What's Coming with FinTech in 2019
Financial technology (FinTech) as an industry has been maturing and consolidating in the last five years, with tremendous progress and growth from 2017.
Waves of investment capital continue to pour into startups looking to deliver the next level in financial innovation. Industry powerhouses, such as Plaid, Stripe, and Robinhood, have substantially increased in valuation and emerged as FinTech giants.
As 2018 comes to a close, what industry-wide trends can we look forward to in 2019 on the FinTech front?
FinTech companies have hesitated going public due to the negative trend in valuations the last five years (i.e. Lending Club, SoFi). There are some high-potential firms that can break out such as RobinHood, Credit Karma, Stripe — ultimately depending on their proven success with scalability and profitability.
For the majority of FinTechs that have focused on the industry mantra of “products over profits”, going public is doing the opposite. The widespread availability of private funding through venture capital has also minimized the IPO appeal.
Many rising FinTech startups (Top 100 of 2018) have put themselves on the map in 2018. These companies are rapidly growing in value AND are still small enough to be purchased. Challenger banks, which are “mostly digital” banks immensely popular in Europe, are prime examples of likely acquisition targets.
FinTech giants continue to look for more opportunities from mergers or acquisitions with these companies than in 2018. Banks and large institutions are also looking to stay competitive and invest unused cash in purchases that push forward technological innovation for existing clients.
Future of Funding
The free flow of capital is expected to continue from 2018 to 2019 (unless an economic downturn takes place). The emergence of megafunds, most notably SoftBank, will open up massive funding rounds being deployed over the next 2-3 years. Other large firms such as Sequoia Capital are expected to create and distribute similar funds as well.
Big Tech vs. Big Finance
Tech giants have been testing the financial waters, but still not ready to make major industry moves. These companies that have focused on products and services for their own user base, are hesitant to deal with critical industry issues such as data and privacy protection, magnified in the FinTech sector.
In 2018, global regulators have been increasingly critical of Google and Facebook, and concerned with poor security controls that have led to numerous data breaches. There is a large learning curve for these companies to understand the landscape, but tremendous potential to move fast once they do.
The majority of FinTechs, especially mature and established firms, are directly involved in payments and transfers. Banks and large institutions are looking to stay relevant and protect their market share (from Apple and Google Pay) by improving payment options, such as contactless cards (that don’t require a swipe or chip) and mobile wallets.
The speed of payments is also expected to move towards “real-time” in order to reduce delays in transfers and improve customer experience.
The Future of FinTech
It’s a revolutionary time for the FinTech industry. There were so many changes, improvements, and new players in 2018 that weren’t in the forecast the year prior. Cryptocurrency hype has died down, regulation is opening up data access, and more banks are partnering or buying startups. As the industry grows through private or public funds, startups mature, and tech giants pilot new offerings — the industry opportunities for 2019 are truly exciting and will continue to disrupt finance worldwide.
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