Laura Watkins

2017 is drawing to a close, it’s been an amazing year for fintech and banking, there’s been so many changes, new companies, products, services and innovation across the industry. For a full rundown of the best (and worst) stories from 2017, listen to our After Dark Christmas Special where we recap the whole year.

However, as 2018 is fast approaching, we’re looking ahead and getting some predictions in for the next year. We asked the 11:FS co-founders and team and our Fintech Insider News community what they thought would be the big themes of 2018. The biggest topics were as follows:

Open Banking & PSD2

This is the big one that everyone is looking ahead to in 2018, when the legislation comes in on 13th January.

Customers will have greater access to their own data and can allow third parties to make payments on their behalf, massively changing the current model. Banks will have to share their customers’ financial data and make payments on request, which transforms the traditional banking model. The benefits to the consumer are huge, but possibly they are not aware of them – there hasn’t been enough education yet informing and empowering customers of the coming changes.

It is already clear that change will not be immediate, 5 big banks including RBS, HSBC, Santander, Barclays and the Bank of Ireland, have already stated that they will not be meeting the time scales. Additionally, banks have been given a reprieve till 2019 to roll out the most stringent rules of the new legislation.

David Brear: “Open Banking looks like it will disappointing from big banks as they look on course to under-deliver, despite the hype. If they are already trying to do as little as possible to adhere to the minimum requirements it’s not a good sign and means they definitely will not be maximising the opportunities open banking could bring.”

“Open Banking looks like it will disappointing from big banks, as they look on course to under-deliver, despite the hype.”

On the flipside, fintechs are better placed and very keen to take advantage of APIs as a result of more open data sharing, allowing them to look into whatever opportunities they can gain from open banking.

Likewise, this could give non-banking players such as Facebook, Amazon, Google and Apple opportunities to harness their huge volumes of data to personalise their services and offer new ones.

Is 2018 the year the empire strikes back?

Have the banks really done enough to establish themselves against the challengers, asks David Brear. Can they rise up and do something amazing to innovate and pit themselves against the fintechs and hold onto their large customer bases, or will they lose them to Monzo, Starling or N26 as they scale?  Can the digital challenger banks such as Monzo, Starling, N26 and Atom get significant growth next year following all the good work they’ve done this year  – is 2018 the year neo banks go mainstream? Equally, can they follow N26’s model of taking early adopters from multiple regions rather than just staying in the UK?

“Will we get digital banking to 2% finished?” – David Brear

Many banks are waking up to more and more challenges in digitalising their operations, and this will be even more pressured in 2018 thanks to the arrival of Open APIs under the Payment Services Directive 2 (PSD2) and Open Banking in the UK in January. The open sourcing of financial services has been bubbling for a decade, and now that regulations are forcing this onto the large institutions, 2018 will be a big year for doing digital properly and becoming an Open Bank. – Chris Skinner

Doug Bobenhouse on the 11:FS Americas team calls this rush to innovate and keep up with fintech developments, especially in the wake of Open Banking: “Mad Scientist Banking”, stating: “A little of this, a little of that and POW, a magic potion of fintech goodness! As API mashup hubs become effective and mainstream across marketing, infrastructure, process, AI / machine learning, and payments, new players will emerge more quickly and existing players will make faster (and less expensive) pivots to deliver on unique customer journeys and value propositions.”

Is SME the new Banking Battlefield?

SMEs materially influence GDP, it’s a huge opportunity and innovation space for those willing to take on the challenge and cater to this huge market segment that has historically been underserved.

The SME space is getting a lot of attention in recent months, could it be the new industry for disruption and fintech innovation in 2018? Will startups and challengers such as Tide, Coconut or Penta shine in the SME space or can the big banks fight back?, asks David Brear.

Non-banking players

Corporate treasury teams in big conglomerates such as Amazon, Apple, Google and  Facebook could start to become more “bank-like” in the wake  of Open Banking as their frustration with corporate banking provision increases due to its inflexible products and services. They could start to utilise their huge data assets to start offering their own financial services and banking capabilities, much as Alibaba and Tencent have done in the East.

American Outlook

“We’re FUCKED!!” says 11:FS Managing Partner for the Americas, Sam Maule, before breaking down into uncontrollable sobbing.

