Finance is changing so much that it’s hard to keep up with the latest trends that are shaping fintech. Everyone has heard about Artificial Intelligence or blockchain. Actually, we’ve heard so much about these technologies that they have become buzzwords, “empty” trends that sometimes companies don’t really know how to apply. But these technologies (and many more) are indeed changing fintech. At Plug and Play, we’re in touch with the startups and corporations that are driving change in this industry. We know what’s happening and we have an accurate idea of what will happen. That’s what we’re going to talk about in this article.
With fintech innovation hubs stationed around the globe, we’re very conscious that trends vary from region to region, from country to country. Different cultures create different regulations and expectations of customers too. That’s why we have interviewed experts from every Fintech office at Plug and Play, and asked them about the specific trends in their country.
Fintech Trends in the US
Nadine Muehl, Director, Fintech
$113 Trillion - this is the total value of assets held by American households in 2018, according to Brookings. For context, on average a household of three would hold over a million dollars in assets. This makes the United States a perfect market for wealth management and a massive opportunity for firms in the industry. With new developments in artificial intelligence, machine learning, and big data solutions, who will capitalize on this opportunity the most?
Nowadays, the approach to wealth management is not what it used to be. Consumers expect services that are more affordable and accessible. As technology improves and perceptions shift, one service Americans are becoming more interested in is automated, AI-based financial guidance, also known as robo-advising.
Robo-advisors are massively popular automated services that use algorithms and machine learning to offer investment advice and management to their users’ funds. Thus, robo-advisors not only consider investment opportunities, but they also respect users’ goals, income, marital status, and risk aversion, among other factors. Since AI replaces human intervention almost entirely, costs for these kinds of services are reduced to a minimum. This has democratized investing, making it more accessible for those who cannot afford traditional financial advisors. With these technologies emerging, we expect the wealth management industry to be entirely transformed in the coming years.
2020 marks the third wave of WealthTech
During the first decade of the 21st Century, several unicorns rose across the entire wealth management value chain, such as Betterment, Wealthfront, and SoFi. Services range from client prospecting and investing in portfolio management to reporting.
Following this initial surge, more VCs have realized the great potential of this technology. With more investments came a large wave of high-profile startups targeting other major inefficiencies in the industry.
In 2020, traditional wealth management firms need to capitalize on this landscape in order to survive. I expect the companies that are among the first to explore the new reality, to dominate the industry going forward.
Fintech Trends in China
Siyin Chen, Vice President, Plug and Play China
China still remains the largest and most active Fintech market, despite the investment downturn and 2019’s stricter regulation on online lending and the use of consumer data. According to national statistics, China’s fintech market size will exceed $23 trillion by 2020.
With the largest penetration of mobile payments and consumer lending, the rapid growth of the Chinese fintech market was once driven by the Internet giants. However, the market focus has shifted from B2C to B2B since 2018. Traditional players, such as banks, are embracing new technologies and partnering with fintech startups, taking their fintech development to a strategic level. Many large banks have even set up fintech subsidiaries to internalize fintech competitiveness and export technology capacity to smaller banks.
In the past two years, we have built up partnerships with several Chinese Megabanks and witnessed many innovation adoption cases between our corporate partners and fintech startups through our platform. Here is our observation and forecast for the future of Chinese fintech market in 2020.
Adoption of emerging technologies
Based on our internal research, the most wildly applied technologies (big data, machine learning, biometrics identification, cloud computing, NLP, and knowledge graph) are being employed by a majority of large banks. We expect to see more applications of these new technologies such as 5G, IOT, holographic projection, and edge computation in the financial industry.
Open Banking: 2018 marked the beginning for open banking in China and it is now thriving. China has a huge online consumer base and a strong adoption willingness of mobile banking. More than 75% of mobile phone users in China use mobile banking apps. Banks are repositioning themselves by opening APIs to connect to different internet scenarios and expand their customer base. For example, there is a startup from our acceleration program that provides online payment solutions to universities. By partnering with one of our bank partners, the startup will be able to help the bank extend its financial services to thousands of universities and potentially millions of individual students.
Blockchain: Ever since the Chinese government called for a national development of blockchain technology, the adoption of blockchain has gained traction in the financial services industry. Banks play a major role in the exploration of this technology, especially in the field of SME lending, risk management and operation efficiency. As the banks are under national pressure of supporting SMEs, blockchain solutions will be leveraged to mitigate risks and reduce costs. Additionally, even though China has banned the trading of cryptocurrency, People’s Bank of China (the Chinese central bank), is at the forefront of the national digital currency research and has been very active recently. We estimate that the launch of the Chinese digital currency will accelerate as well in 2020.
