It’s safe to say that a lot happened in 2017. From European elections to Trump’s travel ban to surges in cryptocurrency price, all of these events have had and could still have a major impact on the fintech industry in 2018. With the sector expanding across the world and an increasing amount of investment going into financial technology, 2018 could be the year for fintech.
The start of 2017 was an uncertain on both sides of the Atlantic with Trump only just being inaugurated and Brexit going ahead, but no one really knowing what both of those things meant. With many deciding that Canada was the next best option at the time, it was announced that the UK’s Financial Conduct Authority (FCA) and the Ontario Securities Commission (OSC) agreed to help fintech startups navigate regulations. Regulation, as always played a big factor in how 2017 fintech operated, as many financial institutions and startups were in the final stages of preparation for GDPR and PSD2. Attempting to move away from the ‘wait and see’ approach to regulation, for many in the industry, a shift was experienced with more regulatory bodies wanting to support fintech.
Artificial Intelligence And Driverless Cars
Artificial intelligence, although having been of interest in the fintech community for a few years, became more mainstream and fears grew about the need for humans in technology. With Amazon’s Alexa and driverless cars booming, this doesn’t necessarily mean that 2018 will be like an episode of Black Mirror, but new products may become an integral part of how we live our daily lives. However, like with any new technology, negativity could result in mass adoption taking a little longer than expected, especially when it comes to banking.
Elon Musk’s Tesla overtook General Motors to become the most valuable car company in the US this year. According to Reuters, Tesla ended with a stock market value of nearly $51 billion which was $1 million more than GM. At the end of 2015, Juniper Research predicted that self-driving cars will take off by the year 2021 and there will be approximately 20 million vehicles on the road by 2025. With the emergence and rapid success of Tesla, these predictions could become a reality.
Immigration And Brexit
2017 also saw Trump announce his controversial travel ban that led to a whopping 127 tech companies, including Apple, Facebook and Google, file orders against the ban on grounds that it was against the US Constitution. In my opinion, fluid movement of people aids the fluid movement of ideas and in turn, the fluid movement of money in the form of jobs, education and the digitalization of life, as we enter into a more tech-friendly future. With people from Iran, Libya, Somalia, Yemen, Sudan and Syria being banned from entry into the US, Canada may poach this intelligence and talent and in turn, start to become a larger fintech powerhouse.
In March of this year, the Brexit bill was passed and in a similar way to after the EU Referendum, London’s fintech industry was questioned and it was uncertain whether financial institutions would relocate to other countries in Europe. In addition to this, whether or not the UK capital would lose its status as fintech capital in the world and cities in Germany, France or other countries could potentially take over. KPMG and CB Insights revealed that Germany brought in $186 million in comparison to the $103 million that British businesses pulled in in 2016’s second quarter. The report also explored how funding to venture capital backed fintech companies worldwide has fallen significantly and this could be due to the UK’s decision to exit the European Union and the uncertainties associated with it.
The report found that Germany outpaced the UK last quarter and saw 80% more funding than the UK did and notable funding rounds went to fintech startups Finanzcheck that raised $46 million, N26, $40 million and AEVI, $34 million. The UK’s top deals were from challengers Tandem Bank which raised $31.7 million and Azimo, $15 million, as well as Transferwise that raised $26 million. In total, Germany brought in $64.9 million from five deals and came in second for payments technology investment activity, under the U.S. that brought in $251 million from 26 deals.
However, France also has the potential to take the reigns and the French government have been attempting to recruit and encourage British fintech businesses that may be affected by Brexit to move to Paris. At the start of this year, French digital minister Axelle Lemaire did the same and in a recent interview with Business Insider, she highlighted how although British startup investment fell, investment in French technology has soared by 71% from January to September in 2016. “In the third quarter of 2016 alone, funding obtained by French startups reached €857 million ($921 million), double the amount invested in Germany and almost equaling the €919 million ($988 million) invested in the UK,” Lemaire said.
