2017 was quite a year for FinTech. So, as we head into 2018, what can we expect to see? Here are a few things we’re keeping our eye on:

Infrastructure and Enabling Becomes Focus in the $640bn Tech Space

While a lot of investment lies in front user-facing technology, no one has really invested in building the new technology, enabling or infrastructure that incumbents can use. This will result in incumbents biting the bullet to release themselves from massive legacy systems and moving their platforms to cloud-like services. Legacy tech providers are going to be forced to reckon with a consultative model that doesn’t allow for incumbents to advance. And incumbents will focus on creating flexible and light, yet secure, value chains that don’t wed them to one platform or cost base.

How This is Playing Out

• Cross River and n26 become examples of flexible, cloud-based plug & play platforms.
• Due to client demand, FIS, IBM, and CA began cutting consultants and investing in scalable enabling technologies available in the cloud.
• nCino demonstrates how banks can use a cloud-based platform for a service that’s accessible via Salesforce, a growing ecosystem player.

Talent Race and Shift

The labor market for finance and FinTech is going to become increasingly confusing to incumbents. On one hand, they’ll need to maintain legacy systems with tenured staff, while in order to compete they’ll need to shift to pro-developer workforces across functions. And as many top-ranked engineers start to head west, the east coast finance companies and FinTech companies will need creative solutions to attract and retain fresh talent.

“Millennials…know how to upgrade your complicated infrastructure from Fortran to Ruby, how blockchain applies to your business model and how to save money on market data. Millennials can also streamline your interbank APIs and get your whole platform on the cloud. It’s a brave new world, and it’s not getting any slower.” (Forbes)

Unbundling and Frenemies

Imagine a world where Vanguard opens accounts, enables funding via Venmo and allows for proxy voting within the Yahoo! Finance app. This year that scenario is more likely. Asset managers will get closer and closer to the end customer, bypassing traditional sales channels. And the top asset managers will unleash components of their algorithms to allow for distributed Robos that direct consumers into their low/no fee ETF products.

Competition will put increased downward pressure on trading fees and force financial institutions to release more components of their customer journey into user experiences. And the competitive unbundling will push marketing teams to abandon the traditional conversion funnel expectations for immediate transactional activity and results.

Ecosystems

As Financial Institutions shift from legacy systems to cloud-based services, the race to build financial technology ecosystems will accelerate. As demonstrated by Dr. Rahul Basole, in his work with visual analytics of ecosystems, it’s clear that speed to market, depth of developers and available number of APIs will drive successful outcomes in business moving forward.  

As the traditional linear value chain is disrupted in favor of plug & play ecosystems, financial institutions will need to move quickly to modularize components to be available in as many ecosystems as possible, while at the same time making their core service offerings essential for others to plug their APIs into their platforms. While this may seem confusing and like a brave new world, Professor Basole’s work on APIs and the battleground between Amazon and Walmart is illustrative of the potential pitfalls and benefits.  

Potential M&A Opportunities

• One of the big three challenger Robos (Betterment/Wealthfront/Personal Capital) will be bought by an incumbent looking to play catch-up with Vanguard and Schwab’s momentum. 90% Confidence
• Ant and WeChat will make plays for a US FinTech company in either the money transfer space or payments space in addition to the repeated push to gobble up MoneyGram. 90% Confidence
• PayPal buys a PFM platform targeting millennials that gives them hooks into the full spectrum of millennial finances. Bold move possibility: PayPal buys SoFi. 75% Confidence.
• Broker Consolidation, TD buys RobinHood. 50% Confidence
• Wisdom Tree gets bought by a Passive Fund Management Firm. 50% Confidence
• Amazon will be the first mover to buy a FinTech platform that allows financial institutions to put their customer journey in the Amazon experience: Alexa, Echo or Amazon Wallet. 75% Confidence
• Amazon launches their own cryptocurrency for customers, vendors and the entire supply chain rather than partnering with an existing platform. 50% Confidence  
• State Farm Insurance makes a bold $Bn play for Lemonade. 50% Confidence
• JP Morgan, Citi or Goldman Sachs buys a Square and/or Stripe. 50% Confidence