Cybersecurity: China has made great progress in the field of AI, blockchain, and other emerging technologies, but the cybersecurity field is almost empty. There is huge growth potential for cybersecurity in the banking sector with the development of open banking. Since regulators have not launched API management standards or data protection regulations in China, banks will need cybersecurity solutions to protect their own data and assets when opening APIs to third parties.
Fintech Trends in Japan
Yuin Tei, Ventures Associate, Fintech, Plug and Play Japan
Fintech startups in Japan have been addressing rapidly changing regulatory environments for the past 5 years. New regulations are implemented to protect consumers from certain risks of financial products. At the same time, new regulations provided new business opportunities for new players. We are watching the Equity Crowdfunding (ECF) market very closely in 2020. In fact, they are riding on the big regulatory wave.
Since ECF was legally approved in 2015, many platformers from Fintech startups to large financial institutions have entered into this market. However, the Japanese ECF market has not been growing as rapidly as expected because of the Japanese consumer's low-risk tolerance and low-tax incentives. On the other hand, the UK has a successful equity crowdfunding ecosystem. BrewDog, Monzo, and Revolut are currently unicorns, but fundraised on an ECF platform in the past.
In 2020, "Angel Tax Reform" will be implemented in Japan to boost consumer's investment in private company equities including startups. Japan has over 18 trillion dollars of household assets, half of which still sits in bank accounts as cash with almost no value in such a low-interest-rate market. Angel Tax Reform is expected to provide equity crowdfunding with liquidity by flowing large amounts of consumer's cash.
Plug and Play Japan will keep watching the regulatory environment in Japan and other Asian countries to share our original insight with startups, corporations and innovators from across the world.
The list of Japanese ECF Platformers:
eCrowd (Coming Soon)
Fintech Trends in Singapore
Bharath Haridas, Lead Designer and Innovation Manager, Insurtech; Yun Hua Ler, Fintech Community Manager, Fintech; Zac Chen, Ventures Associate, Insurtech; Ziheng Li, Ventures Analyst, Fintech
Partnerships between non-banking incumbents and startups are reshaping the Fintech industry in Singapore, especially since Singapore’s central bank announced the issuance of up to five digital banking licenses in 2020. This follows the footsteps of Singapore’s Asian peers which issued licenses in 2019, namely Hong Kong, South Korea, and Taiwan. The goal of this initiative is to allow non-bank players to create new digital services and business models that could reach unmet and under-served banking needs in the Singapore market.
Singapore is not new to digital banking services. Legacy banks like DBS have picked up awards (e.g., the “World’s Best Digital Bank” award by Euromoney in 2018) and even expanded their digital bank offerings to India and Indonesia after the wide success of their digital bank services in Singapore.
To win over consumers and SMEs, the majority of the 21 applicants for digital banking licenses are partnering to form consortiums that will deliver unique products and services for the end consumers. They intend to do this by leveraging the latest technology, as well as cross-selling through their existing businesses and channels.
The applications for digital banking licenses include collaborations between:
Grab (Southeast Asia's leading super app for Transportation and Financial Services) and Singtel (Telecommunications Company)
Razer Fintech (Fintech arm of gaming hardware firm Razer), Sheng Siong Holdings (Supermarket Chain), FWD Insurance, and Carro (B2C automotive marketplace), among others
Singapore Business Federation, V3 Group (Holding company for luxury brands), EZ-Link (Stored-card operator for Singapore public transport), MSIG Singapore (Insurance Company), Far East Organization (Property Group), and Heliconia Capital (Investment Firm)
AMTD Group (Hong Kong financial services group), Xiaomi Corp (Chinese tech giant), and SP Group (Utilities provider)
Financial institutions will soon face the pressure to compete with these digital challengers. To succeed, they will have to form new partnerships, invest in advanced technologies like AI and automation, and improve their own technology stack and infrastructure, in order to remain relevant for digital-savvy customers and SMEs in Singapore.
Fintech Trends in Spain
Lluis Llorens, Fintech Associate, Plug and Play Spain; Ricardo Álvarez, Fintech Associate, Plug and Play Spain
As the battle for Europe’s fintech capital continues to rage between London, Paris, and Frankfurt, we are seeing promising growth across Spain as the nation’s startup and tech scene matures.