Moving on…

Bitcoin

Bitcoin’s stratospheric rise has been one that even the most stringent traders and analysts didn’t necessarily foresee at the start of this year. Blockchain Insider hosts Simon Taylor and Colin G Platt have conflicting views about what the future of bitcoin looks like:

“Bitcoin has a major correction, the price tumbles  and Jamie Dimon says he was right all along” – Simon Taylor. Jamie Dimon, listeners to the show might recall, is the CEO of JPMorganChase who controversially called bitcoin “fraud” earlier this year and he would sack anyone investing in it. Bitcoin then went on to rise to an all time high price of over $17,000 at the start of December. While Simon reckons the price will fall, Colin thinks the price increase has only just begun: “Bitcoin will only start to enter bubble land, with prices passing $100K and people taking on debt to get in” – Colin G Platt.

“Bitcoin has a major correction, the price tumbles  and Jamie Dimon says he was right all along” – Simon Taylor.

Despite predicting a fall in price, Simon still firmly believes that bitcoin will remain A Thing, saying that despite many reports of a death of bitcoin that it’s going to continue moving forward and remaining an asset, even if it’s prices don’t skyrocket in the future.

“Bitcoin will only start to enter bubble land, with prices passing $100K and people taking on debt to get in” – Colin G Platt.

Colin thinks Bitcoin will “fully pivot from payments to a savings product”, he also predicts that offshore deposits will “discover” Bitcoin, meaning people with money in tax havens will start looking at bitcoin/ether as an instrument to avoid tax, harking back to the revelations in the Panama and Paradise Papers. He also suggests that the White House will mention Bitcoin at least once & the Federal Reserve in the US and the European Central Bank (ECB) will mention the effect of cryptocurrencies on macroeconomic stability.

ICOs (Initial Coin Offerings)

Simon thinks that ICOs will become more regulated, cleaner, and a more legitimate way to raise cash with Colin predicting regulators and lawsuits will come down hard on ICOs (also possibly exchanges) resulting in a 75% drop in funding as legitimate projects are put off by regulation, leaving only scams and lower quality projects. Colin thought that legitimate projects may come back to ICOs but only after a “massive culling”.

DLT

2018 could be the year “we see a DLT project hit production at scale” – Simon Taylor.

By which he means the old world of financial services, eg, a set of banks, exchanges or CSDs & FMIs will do something real in blockchain and DLT, and at scale. Meaning real customers, a high transaction volume, large financial assets and a market value in the $10s-100bn. An example of such a project could be automating the workflow of the financial asset servicing lifecycle post trade, where the current workflow is highly manual, inefficient and replicated many times throughout the process. Automation of this would make the process faster, more efficient and make significant cost savings.

Adding his thoughts, on the rise of DLT, 11:FS NED Chris Skinner: “during the last couple of years, we have seen many proof of concept and trials of DLT, but 2018 sees it become mainstream as various institutions go live with real-world applications. The Australian Stock Exchange (ASX) is one of the first, but there are others. Watch this space carefully in 2018 as things are changing fast.”

Crypto Assets (and CryptoKitties)

Simon predicts that the crypto asset market cap will reach $750bn- $1trillion before it reaches any major correction (its current worth is approximately $500bn). Sam Maule predicts that there will be an accelerated talent shift (drain) from traditional financial services to the cryptocurrency space. “This is the tech gold rush of our time.”

“This is the tech gold rush of our time.” – Sam Maule

And no list would be complete without mention of CryptoKitties. Colin predicts that Collectibles (like Kitties) become a major trend in Ethereum, potentially a new development, moving away from the CryptoKitty-esque pets and more likely something tied into virtual reality or video games. He’s also got his fingers crossed for the first CryptoKitties based investment fund. Watch this space and stay tuned to Blockchain Insider to keep ahead of the curve.

