US Fintech trends: 2018: the year of digital banking

Fintech investments on the rise, sub-sectors such as blockchain attracting record levels of investor interest and artificial intelligence gaining traction. It’s all pointing to a great year for digital banking in the US

This has been a strong year so far with fintech investments exceeding 2017’s figures in terms of value and volume. Sub-sectors such as insurtech, regtech, blockchain, wealth management and lending attracted highest levels of investor interest with artificial intelligence and robotics process automation (RPA) beginning to gain traction. US retailers are also starting to realise the importance of fintech in people’s everyday lives, creating the need for US retailers to partner up with leading fintechs to ensure the highest levels of customer satisfaction and benefits. Here’s a look of the rapidly growing trends in the US market.

Remittances to Western countries see a peak in volume and value

Contrary to the myth that remittances primarily flow towards people in developing nations, there has been a clear trend showing a peak in remittances to developed countries in the Western world. Countries such as France, Germany, Belgium, Spain and the US have collected $1.5 trillion in incoming funds in the recent past. These funds were transferred for a variety of uses including business travel, shopping and for people relocation to Western locations. In battling the high remittance costs enforced by governments, the industry has also realised the increasing importance of blockchain applications in ensuring a secure movement of funds at the lowest possible cost. Blockchain will continue to play an important role going forward.

Blockchain, blockchain, blockchain

Blockchain investments have dominated 2018 so far due to large funding rounds in companies such as Circle, R3 and Paxos, among others. These investments cumulatively added $100 million-plus to the fintech funding pool in the US. This exponential growth in blockchain popularity can be linked to its role in ensuring efficient, quick and safe record-keeping. Blockchain technology is increasingly becoming known to be a ‘must-have’ technology layer versus traditionally the ‘good-to-have’ feature that it always was. At this rate, blockchain will soon become a part of businesses across other industries too and no longer be restricted to being used in the financial world.

Open Banking and real-time payments are taking over

In an effort to deepen commitments towards Open Banking, it is estimated that about 90% of banks in the US plan to invest in developing open APIs and customer-friendly payment tools. This will allow customers to link a variety of payment applications to their bank accounts and allow for smoother transaction processes across platforms. While these trends are quickly being accepted in the US, European markets are seeing challenges in terms of regulations that might hinder the full use of this concept for now.

Traditional banks are investing in digital

This year has also seen an active movement by traditional banks such as Citibank, JP Morgan Chase and Goldman Sachs moving towards building digital platforms. While some of these moves are reactive ways of dealing with challenger banks that are purely online and gaining popularity, some efforts are also proactive and aimed at taking advantage of the digital wave sweeping the US banking industry today.

Despite all the positivity in the digital space, one major challenge that will continue to concern the industry is the average customer’s hesitation in trusting purely-digital platforms with all their personal and financial information, especially in light of the data violations that have taken place in the recent times.

The shift from speciality fintech to general fintech

While initially the fintech industry saw firms being born to be ‘speciality’ fintech firms offering very niche services and products, the recent past has seen a shift to a more ‘generalist’ suite of offerings. Firms that were originally set up to focus on either lending or payments are now evolving into companies that offer a wide array of digital-payment services. German startup N26 is a great example of a company that began by solely providing one service, by being a mobile-only bank account, and is now aggressively working towards offering a range of credit-related services to almost match the services of a full-fledged bank.

The birth of ‘generalist’ fintech companies like N26 leads to the birth of challenger banks, which in turn pressurises traditional banks to adopt digital strategies to guarantee their own survival.

By Sahil Anand Director, IBS Intelligence

This article was originally published in the October issue of the

IBS Journal

 

 

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