This phenomenon is seen in cities around the world. As a result, fintechs are now the intense focus of once-dismissive incumbents as they contemplate their own futures and their relationships with a younger, tech-savvy generation largely dissatisfied with traditional institutions.
Propelled by the existence of large profit pools and dissatisfied consumers, these platform-based, data intensive and capital light businesses have ushered in an astounding technological shift.
Faster than ever before, ideas can now go from whiteboard to proof-of-concept with unlimited potential.
To larger organisations, this 'fail fast' approach is cultural anathema and one of their main vulnerabilities. But venture capital funds (or VCs) are recognising the value to be had in fintechs.
Follow the money
Over the past five years, there has been a five-fold increase in the number of fintech start-up companies in Australia, with $856 million invested in the sector in 2016 compared to $67 million in 2012 according to a KPMG report.
Most of this money has gone into the payments, lending and wealthtech sectors. As Christmas approaches and a new year looms, it may be time to ponder what this means looking forward.
Following the money, below are the top three fintech trends likely to emerge in these key areas as we look to what’s ahead for fintech.
The low-hanging fruit of finance, the payments space is ripe for fintech disruption. We will see an increasing demand for faster, more convenient and accessible finance and payment services embedded into people’s lifestyle and experiences.
The cashless society is very likely to happen. With Millennials driving big changes, the prevalence of mobile-based apps, social media and engagement-based rewards programs will play an even bigger role than ever before.
Already WeChat (the Chinese social media mobile app), for example, boasts close to a billion users and has become a mammoth e-commerce and peer-to-peer payments platform. One to watch out for is payments app Venmo, which is big in the US and soon to be in Australia.
The imminent release of the New Payments Platform (NPP) in Australia will further enhance the development of major infrastructure to support innovation for non-bank players in this area.
The NPP is a new national, open access infrastructure that intends to provide consumers, businesses and government departments with a secure and efficient platform to make fast, versatile and data-rich payments to meet the evolving needs of a 24/7 digital economy.
Consumer lending has also benefited from advances in machine learning and the deployment of more sophisticated algorithms.
Smarter and broader credit scoring methodologies and decisioning techniques that rely on hundreds of credit inputs to make a loan assessment (rather than just your balance sheet or credit score) are opening up lending opportunities for credit-worthy borrowers in previously underserviced markets.
Combined with richer personal finance tools with predictive and contextual suggestions (think Amazon-style cross-selling or upselling of related financial products you qualify for), lending is seeing its greatest overhaul since the introduction of the credit card. Watch this space!
The rise of robo-advisers that turn big data into meaningful information for the individual investor, is also a direct result of the evolution in artificial intelligence and neural networks.
Financial intermediaries like brokers and financial advisers could soon become endangered species, as nimble fintechs crunch the big data that large financial services companies typically provided to their clients in exchange for big fees.
This could be especially true of Australia, whose capital structure and gigantic pool of superannuation funds is one of the largest in the world and largely controlled by financial intermediaries. Remember, big profit pools.
Others to watch for
Apart from these three key areas, the money is also flowing to regtech, a key area where industry experts believe Australia has the potential to lead the world.
Together with blockchain, more than 90 start-ups in Australia (of the 579 companies today), are actively exploring this field. As the pace of technology and innovation has intensified, the need for transaction security and fraud detection has also increased.
The rise of regtech is a reflection of the substantial regulatory and cost burden this has created for financial institutions, as well as policy makers and regulators to effectively manage risk, compliance and transparency.
Of course, blockchain will continue making a lot of noise, but how quickly the technology will become ubiquitous is a source of speculation.
In a world wired for speed where redundant middlemen are being made obsolete, blockchain eliminates the need for an intermediary that typically handles the many steps involved in the authentication, confirmation, validation, settlement and record-keeping of any type of transaction, be it transfer of funds, contracts or assets.
Blockchain makes this process much more efficient and transparent, ultimately saving time and money. Lots of money.
While the technology’s potential is limitless, the future still looks hazy. The ecosystem will need to reach a consensus on standards of application before moving the technology out of experimental skunk works and into the real world.
Once past the stage of self-interest where companies have jockeyed for competitive advantage, blockchain may become ubiquitous – but we won’t even get close before Christmas.
As we move into 2018, there will be more interesting collaborations and partnerships around these trends – the emerging technological changes are engendering not so much a winner takes all approach, but rather symbiotic opportunities for different players to assess strengths and weaknesses and choose the best partners.
Some are referring to this process as 'Fintegration': a game of musical chairs in a bid to remain competitive and keep pace with emerging innovations before the music stops.
Clayton Howes is the chief executive of MoneyMe Financial Group.