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FinTech Market Outlook: What Can We Expect In 2018?

FinTech Market Outlook: What Can We Expect In 2018?

(Source: ebanking news)

It’s that time again when everybody starts looking at the year ahead to try and figure out what the main market trends will be for the different industries.

And FinTech is no different.

The Fintech industry has had a stellar year. Venture-backed funding reached $12.2 billion dollars by Q3 across 818 deals.

2017 is set to become a record-breaking year for the industry as its well on its way to surpass 2015’s funding-high of $14 billion.

What it shows is that consumers are increasingly looking for new technologies to make their finances faster, cheaper, safer, more convenient and more mobile.

The FinTech industry activity for 2018 is likely to reflect this ethos.

Banks will have to learn to share more

For many years, banks have had a monopoly on our finances. They were our primary, and in many instances, our only access to financial services. The problem with this is that big financial institutions rarely ran into any competition (except maybe from other banks) and therefore didn’t have to put much effort into keeping our custom, unfortunately to the detriment of customer satisfaction.

But this has started to change in the last couple of years as more and more independent FinTech companies started to provide the financial services that were previously only available from banks, such as loans, payments and mobile account solutions.

These services are often cheaper, faster and more exciting than what we are used to getting from banks, and customers started to realize that these financial institutions don’t have to be the be-all and end-all to their financial needs.

So to continue to promote competition and digital advancements, open banking and PSD2 in Europe will force banks to securely share customer information with third-party providers through open API’s. This will come into full effect in 2018 and places customer satisfaction above profit margins.

Blockchain will continue to reach dizzying heights

Blockchain-based startups have already raised close to $3.7 billion during 2017 through the revolutionary process that is Initial Coin Offerings (ICO’s). Many people in the industry are comparing it to the internet boom of the 1990’s and agree that its potential use cases are just as disruptive.

It’s been shown to reduce transaction costs through automation (i.e. smart contracts), provide near-flawless customer information security and increase data integrity through decentralization.

The biggest challenge for the technology to overcome is how to apply it to existing financial infrastructure in order to effectively leverage its capabilities for everyday usage.

Many big banks and financial institutions have created specialized teams, tasked with the responsibility to research and come up with ways on how to overcome this barrier, including Deutsche Bank, Nasdaq, US Federal Reserve, Santander, BNP Paribas, to name a few.

Some Blockchain developments to look out for in 2018:

  • UBS, Deutsche Bank, BNY Mellon and Santander formed a Blockchain partnership to develop the launch of a unique digital currency during 2018.
  • DTCC (The Depository Trust & Clearing Corporation) in America plans to launch Blockchain-backed credit default swaps early in 2018.
  • According to a study by Infosys Finacle, a third of banks expect to see Blockchain commercial adoption by 2018.

Artificial Intelligence (AI) applications will become more prominent

Many people might not trust in computers or robots to oversee their financial transactions, they prefer human interaction. But don’t forget the ATM was essentially the first financial robot, and we’ve come to trust them completely.

The fact of the matter is that advancements in AI will reduce costs, eliminate the occurrence of human error or meddling and alleviate bottleneck pressure points in financial applications.

Leading financial institutions are partnering with technology companies to build on existing capabilities such as cognitive thought (perceive, understand, plan and navigate), manipulation (to expand from a single purpose design) and interaction (the ability to work side by side with humans).

The single most important goal of developing AI in finance is to save costs by increasing the automation and autonomy under which machines function. As such, 2018 will see increased investment in, and focus on, the improvements of AI applications.

Increased focus on online security

Online security is important across all sectors and services. But it becomes just that little bit more sensitive when people’s finances are at stake.

According to PWC’s 19th Annual Global CEO Survey, cyber threats are a big worry for top executives, with 69% stating it as a major concern.

Financial networks can become more vulnerable as technologies advance because;

  • new platforms provide new ways for attackers to get unauthorised access to a network,
  • more and more of our data is being collected and stored to improve services, however, these data stores are also becoming an increasingly lucrative target for hackers,
  • and cloud-based technology is becoming more prevalent which can be challenging to secure effectively.

But banks and other institutions are coming up with more sophisticated ways of protecting customer account information and personal data.

Big data analytics and machine learning capabilities can be utilized to monitor for suspicious account activity and biometric security, such as fingerprints, facial- and voice recognition, is becoming more practical.

Reducing the regulatory burden with RegTech

Governing bodies are putting an increasing amount of pressure on financial organisations to comply with stricter regulations such as KYC and AML. Compliance comes at a cost.

  • 40% of firms spend around $40 million regulatory compliance
  • 11% spend between $10 million and $30 million
  • Close to 50% spend between $5 million and $10 million

But the cost of non-compliance is much more.

Mark Carney, Bank of England Governor stated the regulatory misconduct in financial services has cost organisations more than $320 billion.

RegTech is a subsection of FinTech and borne out of the need to ease this regulatory burden. It provides solutions that aim to automate many of the tasks necessary to perform regulatory checks and compliance procedures.

Analytical tools are applied to large volumes of data to compare and highlight irregularities that need addressing. Other solutions make it possible to quickly comb through pages upon pages or regulation to only find the applicable laws that govern a particular industry.

By understanding what aspects of their business needs to be visible to outside regulators, FinTech companies can work with RegTech vendors to not only focus on current regulations but make it easier to comply in the future as well.


The financial industry is becoming more customer-focused, rather than the bottom-line of traditional financial institutions.

Financial technology solutions are therefore more adamant on getting a comprehensive understanding of the customer, how to leverage that intelligence to provide a better experience, while at the same time giving them the comfort of full transactional security across multiple platforms.

These are the challenges that incumbents as well as new startups are facing and will shape the developments in the FinTech industry over the coming year and beyond.