If in the beginning the home geographies of Fintech predominantly were such giants as the UK, the USA and China, then in 2018 about 40% of Fintech–investments became truly global. Within 2018 more than 1463 new Fintech-startups appeared. Dynamics in the financial sector is growing.

However, the following figures and facts from the World Economic Forum study will tell better than any words about the Fintech’ scale of development:

• Lending platforms will grow at the rate of 48% each year (YoY) from 2016 to 2024.
• On average, two out of every three top managers in the banking sphere believe that the introduction of PSD2 will decrease the bank’s profitability due to the emergence of a large number of new players.
• Among all APIs, the second most popular category is payments and financial services.
• We can expect an increase of 200% YoY in P2P payments.
• Only 54% of people worldwide trust financial institutions.
• Two thirds of Millennials are open to becoming users of financial services from trusted brands — for example, Nike or Google.
• People trust insurers even less than banks, supermarkets, car dealers and online shopping sites.
• Loan rates will be increased in all major markets of the world.
• 75-80% of the total IT budget of banks is spent on maintaining existing core banking systems.
• Nearly 90% of experts believe that compliance costs will continue to grow in 2019.
• Around 40% of adults worldwide still do not have bank accounts and access to financial services.
• Regulators in the United States and Europe have fined banks for a total of $ 342 billion for non-compliance and misconduct since 2009. By 2020, the figure is likely to grow to $400 billion.

With all this diversity of numbers and facts, good news is that the fast-growing fintech sector has already 39 unicorns in the world totaling $ 147.37 billion. According to other estimates, there are already more than 50 Fintech-startups with market cap more than 1 billion US dollars. Most of these startups’ offering is lending. Other popular segments are cybersecurity, insurance and neobanks. In 2018, among the new Unicorn-names we faced Revolut, Atom Bank, Plaid, Brex, Monzo and Toss. The most prominent fintech-unicors so far are Stripe, Coinbase, SoFi, Credit Karma, Gusto and Robinhood.

Among the obvious Fintech trends for 2019 the following should be highlighted:

• Trend to move from the plastic to contactless technologies, QR payments and an increase in mobile payments,
• Further development in biometrics and authentication methods in order to cope with the increased threat from fraudsters,
• Banks will show more and more creativity in the development of their branch network,
• All participants of the financial sector will fight for SME,
• We will see more and more APIs,
• Banks will start talking to users in their language in their own preferred instant messengers – the rise of chatbots and messengers,
• An increasing number of banking technologies are moving to the “clouds”.

I am sure that, despite the many emerging areas, it makes sense to concentrate on the three main and most profitable trends:

1. Artificial intelligence, robotization and automation of processes.
2. Big Data.
3. Cybersecurity.

Let’s take a closer look at all three trends.

1. Artificial intelligence, robotization and automation of processes.

This is the hottest trend. Some 68 years ago in 1950, Artificial Intelligence (hereinafter – AI) was perceived as nothing more than science fiction. The same year, Alan Turing offered the so-called Turing test for evaluating artificial intelligence of the machines. Significant interest in AI began in the 1980s — the Japanese government invested $ 400 million in technology related to AI. At the same time, deep learning techniques have appeared. After 10 years, the World Chess Champion Garry Kasparov was defeated by a supercomputer – Deep Blue from IBM.

In the 1990s, speech recognition programs appeared. With the development of technology, the dynamics of the development of artificial intelligence has significantly increased. In 2011, Apple presented to the public its virtual assistant Siri. In 2016, Google’s AlphaGo for the first time defeated the world’s strongest Go player. At the same time, the number of gadgets and objects connected to the network exceeded the number of people on the planet.

Scientists have calculated that by 2021, investment in AI will reach more than 58 billion US dollars, of which around 10 billion US dollars will be invested by the financial sector players. The most interesting thing is that there is still no consensus on what AI really is – some experts believe that machine learning is not an artificial intelligence, others are confident that AI is augmented intelligence. At least, it is clear that due to the development of technology and AI, we will have an opportunity to be more effective in:

• Detecting patterns in vast amounts of data. It will be much easier for us to find the abnormalities and deviations faster.
• Predicting the likelihood of the occurrence of certain events.
• Customizing products – quickly developing rules of conduct for different customer profiles.
• Taking decisions. More accurate decisions thanks to a set of rules that is worked out after big data sets analysis, rather than based on old experiences.

AI in banking processes. It is very reasonable and popular to create so-called Centers of Excellence within companies. However, it is worth thinking seriously about switching to the “Back-Office-as-a-Service” model. Thus, on the one hand, you generate additional revenue stream by selling this service, and on the other, you constantly get more data. The more data flows through your systems, the faster the systems learn and the better your service becomes. As a result, those financial institutions that remained on their own will never be able to compete with such centers. Indeed, in this game, the winner is the owner of the data, not the owner of the algorithm. Algorithms can always be duplicated and copy-pasted, but getting data sets to fine-tune algorithms is not such an easy task. As a result, such centers will create a continuous product improvement cycle: an excellent product attracts new users, which in turn generate new data, and new data again improves the product and makes it even more customized.

The best examples of such services are – Google Translate and Facebook. Users are in constant interaction with these services, constantly updating and improving the product. This is unimaginably challenging for the competitors to offer a better service, because in order for their product to be better, they need access to the data of billions of users.

