On January 17, 2018, as a wintry mix blurred past the windows, a panel of fintech executives gathered at CommonBond's office for a morning discussion on fintech trends—past, present, and future. At the helm as moderator was Sara Elinson, whose official title is Principal, Fintech Transactions East Leader, Ernst & Young. Unofficially, she's known in New York City as the guru of all things fintech. Elinson led the discussion among the morning's three fintech panelists:
- Hans Morris, Managing Partner, Nyca Partners
- David Snitkof, co-founder and Chief Analytics Officer, Orchard Platform
- David Klein, CEO and co-founder, CommonBond
The panelists shared how we should expect to see more action from big banks and big tech, along with some interesting moves in international markets in 2018. We also learned which underserved markets are ready to be tapped by fintech companies, and the one fundamental element that won't change in 2018: the consumer's need to be treated like a person. Here are the main insights we gleaned from this year's experts.
2017 Was the Year Fintech Started to Grow Up
Looking back on the previous year, David Klein declared that 2017 was the year that fintech started to really grow up. With that maturation came a corporatization of fintech entrepreneurship, with many upstart fintech companies starting to favor caution over big, risky moves. David Snitkof observed, "What you don't see is a ton of really scrappy upstart fintech entrepreneurs saying, 'We are going to blow up the financial system and replace it with something better because all the big companies are taking advantage of you and they're not doing the right thing,' and we're going to save the world for everyone."
As for that buzziest of buzzwords from late 2017, bitcoin, the panelists didn't dwell much on cryptocurrency as a dominant issue for fintech in 2018. As Klein described it, in its current state, bitcoin is still like gambling. He noted, "You can win money in gambling and you can lose money in gambling, and as long as you know that's what you're doing, go for it. That doesn't mean that over time that will always remain the case."
In 2018, Look Out For Bank-Fintech Partnerships and Big Tech
If 2017 was the year in which fintech grew up, 2018 will now require big banks to catch up or miss out. Klein explained it like this:
"You have two things happening simultaneously: you have fintechs that are becoming "real companies" that are sustaining, that have garnered the respect and credibility of the market, inclusive of incumbents. At the same time, you have incumbents who have been sitting on legacy technology, who, if they do not get in the space in 2018 in some regard, or look and feel "fintechy" in some regard in 2018, they've missed the boat. 2015 and 2016 was about sniffing around the edges, 2017 was about digging deep, and 2018—for the big companies will be about entering in some capacity.
The likeliest path for big institutions to join the fintech game? Partnerships. Consumer-facing bank-fintech partnerships may well be the name of the game this year, beyond the capital-facing bank-fintech partnerships already taking place.
In addition to big banks, keep an eye out for big tech to make major moves in the world of finance in 2018. "If you're reading a lot in the space, you already feel it," Klein declared. "You can already see the connective tissue happening if you're really plugged in. And I think that's going to hit kind of a mainstream consciousness in 2018."
Don't Expect to See Many (If Any) Fintech IPOs
All three panelists agreed: in trying to predict who might IPO next, you have to figure out which companies might be ready, and it takes a lot for a company to be ready to IPO. Hans Morris set forth four conditions needed for a company to go public: absolute size, valuation, governance change, and a broad investment thesis.
With all this in mind, which fintech companies are truly poised to IPO in 2018? According to Snitkof, there aren't many that fit the bill. "One thing I would look for if you're thinking about what companies are going to go public is: Who already treats their company as if it is public? Who has that framework in place, is already reporting like a pseudo-public company, who treats it like that? It takes a lot, there's a big cost to that, but it's part of a long-term plan if that's your aspiration. I don't see too many people doing that today."
International Fintech Markets Are Booming
The U.S. might be fertile ground for fintech, but there are plenty of intriguing happenings in the international financial community, too. Snitkof identified three major points of interest for fintech around the globe:
The UK: "They're a very mature economy, there's really strong regulation but it's also really clear and supportive regulation, so if you're starting an alternative lender there, or a payments company, or a challenger bank of which there are quite a few and some have done quite well—you know what regulators to talk to, you know what regulator to apply to, there's a clear framework. They really want to help you."
China: "You see massive, massive rates of growth in the tech companies there and every company you talk to, it's kind of astounding because they are 10 times larger than their U.S. equivalent counterpart."
Estonia: "Estonia is on the bleeding edge. They've created this concept of 'e-residency'—where you can become a citizen of Estonia digitally, an 'e-resident,' so you can open up a bank account there, you can incorporate a business there, without being Estonian. They've used their small size and nimbleness to create what they hope is going to be really fertile ground for innovation and that's very interesting."
Here's What Won't Change This Year: The Need for Humanity in Banking
Big banks, big tech, big finance—what about the consumers, the human beings on the other end of the smartphones and laptops? After all, fintech has its roots in creating more consumer-friendly experiences for consumers, and consumers continue to crave a sense of humanity in their financial services. Regardless of what year it is or what great technical innovation has taken the world by storm, people still want to be treated like people—and they really want to trust their financial institutions.
This year, keeping the consumer's humanity in mind will be crucial for fintech companies. "Any successful, profitable fintech model over the past five years, banks are going to copy it," said Snitkof. "Some will do a really good job of copying it, some will do a terrible job of copying it and it'll be up to consumers to decide who they're actually going to get served by, but it's also going to push any fintech innovator to really innovate and think about what's next to differentiate themselves from a brand that already has some pretty implicit trust and stability in customers' minds."
Which Customer Groups Are Next to Get Some Love From Fintech?
Finally, the conversation turned to identifying the most underserved communities when it comes to fintech. Who did our panel agree were fintech's biggest untapped markets?
Baby boomers. Morris sees a tremendous potential in the generation of workers who are retiring now—but who don't identify with the typical image of a retiree. "I went to all these 60th birthday parties and none of these people think they're ready for walk-in bathtubs or whatever; they are kite-surfing and doing all these other things. The other thing that's different about baby boomers is there's lots of them and they have money to spend, and so the wallet is really significant versus many of the products we see. You're focusing on, for example, asset management for millennials, well, they're investing $100 and it's a long time before that builds up to a profitable level. So, focus on older people. They're just as digital."
International students. With an eye toward the CommonBond realm of education finance, Klein identified an underserved market in international students attending U.S. schools. I've been really wanting, hoping, searching for ways to serve that population ever since we were founded, in large part because we get a lot of feedback from the international community when we go to campuses and they say, "Hey, can you do anything for us? And we haven't been able to really quite crack that nut just yet. But I wouldn't be surprised if we did at some point. I don't know if it's 2018 or beyond, but I wouldn't be surprised if we're able to do that."