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The Fintech Revolution: Where Things Stand Now

The bottom line is, fintech cuts in many directions, and will continue to do so, for the foreseeable future.

Fintech continues to gain momentum. There is no greater evidence of this than the fact that some $57.9 billion was invested in fintech in the first six months of 2018. That exceeds the amount for all of 2017, and puts this year on pace to eclipse 2015, the top year for fintech funding.

Much of this year’s surge has been the result of the finalization of two enormous deals — the purchase by the U.S credit-card processing company Vantiv of Worldpay, its British counterpart, for $10.4 billion in January, and a $14 billion funding round by Alibaba affiliate Ant Financial in June, making Ant, at $150 billion, more valuable than Goldman Sachs ($88 billion). It is also now the ninth-largest internet company in the world.

Fintech is also expanding geographically. Nubank, based in Brazil, raised $150 million in the first quarter of 2018, while the United Kingdom, Germany, France, the Netherlands and Switzerland all consummated venture deals in fintech. Japan did the same, allowing that country to emerge as a rival to China and India in the Asian fintech market.

All of this is indicative of the larger trends in fintech, on a variety of fronts. They include, most notably, artificial intelligence/machine learning and digital ledger technology (DLT), as well as cybersecurity and data security.

Here’s the breakdown:

Artificial Intelligence/Machine Learning

Brick-and-mortar banks are fast going the way of the dinosaurs. Some 57 percent of Americans believe that financial institutions will no longer exist in their current state at some point in the next 20 years, and indeed banks are rushing to adapt.

While only 18 fintech startups have been acquired by U.S. banks since 2013, eight of those acquisitions took place in 2017, making it the busiest year over that five-year span. BBVA has been the most active in that time period, acquiring four fintech companies in the online banking, payment and real estate sectors. Goldman Sach, BNP Paribas and JPMorgan Chase have also been active.

This adapt-or-die approach has been undertaken with the Millennials in mind. Such things as mobile apps and robo-advisors appeal greatly to this age group, the first in history to grow up completely in the digital era, and one that has increasing financial firepower.

Forbes cited a 2015 study showing that Millennials will control some $7 trillion in liquid assets by 2020, and account for 46 percent of all U.S. income by 2025. So while this age group has shown little interest in banking while it deals with crushing student debt, there is ample reason to believe that that will change in the near future.

Forbes went on to report that complete digitization of the banking sector is fast approaching, and gave special notice to an app called Griffin, which affords Millennials the opportunity to invest in companies by tailoring their stock portfolios to their interests.

Digital Ledger Technology (DLT)/Blockchain

DLT/blockchain, defined as the online ledger capable of recording transaction details in multiple places simultaneously, provided the foundation of the cryptocurrency Bitcoin.

Now, however, it is making an impact in a great many other areas. It was more widely produced in 2017 than any previous year, and one report estimates that it will be a factor in 20 percent of trade finance by 2020.

That trend has been very much in evidence over the last year. A trade finance application using technology from the DLT startup R3 was adopted by 11 international banks in August 2017: Bangkok Bank, BBVA, BNP Paribas, HSBC, ING, Intesa Sanpaolo, Mizuho, RBS, Scotiabank, SEB and U.S. Bank.

IBM also launched a blockchain-based trade platform known as Batavia in April 2018. Developed in concert with UBS, Bank of Montreal, CaixaBank, Commerzbank and Erste Group, it simplifies a trade by providing a digital and automated method of organizing international transactions.

Speed and transparency are two advantages of DLT-based transactions. So too is the formulation of smart contracts, which allows agreements to be converted to computer code, stored in the system and available to all parties. No manual processing is needed. Neither are any intermediaries.

One report mentioned a particularly promising startup steeped in blockchain known as Skuchain, which since 2016 has been focusing on the cotton market while working in concert with Commonwealth Bank and Wells Fargo.

Cybersecurity/data security

Concern in this realm continues to grow, as reflected in the fact that 49 percent of the respondents to the 2018 Harvey Nash/KPMG CIO Survey, the largest IT survey in the world, viewed cybersecurity as a priority, up from 40 percent in 2017.

Seventy-seven percent said they were “most concerned” about cyber crime, up from 71 percent last year.

Another report, noting such things as the Equifax breach and the WannaCry ransomware attack, pointed out that organizations spent an average of $11.7 million on cybercrime costs in 2017, up 23 percent from the year before. A McAfee survey, meanwhile, indicates that 54 percent of cyber professionals fear their companies will be a target within a year.

One solution is the “Moving Target Defense” (MTD), which enables security teams to make the attack surface elusive to hackers, as opposed to presenting a static infrastructure. One company at the forefront of the MTD movement is Cryptomove, which secured a contract with the Department of Homeland Security in 2017 and has since reached an agreement with one of the largest banks in Europe.

On the data security front, biometrics — i.e., facial mapping, retina scans, etc. — are expected to continue to evolve, with some estimating that worldwide revenues in that sphere will exceed $41 billion by 2023.

Apple also revealed in November 2017 that it will share facial mapping data with app developers, something other manufacturers in that field are expected to do as well. That in turn is expected to adversely affect dependence on third-party biometrics providers.

The bottom line is, fintech cuts in many directions, and will continue to do so, for the foreseeable future.

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