Originally published by TechCrunch.
My 2017 predictions for the fintech industry spell out a future of continued scale and disruption, coming off the heels of what ended up being a pretty unpredictable year in 2016. In spite of that, by my count, I got 75% of my 2016 predictions right. Will I have the same level of success this year? Time will tell.
While we don't know exactly what's going to happen, 2017 promises to be a big year in finance, especially for fintech. Companies that were once considered "start-ups" will come into their own as "companies." The promise of fintech will move from potential to palpable, perceptible to present. And if done right and this is the most exciting part, the consumer wins.
Fintech lending will further stratify as an industry
2016 brought rocky times for some FinTech lenders, especially in the first half of the year, but through the tumult came maturity. The complexity and challenges of running capital intensive businesses in a highly regulated industry was never more real than 2016, but the top platforms weathered the storm, and most are long-term stronger for it. 2017 will continue to be the year where the top players pull away from the pack. At the beginning of 2016, there were an estimated 400+ fintech lenders in the U.S. in 2017, I expect the supermajority of the lending to come from just 10 or so platforms.
The asset side of fintech will find its groove
Fintechs looking to disrupt core banking products—like checking and savings accounts, and the products attached to them like debit cards will likely become more prominent in 2017. Consumers need a safe place to park their money, and they are currently underserved by the options available from the incumbents, which are many times saddled with high fees, poor service, and lack of product innovation. Most of this will come in the form of partnerships—fintech front ends, traditional bank back ends, but partnership might not be the "construct du jour" charter very likely would not take true effect until after 2017, the move signals a certain tide afoot that will have some fintechs looking more and more to a bank -like structure, enabling low cost funding for the long term.
M&A activity will start to become real
Fintech firms will continue to build stronger technology faster, relative to traditional finance companies. This has and will continue to put pressure on the larger incumbents to do something to keep up. Acquisition will be the answer for some traditional players. Fintech firms are more mature and more since November and therefore more M&A horsepower that likely sustains due to both fiscal and monetary policy for some period of time. I can't tell you how many transactions there will be, but I can tell you the conditions have never been more ripe.
Blockchain will have an impact on the financial services industry
Blockchain has received a lot of hype. First through the lens of bitcoin. More recently coming into its own. And going forward through real operational adoption. Companies have been enamored of blockchain and have been motivated to find ways to make it work inside their organizations. Based on conversations I'm having with decision-makers inside large financial institutions, 2017 is likely the year we start seeing operational success with blockchain. Not on a large scale, per se, but in the beginning stages of what will make blockchain real and ultimately scalable. By the end of 2017, smaller companies will very likely want to meaningfully understand and plan for its applications as well. In short, the early signs of blockchain's promise will be felt in 2017.
International investors will come to the U.S.
Fintech has been hot in the U.S. for a few years now. It's becoming hot elsewhere too. As investors in newer markets get hip to fintech, they may also want to invest in the U.S., where the fintech market is stable, large, and growing. We've already started to see it happen on the equity investment side, and we'll likely see it happen on the credit investment side too—that is, investment in the loans of fintech lenders. Interest rates in some international markets are significantly lower, making yields found in the U.S. that much more attractive. The stability of the U.S. market remains a large draw relative to local markets as well.
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