Haskell Garfinkel, fintech co-lead at PwC, delves into the facts, fads and fiction that will shape the fintech universe in 2017.
In the ever-expanding fintech ecosystem, it is easy to get caught up in all the hoopla, hysteria and hype. As we enter 2017, PwC’s DeNovo is providing our views on more plausible changes of direction in the fintech space.
1. One-size-fits-all robo-advisors will struggle
Fintech efforts to redefine wealth management in the US have resulted in an all-too-crowded field of one-size-fits-all robo-advisors. Nine of the top ten asset managers in the US have now developed (or are considering developing) in-house robo models or partnering with third-party providers. Herd mentality, or more accurately stated, herd algorithms, could diminish the lure of stand-alone robo-advisors and will likely relegate them to just another distribution channel, more akin to the evolution and integration of online brokerage into traditional wealth managers.
2. Blockchain security may prove to be short lived
Fundamentally, blockchain is software code and is the same form of language instruction upon which an operating system, a database, and the internet are constructed, all of which are vulnerable. Security around various blockchain applications and protocols will likely be subject to attempted security breaches. While troubling, this will enable financial services firms to decide appropriate business use cases, incident responses, and redundancy plans for blockchain application deployment.
3. It’s the end of the rewards (world) as we know it
The need for an overhaul of the rewards concept will begin to materialize, as programs that deliver points or cash (read: delayed gratification) will find it increasingly difficult to reinforce customer loyalty or influence spending habits in the transition to a mobile-first society where customers expect immediate gratification and contextual rewards.
4. Traditional insurance will retain the upper hand over InsurTech
Traditional insurance products will retain 100% market share despite the hype in InsurTech. Even considering the positive outlier trends in InsurTech investment, the more promising disruptors are years away from gaining any measurable share. The byzantine regulatory landscape in insurance is far more complex relative to that of banking. For example, insurance companies are subject to regulation in all 50 states with a myriad of rate and form filing requirements. Furthermore, in an industry where underwriting and capital management are two of the key factors of success, in almost all lines insurers are best at managing risk, and capital intensive balance sheet requirements are not well suited to be disrupted by new entrants.
5. A reverse merger will play a part in the consolidation
Fintech startups will look to acquire incumbent banks as a faster means to take deposits, facilitate balance sheet lending, or bypass the still uncertain regulatory environment. Most expect 2017 to mark the start of fintech market consolidation with leaders emerging, fast followers struggling, and consolidation defined by “tuck-in” activity. But a fintech startup acquiring a bank may provide a more efficient method to safely differentiate from the pack.
While the race often favors the swift and the battle the strong, if 2016 has taught us anything, that may not always be the best way to bet. That’s especially true in a fast-moving and ever-changing ecosystem like fintech. PwC’s DeNovo aims to avoid group think, and you might be better served too as well.