Now with even more synergy and disruption!
I was recently asked—on Instagram, of all places—for my opinion on trends in fintech we’ll see this year. I’m certianly not in the business of making predictions, but I suffer from a condition that comepls me step onto a soapbox when it’s offered.
I told my mate that I expect to see scope creep. Where most use cases have been directed at consumers, I think fintech will expand into frontline deployment and even start to step into the back office/ops.
On a longer time horizon, I would even expect “fintech” to consume some or all of the infrastructure of the overall capital market.
In fact, I even shamefully ended my response with a jargon-filled musing along the lines of “every link in the value chain is hungry for synergy and ripe for disruption.” Whatever the hell that was supposed to mean.
Desperately seeking a napkin or even a piece of A4 to wipe the egg off my face, I went looking for some smarter people to see what they’re expecting for fintech in 2019.
A report from McKinsey caught my eye. You get one guess at the first three words.
“synergy and disruption”
Apparently, wearing your breakfast is another 2019 trend. You heard it here first.
My disdain for buzzwords notwithstanding, it’s a good read filled with good information. (If ever that argument does not obtain for a McKinsey Quarterly piece, start studying small-plot sustainable agriculture, because it means something has gone horribly awry in the world.)
After remarking on the 10x rise in VC investment into “the fintech space,” McKinsey organizes companies into four discreet categories:
- startups, new entrants, and “attackers,”
- incumbent institutions like banks and prop shops,
- entire ecosystems under the control or coordination of large tech companies, and
- infrastructure providers.
Thorough as ever, yet still beholden to clickbait, McKinsey outline 10 trends they see as shaping fintech. Since the purpose of this post is exfoliation, I’ve chosen to only highlight a few:
1. Selective investors are emphasizing fundamentals
VC funding in fintech is at an all time high, so investors are becoming increasningly selective about where they pledge their capital. Data suggest that later-phase startups with demonstrable markets, proven products, and readiness for scale (read: profit) are the most attractive.
Can you believe that there was ever such a time when sensibility like this wasn’t the norm?
2. Infrastructure: big potential, but low appetite
Incumbent banks, like healthcare organizations, are loathe to “disrupt” much of anything and have low risk appetite toward core banking systems (CBS). Some CBS startups do exist, but they tend form partnerships with incumbents and take a modular approach toward modernization using APIs.
3. Incumbents aren’t taking it sitting down
Incumbent banks were initially lethrgic about fending fintech startups.
4. No Great Leap Forward in AI
I do a some work that I enjoy in AI and ML, but McKinsey and I are both skeptical that these technologies are ready for scaled deployment.
Few of these, however, have monetized and fewer still are in the black. What’s more, their products are frequently implemented as a cocktail of vanilla analytics with a shot of machine learning.
Most likely, there will be no major revolution in fintech because of AI. Instead, progress will march forward as a result of this technology providing new methodologies and sources of data.
5. Red is harder, better, and faster
On the topic of great leaps forward, Chinese fintech companies are more innovative and have scaled far faster than their Western counterparts.
Over here, fintech startups tend to develop a product and then focus on expanding features before expanding into new regions or markets. In China, the tech giants already cover the entire market and have gone on to create their own financial and payments ecosystems.
For example, with the proliferation of Alipay as an accepted payment method, you don’t even need to carry your wallet when you leave the house.
Fintech has undergone a considerable phase of transformation and evolution in the last five years. Trends that look strong now could very easily yield to new momentum picked by the maturing leaders of today or new attackers score decisive victories. This complicates things for investors as they look to deploy their capital by making winning bets.
For now, my pores feel quite refreshed and that’s good enough for me.