Where is the FinTech Revolution taking us in 2020?
In the past five years we have seen an explosion of new FinTech firms, business models and consumer propositions entering the market, including entrepreneurial start-ups, major technology firms and digital only mobile banking services. We have also seen the seeds of the next evolution of financial services taking root, including the move towards data sharing, open Application Programming Interfaces (APIs) boosted significantly by new Open Banking standards being unveiled. Plus financial apps enabled by biometrics, and the application of artificial intelligence and robotics.
The UK market
In delivering this progress, a world-class FinTech skills base has been developed in the UK. The question now, is how can the UK keep up with the demand for the skills that will support the future success of FinTechs over the next decade?
The UK is good at fostering FinTech innovation partly because all major financial institutions are working together to make it so. The FCA, PRA, BoE, HM Treasury and ICO now work together on a range of initiatives designed to stimulate financial innovation while simultaneously protecting consumers’ money and data.
An Innovate Finance/WPI Economics joint report in 2018 highlighted the growing importance of FinTech in the UK predicting the sector is set to reach 105,500 employees by 2030, with 30,000 new jobs being created over the next decade and employed by an estimated 3,300 UK FinTech firms.
The ‘Essential Eight’ technologies
PwC analysed the business impact and commercial viability of more than 250 of the most innovative emerging technologies, identifying the “Essential Eight” technologies that will have the biggest impact, across industries, over the next three to five years.
- Augmented Reality
- Virtual Reality
- Internet of Things
- 3D Printing
- Artificial Intelligence
As PwC’s ‘Essential Eight’ technologies continue to mature over the coming years, they may increasingly be viewed as the building blocks that organisations ought to explore to remain competitive. However, these technologies should not be explored in isolation, as convergence of individual technologies could generate even more powerful applications.
The next wave of innovation
Across the financial services industry, three main themes are emerging that demonstrate how individual technologies are coming together to create the next wave of innovation:
1. Intelligent Automation – combining Artificial Intelligence (AI), Robotic Process Automation (RPA) and the Internet of Things (IoT)
Intelligent Automation enables human-like interactions to create a ‘virtual workforce’ of automated bots that are capable of handling tasks typically performed by humans. It can include machine-based decision making without explicit programming, gathering data from unstructured sources like handwritten text or voice, or using natural language to respond to requests in a human-like way. By combining AI, IoT and RPA, vast amounts of data from a range of sources (embedded sensors, smart devices, wearable technology etc.) can be collected to feed intelligent algorithms and automate processes.
Intelligent Automation has the potential to yield returns beyond cost savings, including better customer and employee experience or quality improvements attributable to a reduction of errors and increased operational efficiency. Intelligent Automation could enable the automation of ‘Know Your Customer’ (KYC) requirements by implementing RPA for customer data capture and Machine Learning algorithms for the approval of associated workflows.
2. Automated Trust – combining Artificial Intelligence (AI), Blockchain and the Internet of Things (IoT)
The convergence of AI, Blockchain and the IoT to ‘automate trust’ should not be underestimated within financial services. Automated Trust can, for example, bring trustworthiness to AI by providing clear audit trails. It can also help improve the trustworthiness of machine-to-machine interaction by providing a secure way to share data and coordinate decisions. However, there are vocal detractors from the Automated Trust mantra now that people have seen the problems with having no trusted third party to bring in when the technology fails, or human intervention somehow disrupts it.
With the increased adoption of Automated Intelligence within financial services, such as virtual assistants, technology to secure the trustworthiness of technology will become increasingly important. Motor insurance is a good example, where insurance payments are automatically credited to a claimant’s account through a blockchain implemented authentication process as soon as an IoT connected sensor detects a defect.
3. Extended Reality (XR) – combining Virtual Reality (VR), Augmented Reality (AR), the Internet of Things (IoT) and Artificial Intelligence (AI)
Extended Reality is the combination of technologies to provide fully immersive, digital experiences to achieve life-like simulations. The widespread availability of smart devices, breakthroughs in wearable technology and enhanced data analytics capabilities, enable the development of a seamless hardware and software ecosystem, the precondition for Extended Reality.
Extended Reality is redefining how humans interact with the virtual and physical world. The use of emerging technologies, and the benefits organisations can yield from them, strongly depends on the availability of good quality data. The cloud will also enable innovation. Cloud computing will evolve from being a tool to cut costs to becoming a baseline requirement for the agile implementation of emerging technologies. Organisations must balance the benefits of innovation with associated risks.
Looking to the future
Keeping up with the pace of innovation and ever-increasing customer expectations, while meeting complex regulatory requirements, will require financial services organisations as well as upcoming FinTechs to remain agile. Organisations will have to rely on relationship-based business models. They will need to bridge the gap between technology and service providers while working with regulators to test and validate technologies in a highly regulated market.
Rav Hayer – Financial Services Tech Partner and UK FinTech Lead at PwC summarises:
“The combination of the ‘Essential Eight’ technologies is, undoubtedly, shaping up to become the most disruptive trend within the technology innovation ecosystem. However, ultimately it is a combination of internal and external factors that will dictate how powerful the conversion of emerging technologies will become. Clearly, the availability of good quality data, information security standards, agility of business models and cooperation between business and government will play a key role going forward.”
Investment in the future
The other reason for such a strong FinTech market is the strength of the VC, PE and CVC investment markets supporting it. Together the investment community put in $3.3bn of finance into the industry. Looking back into 2018 FinTech funding poured into:
- Personal Finance & Wealth Management – $333.6b
- Alternative lending & finance (e.g. P2P) – $306.6m
- Blockchain & digital currencies – $174.7m
- InsureTech – $103.1m
- Payments – $102m
The challenger banks, most notably Revolut and Monzo, saw the largest investments of all that year. For a view of where FinTech funding is likely to go looking into 2020 it’s worth taking a look at the FCA’s fifth cohort of 29 FinTechs currently in sandbox testing.
Currensea caught my eye as a digital solution to a common problem which many of us face when travelling abroad – not wanting to carry wads of paper cash or be exposed to poor currency exchange rates. Currensea offers a debit card that lets consumers pay bills abroad from their existing bank account at low rates when travelling abroad.
I recently met with Switchfoot Wealth founder Sebastian Elwell who is using Open Banking standards to develop a digital platform solution for helping families to access bank accounts and other financial policies in cases where relatives have given them power of attorney and they need to take financial charge on behalf of elderly relatives. It also helps solicitors to build information files associated with probate and inheritance. The key is to identify real needs and genuine constraints in the market today which can be solved through digital standards and secure platforms.
The next few years will see a great number of innovations coming through in all areas of financial services. Agility PR fully intends to support a number of innovators to get their message out to their chosen audiences.
Author: Miles Clayton
Published: 7 January 2020