5 FinTech Predictions for 2018

5 FinTech Predictions for 2018

By Safwan Zaheer, Director-Financial Services Digital & Head of FinTech, KPMG US

Safwan Zaheer, Director-Financial Services Digital & Head of FinTech, KPMG US

Bitcoin Value will Trend Upwards

Bitcoin value will continue to rise in 2018. The reason may simply lie behind its demand and supply:

As long as, Bitcoin DEMAND > Bitcoin Supply,price of Bitcoin will continue to rise!

The irrational frenzy and market activity will continue to reinforce demand for Bitcoin in 2018, which will in turn drive higher price of Bitcoin. And since the supply of bitcoin is limited, currently at ~16.5M with maximum of 21M, the upward trend will hold, with some minor market adjustments. The only exception could be a major market event, such as a hack on a large bitcoin exchange, in markets such as US or Japan, which may crash Bitcoin’s value and return it to its nominal market value.

1) FinTech M&A and Private Equity will Accelerate

Globalization will fuel greater FinTech M&A and Private Equity activity in 2018. The desire for both incumbent players and startups to be global will rise even further, particularly in sectors such as Payments and Lending.

In 2017, we saw some major deal activity in the space, such as Vantiv’s $10B acquisition of Worldpay, and the trend will continue to rise in 2018. Traditional incumbent players eyeing the technology behind disruptive startups; and startups eyeing market expansion will further fuel M&A activity.

Private Equity activity will also rise in 2018 as opportunity for these firms to create value by enabling and bringing digital assets to marketswill be ripe. Private Equity firms will continue to look for distressed assets that they can build into competitive players in the sector. One such tactic Private Equity firmswill use is acquire a distressed asset, such as small regional bank or a credit union laden with legacy and antiquated systems, and use Digital Transformation to transform the underlying asset to serve needs of customers that are increasingly demanding digital experiences.

 "Banking C-Suite will put greater focus on opening their core platforms and enabling APIs for other brands, retailers, FinTechs, and software developers, to plug into to co-create new products, to accelerate the bank’s digital ambition and customer impact" 

2) Open Banking will become a Key Focus of C-Suite Agenda

Banks will look at Singapore’s DBS bank as an example of proactively opening its platforms and enabling Application Programming Interfaces (APIs) for other brands, retailers, FinTechs and software developers to plug into to co-create new products. In November 2017, DBS launched one of the largest banking API developer platform with over 155 APIs, including announcing an initial set of 50 partners to build new banking applications and services–this will become the baseline for other banks to follow suit in 2018 and beyond.

Banking C-Suite will put greater focus on transforming their core platforms to accelerate the bank’s digital ambition and customer impact.

This in turn will drive the following market activities:

• Fintech and Bank partnerships will further increase

• Consumers will see new banking products and experiences come to market much more than in the past years

• The market could witness a true first integration of ‘insurance, asset management, andlending’ product (or a similar combination of financial services product)

• Demand for FinTech Talent will be even higher

3) Blockchain will Start to go Mainstream

Blockchain promises many innovative banking applications and is here to stay! In 2017, we witnessed early signs of the technology to transform financial services. From improvements in trade and post-trade settlements, to reducing time required to clear funds, to speeding-up cross border payments, to improving online identity management etc.; Blockchain has many revolutionary applications.

2018 will see at least one major bank implement and launch a commercial Blockchain based banking service. Based on the market activity in 2017; a major Capital Markets firm will demonstrate to the industry how Blockchain can save billions of dollars in back-office and settlement costs.

4) ICOs will continue to gain traction

Overall, 165 firms raised more than $4 billion in 2017 through Initial Coin Offerings (ICOs). ICOs resemble crowdfunding campaigns more than traditional fundraising tactics like selling equity or attracting venture capital.

For e.g., in 2017, FinTech startups like Block.one raised $700M through ICO and was by far the largest to date—its market value is now about $4.5 billion—and illustrates both the promise and risks of this opaquemarketplace.

In 2018, ICO will continue to gain traction in market with further development of the underlying best practices. New ICO startups will continue to emerge, including new business models aimed attransforming traditional investment vehiclesand options. In addition, forward-looking Regulators, such as the Monetary Authority of Singapore (MAS),maycome up with an initial approach to regulate ICOs.

2018 promises to be an exciting year for FinTech and I’m looking forward to it!

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