Wealth and asset management

2018 will be the year that wealth, investment & capital markets become big subjects in fintech as these sectors look to benefit from the types of innovation and change we’ve seen in retail and SME financial services in 2017. – Simon Taylor

Getting down to business with Artificial Intelligence (AI)

Several of the large banks like JPMorgan and UBS were doing interesting things with AI in 2017, but I think this will be a lot more pervasive and recognised across all banks in 2018. This is primarily for compliance and risk, as AI can develop and apply complex rules across all business processes in real-time, and when most banks have 1 in 3 staff checking compliance, it makes absolute sense to replace them with learning software. – Chris Skinner

Rationalising and cleansing core data structures

Many banks have built their core operations on fragmented systems aligned to products. This has distributed customer data across multiple platforms, and banks recognise that they cannot use AI effectively on data spread across the business. As a result, many will develop strategies for building an Enterprise Data Architecture in 2018 which rationalises and cleanses their fragmented data stores. – Chris Skinner

UX design and customer experience

11:FS’ UX Lead Tom Evans gives three key areas of focus for design and customer experience in financial services products going forward:

1. Anticipatory design – predicting what a customer is going to want or do, before they do it – exemplified by Google Now

2. Biometric authentication – Tom says pin codes and passwords are so passé and we will see a sharp rise in multi-factor biometric authentication as effortless authentication will become both a user expectation and ‘table-stakes’ in 2018.

3. Innovative design will focus on people not products – going forward we will see the emphasis of UX design and service design focusing more and more on solving the everyday problems, challenges and points of friction that customers face, rather than just pushing out new products.

Insurance & InsurTech 

“For 2018, I believe we will start to really tear down the product silos that we continue to confuse customers with and get focussed on being relevant, convenient and frictionless.   Our new go-to-market will be driven by attention and engagement.  New business models that’s blend or merge these two will create new opportunities for those who really excel.  Examples such as Revolut selling Insurance, Bud bringing in utilities into banking and so many more.  The winners will be the most efficient at manufacturing and the most effective at engaging. Ecosystems will win beyond single individual providers. We have talked about insurance moving from reactive claims companies to pro-active value adding risk managers, leveraging all this tech – 2018 is the year that this becomes truly possible.  2018 is the year for ‘Frictionless insurance in a land of utility’!” says Deloitte Partner and InsurTech Insider co-host Nigel Walsh.

‘Frictionless insurance in a land of utility’!” – Nigel Walsh

David Brear agrees with the frictionless approach:”Insurance needs to move to become less policy focused and more service focused in order to offer its customers a more engaging and likeable service.” Backing up this point, Doug Bobenhouse adds, “[we can expect to see] more direct-to-consumer plays emerge from US carriers, dis-intermediating long standing distribution channels with both traditional and u nique service offerings.” Watch this space and for more insight, listen to InsurTech Insider to keep you up to speed with all things insurance and tech!

FIN Community Predictions

We asked our Fintech Insider News community for their predictions, here are just a selection. Read the full thread here.

Alex S – Community Manager

  • Acquisitions of at least one major challenger bank in the UK – opinions were split from the community whether it would be Monzo or Starling who get acquired first or at all.

Dan Gray – Fintech Feed

  • We’ll see the birth of a few RegTech unicorns – as automating / streamlining compliance is recognised as a huge opportunity.
  • Challenger banks will start shovelling money into ads to help them ‘cross the chasm’, creating a higher stakes competition.
  • We’ll see fewer new consumer products driving their own acquisition, with more building products that can plug into existing banks/marketplaces.

Gareth – GBG

  • Stock market crash – Linked to the cryptocurrency stratospheric price hikes, the stock market will crash in a 2008 type way after a decade of all time highs their will be a strong correction as investment dries up and the bubble pops.

Gary Fegan – Director Of Innovation at xon 79

  • 2018 will be the year of the chief ethical officer and the end of separate innovation teams.

Keep up to date with all the industry news as it happens and share your thoughts with commentators and enthusiasts in the space, such as these guys above, by signing up to Fintech Insider News.

Conclusion

“2018 –  the year people stop talking about products and start talking about distribution of services” – David Brear.

These are just our predictions, let us know yours over at FintechInsiderNews.com. None of us can see the future so we’ll just have to wait and see what 2018 brings!

As usual we’ll be taking a look at the main stories and topics as they happen on Fintech Insider every week so stay tuned and don’t forget to subscribe to the podcast so you don’t miss out.

Have a fantastic Christmas and a Happy New Year!