Are investors running out of patience to see tangible results from fintech? 2017 could be a year of reckoning for fintech companies if they do not begin turning over profits. The much-hyped cycle of fintech may get a dose of commercial reality, as financial services business leaders shift their immediate focus toward tangible business solutions while keeping innovation and automation on their long-term agenda.
Are investors running out of patience to see tangible results from fintech? 2017 could be a year of reckoning for fintech companies if they do not begin turning over profits. The much-hyped cycle of fintech may get a dose of commercial reality, as financial services business leaders shift their immediate focus toward tangible business solutions while keeping innovation and automation on their long-term agenda.
The hype surrounding financial technologies soared over the past five years as the industry saw venture capitalists (VCs) pour billions into the space. According to a report byCB Insights, global investment in private fintech companies totaled $5.7 billion in Q1 2016, with $4.9bn of it across 218 deals. However, despite a 98% year-over-year jump, the report also found part of the growth is related to three mega-deals, indicating a possible slowdown in momentum.
The question is:Are investors running out of patience to see tangible results from fintech?
2017 could be a year of reckoning for fintech companies that might lose their shine if they do not begin turning over profits. Taps will start to shut off if the once-massive potential of fintech fails to envisage or if the market is not conducive for a healthy IPO. This, however, doesn’t come as much of a surprise, as most technology VCs expect only one in 10 investments to pay off. Effectively, this means the much-hyped cycle of fintech may get a dose of commercial reality and start to feel deflated sooner than later. The pressure is on for fintech firms, but there is strong potential ahead, if they focus on the right areas.
Regulatory Technology (RegTech)
Financial services business leaders are shifting their immediate focus toward tangible business solutions while keeping innovation and automation on their long-term agenda. The results from Synechron’s Top Financial Services Trends in 2017 survey, conducted by TABB Group – which received feedback from 200-plus senior-level global financial services business and IT decision-makers across the U.S., U.K., and Europe – shows that C-suite executives are pushing regulation up this year’s priority list. Regulations such as MiFID II (42.6%), Dodd-Frank (29.6%), the DoL Fiduciary Rule (15.3%) and Basel III (15.3%) dominate their concerns
The uncertainty behind regulations governing these technologies could be the very reason businesses are looking at how they can use technology not only to address regulation but also drive innovation. Global geopolitical events like Brexit, a Frexit threat, and undefined US financial regulatory reform have created an environment in which businesses need to rethink their global operations and technology infrastructures. Take Brexit, for example, where Synechron estimated the average cost for relocation from London offices to another European city to be £50,000 per employee. As businesses assess shifting their global operations, how they use technology to address these regulatory and operational challenges not just for compliance but to gain additional business value will be a key focus.
Artificial Intelligence and Machine Learning
Additionally, in 2017, financial services firms are incredibly interested in integrating Artificial Intelligence (AI) into their businesses to increase efficiencies and generate immediate business value by solving challenging problems. Techniques such as robotic process automation (RPA), natural language processing (NLP) and the integration of chatbots into business operations will be a key priority for bank executives looking to do more with less and will fundamentally change the way financial service firms do business.
Recently, we helped a client build an AI-driven trading assistant that uses NLP and voice recognition to detect trading irregularities and potential red flags, while simultaneously bridging a chat conversation between the trader and the compliance team. These are the types of applications financial services firms are looking for, and why we also believe 2017 will be the year of the chatbot – as applications such as Siri and Alexa have created increased familiarity and consumer appetites for voice-activated technologies. Santander Bank, for example, has built a customer-facing chatbot into its call centers and mobile banking applications, while Bank of America has incorporated voice-recognition technology to enhance customer service. Whether it’s banking, trading or insurance interactions, we expect a whole range of chatbots as customer service reps and virtual assistants to go live this year.
Given the focus on AI, firms need more sophisticated and better data management, which will continue to elevate the importance of the Chief Data Officer (CDO).
Blockchain
Blockchain is another technology where financial services boards have indicated that they have bought into the overwhelming potential for the technology. The emphasis on blockchain experimentation seen in 2016 will continue in 2017 as firms shift their focus from proof of concept to proof of value. And although consortiums might rise and fall, the appetite for banks to work together and leverage blockchain accelerators to run proof-of-concepts or controlled pilot programs will progress further.
Some of the use cases that are seeing the most interest relate to problems that can be solved by a small ecosystem of banks that can work together to build a solution to a shared challenge together. Among those top use cases are the need to address rising margin call volumes and related collateral management operations as well asknow your customer (KYC) utilities.
With each new technology and innovation, it will be critical for firms to think about how their users are impacted. Combining technology innovation conversations with techniques such as design thinking that place the customer at the center of the value chain will allow businesses to gain the most value out of these projects.
As the fintech sector develops and matures, the industry as a whole will embody all these stages differently. Understanding and navigating the path of technological progression in such a highly regulated industry like financial services is crucial for the health and stability of market participants. Through our work helping clients navigate regulatory and technological change, Synechron has witnessed numerous industry challenges. The key to success? Piloting forward-thinking strategies that keep financial institutions ahead, while maintaining a sharp eye on the regulatory changes of today.
Sandeep Kumar is the Managing Director ofCapital Markets Solutions at Synechron, responsible for blockchain accelerator applications for financial services.
