Since its creation, the world of FinTech has seen tremendous innovations disrupt the world of finance. From mobile apps to e-wallets, and with the advent of Big Data and Artificial Intelligence, the revolution is far from over. In 2017, Europe FinTech funding grew over 120%, VC-backed companies also saw an increase in the US while Asian funding fell for the first time in four years. Last year also saw the birth of eight new FinTech unicorns. What does 2018 hold for FinTech?
The next FinTech
InsurTech, FundTech, RegTech, etc: these are only some of the FinTech combinations and innovations that have emerged over the last five years. While 2017 was clearly the year of RegTech, focusing on compliance and on facilitating onboarding processes, new challenges arise in 2018. Some of those are related to the upcoming GDPR – Global Data Protection Regulation – to be implemented on May 25th, all over the European Union. According to Ghela Boskovich* (Head of FinTech & RegTech Partnerships, Rainmaking Innovation), 2018 might therefore be the year of "Privacy Tech". She explains: "There is no fancy buzzword for it yet, but I predict it will be the next iteration of -Tech to hit the financial sector. Despite the debate around data being the new form of capital wealth - an assumption I subscribe to and advocate - the commercial delta will not be about the data itself, but around granting permissions to circumvent the privacy constraints on that data". The FinTech expert thinks that permissions to access data have become the new commercial model and that constraints and managing the data distribution will be the new profitability models. She continues: "privacy will be the value-added service, and any tech that enables better management and commercialization of that permission will be the next wave of disruption".
Over the last months, a new word has also surfaced: BigTech. The topic, describing how tech and web giants such as Amazon, Apple or Facebook in the US, and Alibaba or Tencent in China, are entering the world of financial services, was notably addressed during the World Economic Forum by several experts. The report finds that financial institutions’ drive to become more "experience-driven" is opening the door for potential competition from global technology giants. According to Jesse McWaters, lead author of the study, and Project Lead, Disruptive Innovation in Financial Services at the World Economic Forum, "tech giants would be able to pick and choose their points of entry into financial services; maximizing their strengths like rich datasets and strong brands, while taking advantage of incumbent institutions’ dependence on them". Does this mean fierce competition between traditional financial institutions and tech giants or wider collaboration strategies? Time will tell.
AI to benefit both financial institutions and end-user
Thanks to the implementation of virtual assistants across global enterprises and through the development of Artificial Intelligence solutions created by the likes of Apple and Amazon, the AI hype has reached a never-seen-before level. "Thanks to digital tools powered by AI, we can easily empower the consumer or the private investor to ‘map’ his financial future according to his current choices. Complex financial products can be simplified or at least presented in a more intuitive way, leading to clearer alternatives between risk and return," adds Thibault de Barsy, CEO of Keytrade Bank.
As explained by Ghela Boskovich, "AI is data driven. It is taught on data. That should prove to us that data really is the new fuel for the business model. Besides more process automation, more streamlined decision making, and more nuanced risk models, as well as identifying the anomalies and outliers in data patterns, the most interesting component of AI is going to be how it liberates teams to do more complex analysis that require a human, emotional intelligence to arrive at a satisfactory conclusion or transaction". In an ideal state, the end customer should then expect to see more intuitive digital experiences with more immediate insights on and recommendations about the right products at the right time with the right personal fit. "On top of that, when needing to actually work with a human being (instead of a digital interface) to resolve an issue or get advice, they’ll be working with bankers who will be able to show them predictive models/outcomes not based on general market data or a rules calculator, but on that customer’s unique data history and pattern with deeper insights specific to them," she adds.
Finally, Stefan Van Geyt, Group Chief Investment Officer at KBL European Private Bankers, sees AI as becoming more important in the months to come: "Robo-advisory will continue to grow – with penetration rates rising faster among younger clients and those based in emerging markets – but won’t replace human contact anytime soon, especially in sectors like wealth management". The Group Chief Investment Officer predicts that we are going to see an increasingly hybrid approach: clients will benefit from the robo-advisor’s capacity to analyze reams of data with total objectivity and the human advisor’s ability to listen to another individual, understand their hopes and fears, and earn their trust.
Attracting talents and using the agile methodology
A challenge for any FinTech company, or for banks who decided to develop their own innovative services instead of partnering with startups, has been finding the right skills and talents, especially in Luxembourg. According to Yves Baguet, COO of BIL – Banque International à Luxembourg –, "Human is at the very center of every single transformation and development strategy. The human aspects are key vectors and too many examples show failures when these were not taken into consideration. It can even be compared to IT infrastructures, where the ‘soft’ has a direct impact on the ‘hard’. Also, the agile way of working requires interaction between co-workers rather than processes. It also means adding a lot of fun in the daily tasks. I have seen it many times in agile companies: it’s about making work fun again!".
Ghela Boskovich is also an advocate of the agile methodology: "Imitation is the sincerest form of capitalizing on something that already works. Banks can also adopt agile methodology and lean model canvassing, and many are doing that in their own dev teams". Yet, according to her, copying the methodology is no challenge. The actual challenge lies in accepting the models of innovation that actually work, models that operate truly independently from the bank while still leveraging the competitive advantage of being a big corporate, such as resources and funding. "Innovation centers are still fundamentally under the umbrella of the banks, and therefore aligned with the same incentive and governance structure of the corporation That umbrella structure limits the ability of innovation centers to induce change. However, the venture building model can overcome that limitation. By launching new ventures that operate as separate entities that are measured differently, all the while making full use of their parent company’s competitive advantage (including market share), and run on finding the profit delta in the market, not sustaining business as usual. Joint ventures, venture building: it’s the most rational model for banks to adopt to innovate quickly," she adds.
More generally, to bridge the gap between supply and demand in terms of ICT – and therefore FinTech – talents, the government of Luxembourg has launched several initiatives to promote the living and working environment.
*Ghela Boskovich will be one of the guest speakers at ICT Spring on May 15th and 16th, and will participate to the FinTech Summit, discussing the latest trends. Do not miss her presentation and attend ICT Spring: www.ictspring.com/register
This article was already published in BEAST #11 / www.beastmagazine.lu
Publié le 14 mai 2018