Fintech and Spain may seem at odds in our collective imagination but that would be ignoring key strengths in Spain’s financial ecosystem. Home to large multinational banks, a conscientious regulator, and an industry bound by a strong network of local SMEs, Spain has the makings of the perfect testing ground for disruptive solutions in the personal banking, payments, and the SME space. In fact, by the end of 2019, the Spanish fintech ecosystem was made up of close to 400 startups, 100 more than 2 years ago, with payments and remittances accounting for the main segment focus of these newcomers.
We’re seeing a strong collaborative culture emerging in Spain as both large traditional corporations and SMEs invest heavily in digital transformation with a strong customer-journey focus, as well as explore new technologies in the big data and analytics field by partnering up with startups, universities, and public institutions. This virtuous circle is being nurtured by the Spanish government which developed a regulatory sandbox in 2018, as well as oversaw the creation of the Spanish Fintech Association.
This year we expect to continue seeing a laser-focus on improving the consumer journey for financial products with a strong focus on stripping down friction points and improving UX and UI. Today, almost half of Spanish fintechs are platforms that rely on open protocols and APIs. We expect this segment’s growth to stabilize as less collaboration-centric products and more disruptive solutions enter the market in a bid to replace incumbent’s services such as neobanks and standalone wealth management products.
Fintech Trends in the Middle East and North Africa
Teona Ristova and Sherif El Hennawy, Ventures, Plug and Play ADGM
The number of fintech startups in the MENA region has grown substantially in recent years with the UAE taking the lead as the most popular hub. There has been a compound annual growth rate of 39% in the number of fintech startups between 2013 and 2018, with 46% of startups operating in the UAE.
B2B Fintech products initially comprised of a large portion of the total number of VC-funded Fintech companies, however, lately there has been a shift towards B2C Fintech solutions. The early B2B trend can be attributed to:
Lack of suitable regulations to enable direct-to-consumer fintech
Insufficient consumer trust in the financial system across many countries in MENA
Governments, especially those of the UAE and Bahrain, are becoming increasingly supportive towards the Fintech industry by implementing new favorable regulations. Furthermore, recent regional initiatives include:
Nine regulatory sandboxes across MENA, such as Abu Dhabi Global Market’s (ADGM) RegLab program
Initiatives to increase the banked population (e.g. the launch of Meeza Card in Egypt)
Initiatives to improve access to finance for SMEs
From 2018 to 2019, Fintech deals received a total funding of $74M. Payment and remittances consisted of 45% of the total deals, making them the leading sectors across the board. Digital wallets have also come onto the market. However, their uptake has been rather slow, primarily due to the fact that the MENA region is still inclined toward cash payments and certain countries are largely unbanked. However, the predominantly young and tech-savvy population combined with the rise in smartphone penetration is expected to lead to an increase in the adoption rate of digital wallets.
As governments continue to focus on technology and financial inclusion across the region, open banking has become a hot topic for discussion. Bahrain has led the way in establishing open banking regulations and we expect to see more MENA countries following this trend.
Fintech Trends in Brazil
Andrea Sánchez. Director, Fintech, Plug and Play Brazil
Brazil is becoming a key ecosystem for those looking for interesting technologies in the financial services landscape. For years, the banking ecosystem in Brazil has been “customer-unfriendly”, due to its high fees and rigid products and services. Up until recently, the industry only focused on a small and very specific demographic. This resulted in a considerable amount of people (45 million, according to research from Locomotiva Instituto de Pesquisa) that were declared unbanked – which brings a great opportunity for fintechs to fill the gap left by financial institutions.
How are Fintechs shaping the Brazilian financial landscape?
The payments industry is a clear example. Unicorns such as StoneCo, PagSeguro, and recently Ebanx have developed flexible solutions for the previously unbanked. The next big trend will be focused on digital wallets, and how they’ll be affected by instant payments and open banking.
Process automation is key for both Fintechs and financial institutions. If they want to remain competitive while reducing costs, they’ll need to rely on automation.
Emerging lending startups are transforming Latin America, as they’re giving access to credit to underserved consumers and SMBs. Peer-to-peer lending is definitely one of the main fintech trends here in Brazil, as there are still many without access to a credit record (and, consequently, to credit).
Services for SMBs. Small businesses are essential to fully develop Brazil’s economic potential. Thus, financial Institutions offer SMBs tools to help them with accounting, HR, payments, or financial management, so that they can focus on their core business. The most well-known startup in this field is ContaAzul, an accounting software platform for small and medium businesses that automatizes the process of billing and invoicing, and reduces the time spent on filing taxes.
Trends keep changing, but innovation is always there. At Plug and Play we drive innovation in financial services by cutting-edge startups and the largest corporations. Join our platform today.