Now imagine that the back-office processes at banks have become almost identical. In such conditions, there is a new rising force – service providers. They will dictate their rules and set prices. After all, it is obvious that switching from such centers of excellence would be very expensive and difficult. Banks become customers of service providers. As the logical next step, the most talented staff will begin to migrate to service providers.

Users’ behavior has also changed dramatically due to new technologies rise, and now the old differentiators (price, speed and access) no longer work. These are already basic minimum requirements in order to become generally interested in banking products.

What can help on the way to winning the hearts of customers?

• Customized products. Banks need to learn not only to create individual offers for clients, but also to become their advisers, to recommend them the best financial management solutions.
• Attracting attention and engaging users. Customers have to be happy with your services and willing to share their data and maintain an interactive dialogue. This is already beyond the framework of typical financial services. It requires interaction with merchants, insurers, and all services that are important and necessary for our client.
• Creating ecosystems. Banks need customer data from all service providers for customers – these could be car dealers, merchants, insurance companies, tour operators, rentals and so on. For example, RBC Royal Bank is piloting a predictive solution for car dealers. Based on customer data, the bank predicts the probability of buying a car. And then, of course, offers its own credit solution. Another cool example is the Chinese company Ping An. The basic service of the company is personalized financial offering. Ping An has made serious investments in the development of the ecosystem and is currently processing data for 880 million users, 70 million companies and 300 partners.

2. Big Data

Two simple facts will quickly explain why Big Data is a key trend. Numerous studies have shown that we take 40% of all our daily actions and decisions out of habit. In other words, we have worked out solutions for different occasions in order not to overload our brain. And it turns out that 40% of the time we automatically perform some kind of algorithmic pre-set action. This explains why the data is so important – because if you know about the habits of your customers, you and your services can seamlessly fit into the world of your user. If so, the customer will buy your product or service because of the formed habit.

All products and services of tech giants are designed to engage and motivate users to share data. These companies very quickly realized that Big Data = Big Money. As an example, the tech giants Apple and Google launched Apple Pay and Google Pay, thereby gaining access to the financial data of their users.

Expectedly unexpected – we faced partnerships of financial companies with tech companies. A striking example is the partnership of JP Morgan Chase, Amazon and Berkshire Hathaway. The companies have united in a health insurance alliance for their own employees. Using big data and technology, they plan to improve insurance payments, increase employee engagement and seriously compete for the health of their own people.

3. Cybersecurity

There is no surprise that in a recent survey of 1,200 companies, it turned out that 71% of them at least once came across hackers and data breaches. About 46% of data losses occurred during the past year. It is in connection with this, in 2018, the initiative to protect the personal data of citizens of the European Union – the GDPR – has been launched. Failure to comply with these rules can cost companies up to 20 million euros. According to rough estimations, around 80% of multinational companies will not be able to withstand all the requirements. There is also a positive side – thanks to GDPR, the IT security departments of companies will be forced to conduct a full audit of how customer data is collected, and how it is then processed, stored and deleted.

Marketing units also need to be more careful in their activities and mailings – for users, their data safety is of the highest priority. As always, artificial intelligence comes to the rescue – almost 87% of cybersecurity experts in the US use AI to protect data and prevent hacker attacks. Unfortunately, we are still very far from reliable protection and not every company has a developed cyber-attack prevention plan.

Among the most well known cases is the personal data leakage of 57 million Uber users. The story was tangled by the fact that the company did not report the loss of data to its customers and even paid $100,000 to extortionists to erase the stolen data. As a result, in 2018, Uber has been fined $148 million.

The other story actively discussed was the loss of MyFitnessPal data – email addresses and passwords of 150 million users were stolen from a popular fitness app. It is noteworthy that the company reported data leaks to users 4 days after the discovery of damage from hackers.

Well, as a “cherry on the cake” story – recently, many of you have received a notification that the Google+ service is closing. The service was not very popular, but still managed to “please” the world public with two massive data breaches. During one of the attempts, 500,000 users’ information was stolen – the leakage was discovered in March 2018, but it was announced publicly only 6 months later. The second data loss occurred in December and this time 52.5 million users were affected. As a result, the closure of the service was sped up.

Stronger than many others have suffered the Yahoo users: as a result of multiple attacks, 1 billion users were impacted.

Summing up. What are the next steps for the financial incumbents in connection with the increased pressure of the tech giants:

• Deep customer insight. Know your customer better, not only in connection with financial services, but also beyond. It is important to know very well what exactly your client wants and how he lives on a daily basis.
• Creation of new products requires new skills. Make sure you have in your teams skills of working with AI, Client-centric product development, data processing and analysis, culture of innovation and experimentation.
• Users engagement. World technology giants offer their customers all services for free. They fight for customer data.
• At that moment, when the price and speed become a normal basic everyday life, the fall in product margins will begin. The winner will be the one who owns the customer experience.
• Large Tech players are the main sources of customer data and experience. And traditional financial institutions will have to seek partnership with them for the sake of data and business.

The bottom line. Make every effort to collect and analyze big data sets, use artificial intelligence for data processing and take seriously the protection of the data you are working with. This is the main secret of business success for at least the nearest future.

Anastasiya Shevchenko, author of the “Digital Era” book (https://digitalera.com.ua/), independent fintech-expert, Founder and CEO of Fintech Solutions LLC, Co-founder of  Let’sPartner fintech marketplace (https://www.letspartner.co/en/), General Manager of Adecco Ukraine.

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