These investment figures from last year suggest that Paris has more of a chance of becoming a top fintech center in comparison to Berlin, Frankfurt or Hamburg. However, Lemaire explains that the “goal should be to create real European champions and not to focus on a narrow competition between European states.” Alongside this, Paris is not the only city or town with potential to become financial centers, as Lemaire states and has shown with her launch of 13 French tech metropoles in cities like Montpellier, Bordeaux, Grenoble, and Lille.
At a London rally, French presidential candidate at the time Emmanuel Macron sparked interest by voicing his concerns about post-Brexit Britain, according to The Telegraph. Macron urged “banks, talents, researchers, academics” to return to France and “come back as entrepreneurs, to do business, innovate, create, research, teach.” Will the French follow this advice? If yes, what will happen to the UK and London fintech?
This year saw the election of Emmanuel Macron as French president and throughout his campaign, the En Marche movement was perceived to be the more forward-thinking and Macron was hailed as the ‘startup candidate’ and a true ‘disruptor of the political system'. In his manifesto, Macron pledged €50 billion ($55 billion) worth of public investment for environmental measures, apprenticeships, public infrastructure and digital innovation.
Financial technology is usually funded by venture capitalists or private investors eager to develop innovation in banking, so it is hard to say what impact this will have on fintech. Perhaps, smaller startups would flourish a lot faster than expected with the help of extra cash and the more successful would remain successful in 2018. The UK’s snap election also caused some controversy at first but then bolstered original Conservative plans to spend more on research and development in order to meet the OECD average, as well as to increase the amount levied by firms employing migrant workers.
The Catalonia independence referendum also saw financial institutions based in Catalonia relocate to cities like Madrid or Valencia, minimizing the potential of Barcelona continuing to be a top fintech hub. Uncertainty seems to be a big theme here, as it has been since Brexit, or at the time of Grexit, and this is because consumers are not aware of what is going to happen. ING’s Geoffrey Minne suggested that this uncertainty may moderate consumption, which would then create a dent in private demand. “If worries turn into panic then there could also be a run on the banks and capital controls,” Minne said. Is this where fintech comes in? With Catalonians distrusting the state, it could be that many turn to digital and newer models to manage their money and Barcelona could thrive in the fintech industry.
Blockchain And Cryptocurrency
Ripple started 2017 with the addition of 10 more financial institutions to their global payments network and ended with a surge in XRP price. Ripple CEO Brad Garlinghouse highlighted that the emergence of a blockchain boom shows that the number of customers in this area is accelerating. “People know Ripple is the only blockchain solution for payments that is proven in the real world, and it’s driving demand from financial institutions of all kinds and sizes because they want to stay ahead of the curve,” Garlinghouse said.
However, the UK’s WannaCry ransomware attack saw 2017’s first notable bitcoin surge to over $2500. May 12th marked the start of the ransomware attack on many corporations in a range of different industries, most dramatically on the UK’s health care service, the NHS. After locking more than 200,000 computers worldwide with the WannaCry virus, hackers asked businesses to pay a bitcoin ransom of $300 at first, which then started to increase. This rise also occurred after an announcement from the Digital Currency Group encouraging investors to invest in the future of bitcoin. The Digital Currency Group’s bitcoin scaling agreement was a significant step forward for the fintech industry and blockchain technology being used within the finance space.
Possibly the biggest news for the financial technology industry of 2017 was the recent Bitcoin surge that resulted in many other cryptocurrencies like Litecoin and Ethereum increasing in value. 2018 will welcome a range of regulatory requirements and financial institutions are launching new products on the blockchain in order to simplify compliance, and this is where the Ethereum blockchain is becoming increasingly popular.
A project named the Massive Autonomous Distributed Reconciliation program (Madrec) was announced and will be led by UBS with involvement from Barclays, Credit Suisse, KBC, SIX and Thomson Reuters. For a while now, financial news has been dispersed with updates of how banks are experimenting with cryptocurrencies and this announcement is one of the most recent, after Bitcoin futures began trading.
Unlike Bitcoin, however, Ethereum has always been spoken about in a more positive way and has become the second largest digital currency in two years. After being launched in 2015, the value of Ethereum’s currency, otherwise known as Ether, has increased by more than 6,800% since the start of the year.