The FinTechs are coming but its different this time

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.

Innovation over the last 10 years

For nearly 10 years I have been sharing my technology & Innovation observations through my blog.  To offer a retrospective over this period is not only interesting but can shape where the industry will go in the future and to support this I have compiled a list of the annual 10 technology trends produced by Gartner over this timeline. It is good to keep in your mind that the observations and trends are cutting edge rather than adoptive and most companies will lag a few cycles behind so the immediate future can be gleaned from the last few years and the most up to date trends will not reach consideration for a few years to come.

At the beginning “back in 2007” it was evident that the trend was Infrastructural and encouraged the move from traditional Data Centre hosting models to ones which involved Cloud computing, automation and design that was web enabled with collaboration and mobile in mind.    We then entered a  period which was more transactional (which is where most companies will be now) which exploited the previous advances in technology and saw the evolution of Business Intelligence to Advanced Analytics and visualisation, the use of Big Data and where all development was device agnostic and ready for the web.

gartner-2007-2017

Even though Technology is moving at a tremendous pace I think the next 2 cycles will be extremely exciting.  I think initially we will have another infrastructural period where Cloud Technologies evolve into a hybrid state; we will understand more about how to exploit the data from connected devices and the internet of things including how to store it.  We will see advances in Artificial Intelligence and will start to hear about the first real time distributed ledger platforms being used.    Then comes the interesting stuff; the next period will show that we finally have the right technology in place to start exploiting all these new advances so Distributed Ledger applications will be common place, Augmented and Virtual Reality will come of age and start to become communication channels in their own right.  Machine Learning will also start to become intertwined in everything we do and appear everywhere from your home to your Car and even the workplace.

This last set of observations may seem a long way away however just look how far we have come in the last 10 years and remember Broadband is only just over 15 years old so in ten years anything could be possible.  We all just need to embrace the change and enjoy the ride.