Over recent months too, fintech companies themselves are moving away from a single service model and towards offering more services through partnerships, mergers and acquisitions. As banks and large corporations, in turn, recognize the success of fintech start-ups, an increase in partnerships is taking place in an effort to adopt winning technologies. Successful fintechs are now offering an expanded range of financial services to their customers. An example from the US is CreditKarma, a finance company which has introduced tax return filings having bought a company called onepricetaxes.com and partnered with Metabank to facilitate their tax return processes. There are many more. So what and where are the latest areas of major disruption?
Key areas of fintech disruption
Particular areas of disruption and change initiated by fintech players are as follows:
- Mobile-first banking platforms. Many big players in mobile-first banking are now or imminently obtaining banking licences. An interesting example is Revolution, who have now reached over one million users across Europe and are continuing to sign up between 3,000 and 3,500 new users every day. They claim they have saved their users over £120m in forex fees. In addition, they have revealed that over 42% of their customers’ users are aged 25-35, a strong indication that traditional banks do not meet the needs of younger, more tech-savvy generations. This target market will make time to entertain heavy apps, delayed transaction reporting and lengthy setup administration. Such digital banks have grown mainly through word of mouth and highly efficient member network connection tools. Their user acquisition rate has been dramatic compared to traditional banks. As Revolution expands into Europe, the US and Asia, they will heavily disrupt the banking landscape, increasing the pressure on traditional banks to either revolutionise their customer experience or risk losing significant market share.
- Data mining in the new era of GDPR. GDPR aims to protect citizens’ personally identifiable information (PII), providing transparency around its use and giving people the right to restrict its use or request that it be deleted or forgotten altogether. One technology that has emerged, according to a recent report by Juniper Research, as having the potential to assist organizations in complying with GDPR’s stricter rules is blockchain, which has taken the business world by storm. The electronic distributed ledger technology can create an immutable record for recording a history of transactions. Because that data is permanent, using blockchain as a type of database to transact with PII could run foul of GDPR rules. But when PII data is stored separately from the blockchain network over which it is transacted, the technology becomes part of the solution for GDPR compliance. With GDPR already in effect, fintechs are well aware that data breaches will have greater consequences than ever, and they will need to keep client consent at the forefront of their marketing campaigns and strategy. Data breaches won’t just draw major media coverage that could cause customers to leave; under GDPR, sizable fines can be levied, as high as 4% of total revenue, or 20 million euros, whichever is larger.
- Massive expansion of the use of decentralized apps. There will be a significant expansion in the deployment of decentralised apps (dapps) according to Juniper. Using blockchain as their foundation, dapps create an innovative open-source software ecosystem, both secure and easy, in which to develop new online tools. “Dapps will pool resources across numerous machines globally, harnessing the power of thousands of idle computers. The results are applications which do not belong to a sole entity, but rather are community-driven.” Like the blockchain technology they run on, dapps are distributed across many nodes (sometimes even thousands or millions), making them extremely fault-tolerant while also transparent to users. Dapps will be more secure because decentralization will make hacking and fraud less prevalent because data stored on the blockchain cannot be altered and changed at a later date.
- The development of quantum supremacy. Juniper also believes quantum supremacy will develop. A quantum computer is one that can carry out tasks that are not possible or practical with a traditional computer. Quantum computing holds the promise of rapidly solving complex algorithms, redefining areas such as fintech, logistics, and research and development.
Quantum computing works by using elemental particles such as electrons or photons (in practice, success has also been achieved with ions), with the idea that either their charge or polarization acts as a representation of 0 and/or 1. Each of these particles is known as a quantum bit, or qubit, and how these behave forms the basis of quantum computing. “Quantum computing has the ability to solve far more complex problems than current binary computers can handle, with qubits able to be in a state of 1, 0, or even both. This is known as ‘superposition’ and means that quantum computers are millions of times more powerful than binary machines and have the potential to affect and disrupt processes across all industries.”
So some really extraordinary tech innovation is going on. But whilst fintechs continue to evolve and prosper they are, however, likely to face diversified and increased regulation from government. And as new laws are put in place, it will become more difficult for fintech start-ups to navigate the new regulations. Notwithstanding this, the fintech stranglehold will grow and grow and in all likelihood, merge into the financial landscape and become the ‘new norm’, reshaping and redefining our entire financial services market.