The newness of digital-age fintech seems to have worn off. There is less surprise at the concept of online-only banks, less indignation at robots giving investment advice, less confusion and scepticism over digital ledgers and cryptocurrencies. It’s like we all jumped into a chilly pool, went through a period of shock, and have now gotten used to the temperature of the water. But this is far from suggesting that fintech companies have become less disruptive or that their potential has played itself out. Just the opposite: fintech’s most exciting epoch is beginning right now. My colleagues at the Khube and I recently attended the Paris Fintech Forum (PFF) where many of our fintech observations—and a few new ones—appeared in other people’s mouths. Our ultimate conclusion is that fintech has reached adulthood, and is about to change our lives in a deeper, more profound way. Read on for the reasons why we think so.
1. David and Goliath have become friends.
Fintechs, once seen as agile but heavyweight threats to big incumbents, are now largely considered more to be assets in partnership—the shift is noticeable in just the two short years since the first PFF in 2016. There are counterexamples to this trend, of course, such as Lemonade in the insurance sector, or some neo-banks with successful operating models, but these are not the norm. More indicative are new combinations, like BCPE’s recent acquisition of online bank Fidor, or the partnership between BNP and robo-advisor Birdee. It seems that the industry knowledge, customer bases, and confidence-inspiring histories of established organisations complement the digital strength and flexibility of fintechs, and vice versa. Indeed, banks and insurance companies see fintech products/services as immensely valuable new parts in the larger machine of their work.
2. Tough technologies have become household concepts.
Once mystical and dense, “cryptocurrency” doesn’t even warrant defining at conference talks anymore. People know about it. This, surely, is a sign of the technology’s maturation. We fully expect 2018 to be a breakout year for cryptocurrencies, and perhaps more-so for the distributed ledgers (blockchains) that power them.
3. Fintech has taken on a vision of its own.
People often confuse fintech with software. Ultimately, however, “software” denotes programmes that carry out tasks on computers—and this does not define fintech. Rather, fintech represents a mind-set as much as it represents creative uses of new digital means (many of which reach far beyond software, like machine learning or artificial intelligence). That mind-set includes communicating frankly to customers, and honouring both convenience and transparency.
4. Financial inclusion makes a difference.
Another part of the vision above is inclusion. The proliferation of new digital channels has meant that, more and more, organisations are able to reach populations who have long been without financial services. But it’s not enough that they can—they do. One example is Ovamba, an African SME financing solution and winner of the PFF pitch contest. The company provides businesses in Africa and the Gulf Cooperation Council (GCC) with short-term capital.
5. Regulations represent valuable new competition grounds.
MiFID II has gone live, and GDPR and PSD II are fast approaching—one might assume that financial institutions are suffering through all this regulatory compliance upheaval. However, perhaps to my surprise, banks and insurance companies are showing themselves to be keen on new opportunities in this variable landscape, central to which are fintechs. There is a prevailing opinion not that fintechs are merely useful, but that compliance (and competitiveness) simply cannot be achieved without them.
6. Data is the new oil.
There was a time when oil powered cars. End of story. No oil, no movement. Now, data has supplanted that substance as the world’s major propellant: with more devices on the grid in more ways, data is everywhere. Regulations like the GDPR are helping protect individuals from misuse of their information, but caches of data are still growing and companies are thriving on knowing how to control it—take insurtech companies like Lemonade or Trov, who have used data to develop stronger risk models to insure people or objects in a new way.
7. Less corporation-to-customer, more person-to-person.
Perhaps another indication of its maturity is that fintech embodies the zeitgeist of this generation’s consumers, in how it prizes end-users. At the PFF I was struck by the obsession with end-users—it seems that a prerequisite for success, within this field, is a real and honest improvement of their lives. A recurrent theme is the assumption that end-users are savvy and discerning, that their trust must be earned, that part of the modern customer experience is not just new digital access to expertise but more inclusion in the whole process, for example by having an effect on your own insurance rates based on your lifestyle choices, or by choosing investment schemes based on issues important to you.
8. Luxembourg’s fintech community is strong.
This one may not fully fit the list, but we have to say it: Luxembourg is small but it’s punching far above its weight class in terms of—among other things!—fintech. At the PFF the Grand Duchy seemed to be everywhere: Luxembourgish startups, innovative companies, and financial sector professionals were all united under Luxembourg’s House of Financial Technology (LHoFT). Minister of Finance Pierre Gramegna didn’t miss the event either, delivering a powerful speech about Luxembourg being a small but ambitious and forward-thinking nation.
The Khube is KPMG Luxembourg’s Hub for Entrepreneurship. Visit our website to find out more.
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