The Fintech Trends Reshaping The Startup Landscape
After an era of excitement over the fintech industry’s potential to disrupt financial services, the impact is finally taking shape. For many startups, that disruption has been possible not just by taking up trendy tech, but also through collaborations with industry incumbents and by working within a growing body of regulations that make it possible for startups to thrive.
Here’s a brief look at some of the fintech trends that will have the biggest impact on startups this year.
Artificial Intelligence And Institutional Players
Artificial intelligence has been a hot topic over the past couple of years. The biggest problem for many startups, however, has been moving from concept to product, whether it’s infusing AI into an existing product/service or building it from scratch, largely due to limitations in computing power.
But with large companies opening up their powerful AI platforms to the world, limitations in computing power are slowly dissipating. At 2016’s Google I/O, Google (NASDAQ:GOOGL) launched the tensor processing unit, a powerful processor that is capable of crunching code at ungodly capabilities – up to 30 times faster than the average chip.
The company continues its work on the chip this year and is one of many AI projects that are geared towards staying ahead of competitors like IBM (NYSE:IBM)’s Watson that’s already helping fintech startups integrate machine learning.
Blockchain And Related Technologies
While cryptocurrencies spent the better part of last year riding a bullish wave, blockchain, the platform that powers them, was growing in leaps and bounds as large companies realized its potential as a decentralized ledger. Companies like IBM and Maersk (CPH: MAERSK-B) are among large companies using the blockchain for, among other things, supply chains and digital record management.
A majority of startups, however, seem to have underutilized the great power of the blockchain. To illustrate, Startupbootcamp, a global accelerator platform for startups, received a paltry 6 percent of applications from startups that were using blockchain last year according to a fintech report by PWC.
For a long time, two of the biggest barriers to fully utilizing blockchain-based technologies had been a limited understanding of the nature of the blockchain and lack of cooperation among startups, which is an important prerequisite in itself.
Thus, there’s still a huge gap for startups when it comes to innovating with the blockchain. Chris Huls, a blockchain and crypto consultant from Rabobank who was quoted in the PWC report, says collaboration is the key to success in the world of blockchain. And as more startups and incumbents continue along the path of collaboration, real opportunities will begin popping up for fintech startups, leading to fewer blockchain startups and more startups that are boosting their offerings with the blockchain.
The evolving fintech playfield is also helping fan the disruption within the payments industry.
Together with P2P lending, the payments industry remains one of the most significant areas of innovation for fintech startups, especially those that thrive in the ecommerce industry. Retailers and manufacturers in the mattress and allied industries, for instance, registered all-time highs in revenue, with an average industry growth rate of 3.4 percent last year – all because of an improved payments ecosystem.
In keeping up with the spirit of innovation, 2018 will see the EU enforce the Payment Service Directive 2 (PSD2), a digital protocol adopted earlier in the year that requires mainstream financial institutions like banks to share customer data with other players in the industry, including fintech startups, via APIs.
The EU’s adoption of the PSD2 and related protocols means startups will have an easier time developing fintech applications. David Warner, a financial consultant and reviewer with a credit cards reviews blog, predicts that the US and other developed economies will soon have no choice but to follow the EU’s example, enabling fintech startups to spread their innovative ideas across the globe.
Finally, there’s the little matter of regulation. Until mid-last year, regulations were a sticky subject for most of the niches within the fintech industry. Regulators struggled – and are still struggling – to keep up with fintech startups working with blockchain technologies, Initial Coin Offerings (ICOs) and within the stock and forex brokerage niches, which was a risky affair considering the high-profile nature of the financial industry.
But if the regulatory actions against cryptos and ICOs by the SEC and many governments globally are anything to go by, we should expect more regulation going forward. Implemented correctly, a regulated fintech environment should serve to make the industry stronger and safer, which should boost consumer and investor confidence and ultimately foster a healthy environment for fintech startups to thrive.
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