Looking back on last year's FinTech predictions not many commentators accurately predicted where we would be entering 2017. As a professional advising both established financial institutions and new entrants I see an exciting year ahead. Here are my key predictions.
The UK will forge ahead as a global FinTech leader despite Brexit. Building on its sandbox initiative and the signature of several FinTech co-operation agreements with regulators in the Far-East, the FCA will continue to launch progressive initiatives and reach outwards. As it did in 2016 the FCA will continue to provide leadership on global regulatory thinking and initiatives.
The growing trend of collaboration between FinTechs and incumbents will intensify in 2017. Due to a more challenging landscape for those looking to raise capital in Europe and the US, FinTechs will be increasingly willing to partner with incumbents in return for funding and market access. This will drive increased M&A activity. On the global stage the explosion of Chinese FinTech activity and investment seen in 2016 will continue and Chinese FinTech will continue to dominate.
We will begin to see the impact of the regulatory initiatives designed to open up retail banking and payment services such as the EU's second Payment Services Directive ("PSD 2") and the UK open banking initiative. Several new intermediaries will enter the market, not just in payment services but across the spectrum of comparison sites and personalised financial management services. Some interesting business models and collaborations between banks and intermediaries will emerge as intermediaries own more consumer relationships.
The rise of APIs will bring increased threat of fraud and potential data breaches. The ability for consumers to share retail banking transaction data history with third parties via open APIs from January 2018 (as part of the open banking initiative) aims to stimulate competition for the benefit of consumers but many will need comfort around security and potential for unauthorised use. Technical solutions for control of on-line use of personal data by the consumer (possibly blockchain based) will gain traction.
Regulation of peer-to-peer lending will be tightened, impacting the existing business models and practices of some players. This combined with a changing economic landscape will result in casualties, but tightened regulation will also increase consumer confidence and pave the way for sustainable businesses as the market matures. One of the newly authorised UK challenger banks will team up with a peer-to-peer lender.
It will be the year in which Bitcoin achieves legitimacy. Overall global economic uncertainty will drive investors to look at Bitcoin as an alternative safe haven investment. The resulting increase in Bitcoin activity will in turn drive adoption, with more retailers willing to accept it and transaction volumes significantly increasing. This will move regulation of crypto-currencies up the agenda and we will see developing regulatory frameworks contributing to the legitimisation of Bitcoin and cryptocurrencies as a new asset class.
The proliferation of blockchain applications being piloted by the banks will encounter a wave of realism as the scale of the challenge of moving from testing to real life deployment becomes apparent. The hype will subside as projects stall but investment will continue and more clarity will emerge on the applications of the technology likely to succeed and the platforms which will dominate. One of the key issues for blockchain in 2017 will be how far trust has been affected by last year's "hack" of The DAO – a crowdfunded investment community built on the Ethereum blockchain platform.
AI and Machine Learning will be big FinTech trends in 2017, encompassing everything from algorithimic trading to personal finance bots. There will be more scrutiny from regulators on how investment decisions are being made as AI and deep learning play a greater role in investment systems. 2017 will also see the banks responding to rising demand from the Gen Z and millennial cohort for chatbots (most likely through integration with existing social chat channels or smart assistants).
In summary, 2017 will mark a further leap in the evolution of FinTech and the world of financial services will continue to undergo major technology driven change.