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LATEST THINKING


Where are the FinTech Unicorns – Has the Revolution Lost Its Promise?

WHAT IS FINTECH AND WHERE IS IT HEADED?

Fintech is all about applying evolving technological advances to improve financial services - either reinventing or simplifying a process, increasing its functionality and making it more engaging for users. The ‘tech’ in Fintech is the emergence of brand new technologies, such as AI, blockchain, analytics and big data.

There has been a recent decline in Fintech adoption – with investment hard to come by, and because deploying these new technologies has not resulted in immediate benefits - there has been slow momentum. This period of slow Fintech adoption will likely be short lived. Deployments will accelerate as adjustments to the technology e.g. blockchain or to risk management e.g. AI, are made. Just a few years ago, cloud was seen as an impossible solution for financial services, but is now transforming the industry. As with cloud, the cost benefits of adopting Fintech will be realised eventually.

Figure 1 - What is 'Tech' in Fintech

KEY FINDINGS: WILL CHINA BE THE CENTRE OF FINTECH VALUE CREATION?

Figure 2 - Unicorns and their combined valuation

On paper, China has become the focus of global investment, but has far more ground to cover than more mature Fintech hubs in creating the conditions needed for start-ups to prosper in the long-term, however, incumbents in western markets should avoid being complacent. The stigma surrounding the inability for Chinese Fintech giants to innovate is no more. Alipay and JD Capital have clearly demonstrated their successes in customer acquisition, with 445 million and 226 million customers respectively.

Although the UK has seen a fall in confidence, potentially due to the Brexit vote and the uncertainty of the UK’s financial market, the time to act quickly and decisively is now. If Western incumbents are not careful, they may find innovations from the East entering into their home markets at pace and at scale. Getting banks to realise the potential upside of innovative game–changing Fintech technologies already available, would help minimise the threat.

FINTECH – DID SOMEONE CANCEL THE REVOLUTION?

Although the decline in Fintech investment undeniably remains a concern, the Fintech revolution is far from being cancelled, and offers prospects of a new energy source to power financial services. Harnessing this power effectively will certainly require different revenue streams to support new infrastructure and an emerging ecosystem - but nobody joins a revolution merely to optimise costs. The old world is indeed changing and there is no doubt, the financial services industry will still be living in interesting times for some years to come.