If you ask anyone about Fintechs they will inevitably refer back to the Dot Com bubble (1995 – 2001) which fuelled the rapid growth of the Internet.
However, back then the investment was funding the building blocks of web technology with the most of the money going into Web Infrastructure, Security, Portals, Consulting, Marketing and Content. Unbelievably during this time there was no broadband and we were all having to deal with “Dialup” (In the UK Broadband was first introduced in 2000 and even by 2006 it only had 13 Million users compared to 2016 where 87.9% of adults have access i.e. 45.9 Million users), no real smartphones or tablets existed (The first iPhone arrived in 2007 and the iPad in 2010) so the main access to these technologies was via the desktop. The frenzy also saw massive investments in companies who were filing for IPOs without any revenue.
If we skip forward over 15 years we are now seeing an enhanced level of funding once again in FinTechs however this time its very different. In 2015 we saw the total level of Global deals reaching $14.8Bn and by Qtr. 3 2016 this had increased by 27% (this is in sharp contrast to only 5 years prior where only $2.59Bn was invested (2012)). In the UK $191m was invested in 2012 and by 2015 this had also increased to $1Bn (60% of investment in the UK are going to Challenger Banks, SME Financing, Money Transfer, FX, Digital Currencies and Blockchain). Also companies filing for IPOs are now showing revenues in excess of $100m.
So why is it different this time? There are numerous reasons why a perfect storm is brewing and I will explain a few below.
- FinTech Technology – During the Dot Com Bubble you needed to procure Servers, understand security and have funding to support and develop your offering. Now with the rise of Cloud Service like AWS, Azure, Google etc. anyone can build an application with a credit Card and pay by the hour.
- Building Block Technology – Fintechs no longer need to create everything as you can plug and play the payment, billing, map software etc. (Think UBER)
- Consumer Technology – During the Dot Com Bubble the barrier to entry was also on the consumer side as you needed internet connectivity (Dial up) and a Desktop. Now technology is widespread and its commonplace for people to carry multiple devices all with Internet Connectivity (Tablets, Smartphones, Wearables etc.)
- Generational Changes – During the Dot Com Bubble 40 Million Gen Xers came of age. Now there are 85 Million Millennials, all of whom are digital natives.
- Global Social Community – We are all now a global community over one world wide web
- Regulation Changes – The regulators are now embracing emerging technologies and offering sandboxes and incubation to start-ups
- Data is King – With the emergence of data Science and open data initiatives, Big Data and new modelling techniques are changing how we cost propositions and offer/sell insight.
In a recent report from McKinsey & Company entitled “Bracing for seven critical changes as fintech matures” they cite 30 emerging areas which are seeing Fintech growth.
So what should everyone do? Another article from Mckinsey & Company Cutting through the noise around financial technology suggests to some of the capabilities Banks should be making.
It’s all not doom and gloom though for the incumbents. Anyone can adopt FinTech methodologies and the Financial Services industry still needs regulation, oversight and to engender trust. Everyone therefore needs to become fighting fit, embrace change and not forget a lot of these new technologies will come with a lower price point and enable greater automation with insight for the future.
Since the inception of the internet back in 1991 we have all been on a journey to digitise our lives. In the early days (Dial up started in 1992 in the UK) you could go off and make a cup of tea whilst your email downloaded however the transition from paper had started. Things got a lot faster in 2000 when broadband arrived however you were still very constrained by how much you could afford to spend on a PC and your knowledge of the Internet. Everything changed however over the next decade as numerous products launched e.g. iTunes, YouTube, MySpace, Facebook, Flickr, LinkedIn, Instagram to name but a few; hardware became immensely cheaper and thoughts of cybercrime didn’t even enter our minds. In the 15 years since it is unbelievable to think how far we have come and of course where it will go, however just a scary thought can you even count have many sites have you signed up for with a handful of email addresses and provided all of your personal details? (Hopefully you don’t use the same passwords for your Banking as you do on social sites). As technology both in the enterprise and the consumer space becomes cheaper and everything moves to the cloud it is extremely important to think about your data (especially what you are giving out, to whom and how you will get it deleted). As a greater number of the established players buy up competitors it does mean you are required to sign up for less to get greater coverage however that does mean they will all have more visibility of your data. Apart from the normal considerations when you sign up for a Cloud Service i.e. Usability, Security, Jurisdiction etc., I bet the one thing you do not consider is how can I leave (This is naturally what they hope for too as the more cloud services are used the harder it is to leave unless you have a plan from day 1 as the data becomes too intertwined to extract).
I have had a few instances recently where it has taken months to exit cloud providers due to data removal, plus some recent cyber events like the hacking of Ashley Madison have highlighted that even companies who charge to remove your data sometimes still don’t actually remove it. Therefore as we all move more and more of our data to the cloud don’t forget to keep your eye on your data so as “Digital Convergence” becomes the next buzz word you will know where everything is and have suitable plans to ensure you can close everything down before you migrate to bigger and better things. Your reputation may just depend on it.
If you read the press it seems that most companies are obsessed with becoming digital. There is no doubt that digitising your operations will reduce costs and improve efficiency however when it comes to the Customer this may not be true.
Even though the word “Digital” is quickly becoming one of the most used and least understood words of the decade some interesting statistics have been released by the ONS concerning the use of the internet. Surprisingly 7 million people in the UK have never used the internet which equates to 14.7 per cent of the adult population. Even more surprising is that the UK is more internet savvy than the rest of the EU. In the 27 countries that form the European Union, 22 per cent of adults had never used the internet as at the end of 2012.
Overall more men have used the internet than women, 88.1 per cent against 83.6 per cent however up to the age of 44, slightly more women than men have logged in online. From 65 however women’s usage tails off with 62.1 per cent (65-74) against the men’s 71.3 per cent.
The statistics produced by the ONS certainly expose a Customer divide which should be incorporated into all Business Strategies. If you are unaware of your customer segmentation this should be a wakeup call to start creating plans and customer personas; as without this any Product Innovation or Marketing may not be targeting your preferred market.
In the future as the “Internet of Things” starts to emerge (where all devices are connected to the web) the reliance on “pure” internet connectivity will change and you may see an increase in Internet usage as consumers start to surf the web and shop via their TVs, Smart Watches, Glasses etc. However this vision is not tomorrow, so even though Digital should be a priority don’t forget the 7 million people who do not use the Internet
I was involved in a discussion recently which was questioning whether the internet was promoting an insular rather than social culture. Does the internet encourage us all to rush home and log onto our computers to engage with our friends through mediums like Facebook, Friends Reunited and Webmail rather than picking up the phone or actually meeting people? Also is this exacerbated further as more and more companies block social media sites at their firewalls?
The answer is probably yes, especially as the cost of internet access is becoming virtually free and in some cases Laptops are being given away as part of the deal. In addition to this with the rise of smart devices like the i-phone more and more people are engaged in their own world whilst travelling to work rather than socialising.
In the future however the internet will probably evolve into a medium where you create a roaming avatar based profile (a graphical representation of yourself) rather than a word formatted one, which will allow your presence to be seen by your entire network as you surf the web (A bit like a travelling Instant Messenger). This will allow a more seamless collaboration as you will no longer need to be on specific sites to collaborate with your contacts as whatever site you a viewing if a friend views the same site you will be able to converse. You may even be able to leave messages for each other on sites you know that you friends will visit. In addition to this you could even interact with the roaming avatars offering help and assistance on the websites you are visiting.