October 24, 2016
Global FinTech investments have been hitting new record levels QoQ for the past two years. Almost every bank service now has a FinTech alternative. However, having strong technology and a niche offering is not a guaranteed path to success, especially in the financial services space. Banks have taken note of these trends and are embracing disruptive technologies for enhancing their own offerings. Open APIs, innovation challenges and startup-bank collaborations have started to gain momentum. With this as a background, LTP in partnership with Opus Consulting has come up with a futuristic report that talks about the current state of FinTech, the major trends shaping the market in the near-term and the future of business models for banks and FinTech startups (Click here to access the full report).
The report is intended for readers who want to better understand the dramatic changes that have begun to take place—and that are accelerating—in the global FinTech landscape. The payments industry, which is one of the focus areas of this report, has never been more exciting. The pace of innovation, customer expectation and supporting infrastructure enhancements provide banks an opportunity to utilize their existing customer data and trust to partner/collaborate with FinTech startups and thus, become very customer-focused or recalibrate their business models. The report starts with the current state of FinTech and then provides an analysis of major emerging technologies and market forces that are shaping the FinTech market for 2017. It discusses the major opportunities and challenges faced by incumbents as well as FinTech startups. The report also provides a brief on the geographic split of payments volume, revenue and how they are expected to shift gradually by 2024.
Payments and remittance are two major segments that are at the brink of a major overhaul. These changes are not only as a result of FinTech innovation, but the back-end support infrastructure has witnessed a shift in terms of transaction capabilities. The global push for non-card transactions, the rising number of alternative payment service providers, contactless technology acceptance, mobile wallets and payments and—to top it all—growing real-time payments are major drivers in the payments space. There are currently 18 countries ‘live’ with RTP systems, 12 countries that are ‘exploring/planning/building,’ and an additional block of 17 countries that are ‘exploring’ through a pan-Eurozone initiative. The remittance space has witnessed emergence and acceptance of online remittance service providers. The digital service providers not only provide ease of transactions and customer service but also reduce the cost of transaction significantly, hence, gaining widespread acceptance.
Central to both these segments is the settlement of transactions and this crucial part is being overhauled with blockchain. With 2,500+ patents filed in the last three years and over $1.4 billion in investments, blockchain is expected to be the future of financial infrastructure and could lead to rewiring. Several banks have already run pilot programs and are testing how they can apply the distributed ledger technology to reduce costs and improve the efficiency of the settlement of the transaction.
Cloud, omnichannel services, APIs, IOT, Big Data, AI & cognitive sciences are the major technologies that are shaping FinTech. The report provides a brief on the use cases of each of all these technologies.
Focus on digital channels would be a common theme across geographies for payments in 2017. However, APAC is expected to be a clear winner in terms of revenue growth while Europe is expected to face pressure with changes in its regulatory framework and is expected to focus on pricing models. In remittance, the established titans (WU, Moneygram, likes) are expected to be further challenged by multiple well-capitalized upstart companies targeting the $582-billion remittance market. Blockchain is also expected to gain acceptance with about 15% of banks and 14% of financial market institutions intending to implement full-scale, commercial blockchain solutions in 2017.
As banks face key challenges in terms of regulations, talent acquisition, security, profitability and meeting customer expectations, startups face major challenges in terms of retail presence, compliance and branding. Startups also are yet to prove their operational infrastructure and long-term customer loyalty. While there is no clear winner in the current scenario, 2017 is expected to pave way for more partnerships and collaborative models by working together across niche service areas.