The most remarkable feature of the senior executive interviews in this year’s edition of Fintech Disruptors is the rate of development seen in this sector. This emerges via two recurring themes: firstly, the staggering rates of growth some businesses are experiencing, and secondly, the speed with which the fintech market is changing.
Let It Grow
More than one business we interviewed reported picking up in excess of 5,000 new customer relationships per week around the world, while others spoke of significant challenges in recruiting talented professionals with the relevant qualifications and experience to support their growth. Alongside this pattern of very rapid growth, both start-ups and established financial institutions noted rapid changes in customer expectations as they become more familiar with the transformative potential of digital technologies applied to financial services.
Our interviewees noted that consumers have begun to expect higher standards across the board, including faster and cheaper transaction times, better data protection and more and better fintech products. On the corporate side, fintechs founded in the last five years have achieved remarkable results for clients in terms of automating processes and reducing costs in a wide range of business functions, from Accounts Payable to transaction processing and foreign exchange.
The knock-on effect of this success has been to raise the bar in terms of what both consumers and corporate clients expect from fintech, a factor which has led to increased interest in the sector, more investment and higher growth rates. However, the challenge of how to manage rapid growth and continuous change is now top-of-mind across the fintech sector.
A Book of Rules
The area in which our interviewees report seeing the most change is regulation. Whilst many of our interviewees welcomed further regulation for the legitimacy it provides, for investor peace of mind and simply because they believe more regulation is a positive step for the industry, increased regulatory focus again creates further workload for fintechs grappling with burgeoning customer demands and rapid growth.
In blockchain solutions and crypto-currencies, for instance, there is ongoing regulatory debate about what constitutes a commodity, an asset, or a currency. Our interviewees are eager to engage in these and other debates, and create a “level playing field” with traditional players in financial services. They believe that this kind of regulatory equivalence will help fuel further growth in the sector and foster fruitful partnerships with traditional financial services firms.
AI’s on the prize?
For many of our interviewees, Artificial Intelligence (AI) and Machine Learning (ML) offer possible solutions to some of the above challenges. As the regulatory environment surrounding fintech develops, some interviewees believe that RegTech – an emerging fintech sub-sector which uses Machine Learning techniques to automate regulatory form-filling, the filing of financial statements and other requirements – will help fintechs and their clients to comply with a growing body of rules and regulations.
More broadly, our interviewees have confidence in the capacity of AI to help manage huge arrays of data, both for their businesses and for their clients – the so-called “Big Data” challenge. In this area, executives believe that AI and Machine Learning will help companies to interpret data from their business and create better and more relevant products. Looking to the wider industry survey conducted alongside our executive interviews, we find 57% of respondents reporting that investments in AI will dominate fintech in 2019.
For all that, there is some caution expressed that AI is not a panacea. This is especially the case when it comes to working with traditional financial institutions, where the presence of legacy IT systems and an inherently lower capacity to change make introducing AI-based products and services more difficult. Furthermore, some interviewees report concerns about both the legality (from a data privacy perspective) and the efficacy of AI when it comes to product marketing. Even where it’s legal to harvest customer data with consent, it’s not clear that consumers welcome being pitched with new products based on their search and purchasing data.
Overall, this year’s report shows a sector in the bloom of rapid growth – and facing up to the challenges presented by that growth in terms of staffing, capacity and an emerging regulatory landscape. There’s little doubt that AI and Machine Learning will help to relieve some of the pressures faced by fast-growing start-ups; the next task appears to be the identification of those problems which can be solved with AI and Machine Learning, and which need to be resolved by old-fashioned human creativity, careful thought and collaborative effort.
To download a copy of the latest survey go to: www.fintechdisruptors.org