockchain initiative. The project was created to advance blockchain technology by identifying aspects for a cross-industry standard that will change the way transactions are conducted.
Lev Khasis, first deputy chairman of Sberbank’s executive board, anticipates the open source blockchain platform will help Sberbank to “access international expertise and cutting-edge blockchain developments.” Khasis also explained that the bank’s use of the blockchain will span multiple use cases, including real estate, and that it already has plans to go live with one use case in the next 12 months.
At FinovateSpring 2016 Sberbank launched Sberbank Messenger to expand beyond what customers typically expect their bank to offer. The messenger platform, which is built on top of the Sberbank digital ecosystem, enables consumers to chat and seamlessly send money to one another. It also allows businesses to interact with consumers using both human respondents and chatbots, and enables consumers to purchase goods and services without leaving the chat dialogue.
The bank has 270,000 employees and serves more than 110 million clients, equivalent to 70% of Russia’s population, through 17,000 branches. At the Global Finance Awards for Central and Eastern Europe, Sberbank won four categories, Best in Mobile Banking, Best Bill Payment & Presentment, and Best SMS/Text Banking.