Amsterdam Fintech Week 2019 was the opportunity for many of us to look back at 2018 and share our expectations for 2019. The city of Amsterdam was filled with events, big as Money20/20 or smaller like workshops and roundtables hosted by various fintechs in town. Spotcap, now 5 years active, not only hosted the Money 20/20 After Drinks, but also had the honour the open the Alternative Finance chapter in the 2019 Fintech Navigator. Spotcap operates as a direct lender to SMEs in the United Kingdom, the Netherlands, Spain, Australia and New Zealand uses advanced technology to make the lending process straightforward and swift.
2018 was definitely an eventful year for the fintech industry. A year in which previous funding and valuation records were broken and new regulations such as PSD2, GDPR and Mifid II were born. For Niels Turfboer, managing director at fintech Spotcap, there is plenty to look forward to in 2019 and beyond. What future does the ex-banker turned fintech-expert see for fintech?
By Niels Turfboer
Fintech has left an undeniable mark on the financial services industry. KPMG’s bi-annual survey ‘The Pulse of FinTech’ points to a doubling of global investments in 2018. We also saw two big fintech IPOs in 2018 – Funding Circle and Adyen – a testament of a maturing industry. Of course getting to this point came with challenges that needed time to solve.
From revolution to evolution into strategic collaboration
In the first years after the rise of fintech in 2008, being perceived as a threat by traditional financial players was a key challenge. Fintechs use technology to make services faster, smarter and better, ensuring a more customer-oriented approach. This wave of innovation initially shook up the sector. But the so-called ‘fintech revolution’ developed into a sustainable financial services evolution, and in the last few years collaborations between traditional banks and fintechs, such as Kabbage and Klarna, have become commonplace.
Interestingly, 2018 was an important turning point. A Capgemini report from this year showed that 91 percent of banks worldwide want to collaborate with fintechs. Banks have the strategic advantage of large customer bases and huge amounts of data, but they lack the maneuverability and speed of fintechs that specialise in the development of new technologies. For example, a not be named Canadian bank and German bank recently succeeded in completing an international transaction, which normally requires 6 days of processing time, within 20 seconds. This was made possible by collaborating with the payment technology fintech Ripple, using blockchain technology. Moreover, the report found that 86 percent surveyed banks think it will damage them if they do not start working with fintechs. 42 percent of the banks also think that cooperation with fintechs will lead to cost savings—we have come a long way from being perceived as a threat.
Types of strategic partnerships
Strategic partnerships, such as the one between Ripple and the two banks, are usually tailored to the specific objectives of both the bank and fintech. As such they come in many shapes and forms with varying involvement: from knowledge and technical expertise to incubation or full takeover.
An interesting trend in partnerships between traditional financial parties and fintechs are plug-and-play solutions such as Lending-as-a-Service (LaaS). In a LaaS partnership, innovative financial players provide credit analysis technology to established banks. It allows banks to use third party technology as a ‘lend engine’ to provide businesses with a better loan experience, both in terms of usability and speed. Spotcap is at the forefront of this, launching a LaaS partnership with the Austrian bank BAWAGP.S.K in January 2018.
Next level-digitization opportunities and challenges
The flow of data has also opened up opportunities. PSD2 for example, also referred to as “Open Banking”, is in my view one of the most positive developments for customers in 2019. PSD2 involves making data available to third parties – with the customer’s permission – via application program interfaces (APIs). This means data exchange can take place between financial service providers in a secure manner. Through the APIs, huge amounts of relevant financial data can be shared with more companies, giving them the opportunity to provide services that are tailor-made and relevant to customers. As a result, further pressure is applied to both fintechs and established financial service players to provide well-priced and easy to use financial services. All this will lead to more competition, efficiency and innovation, benefitting end users.
Strongest trend in fintech: regtech
As mentioned, a number of groundbreaking laws and regulations were on the agenda in 2018, including PSD2, GDPR and MiFIDII / MiFIR. These new regulations were introduced worldwide with great excitement surrounding their arrival. As a result, the need for compliance measures and costs have increased for international players who need to manage activity in multiple markets. This has led to a new trend within fintech: regtech or “regulatory technology”.
KPMG’s “Pulse of FinTech” report, predicts a steep growth curve in 2019 in investments and deals within regtech. Growth areas include: Artificial Intelligence (AI), Know your Customer (KYC) and Know your Data (KYD). The majority of the investments are currently driven by venture capital providers.
What impact will this have for customers?
It is clear that innovation is a driving force in today’s financing landscape, and it’s positive that parties are working together to benefit from each other’s expertise.This provides deeper financial insights and healthy competition, which leads to improved financial services for customers. Staying focused on the customer needs is what fintech is all about and it will continue to be a compass as the industry evolves over the coming years.
The developments I have mentioned are just the tip of the iceberg. There is so much going on in so many areas. My expectations for fintech in 2019 and beyond, are sky high. Further developments in artificial intelligence, automation, and blockchain, will continue to excite and amaze us. We will see their impact in various sectors within the fintech industry, and I wouldn’t be surprised if they will also start entering the everyday world of consumers. Consider, for example the enormous success of payment services such as Klarna and Adyen. Fintech is destined to slowly but surely become part of our lives both professionally and personally. We might not recognise it as ‘fintech’ but we will recognise the benefits: faster, cheaper and easier services.
Spotcap seeks to help SMEs access loans by offering companies in the UK, Netherlands, Spain, Australia, and New Zealand direct loans up to EUR 300,000 through a full-service lending platform.