There’s been a lot of talk about how hot the fintech space is – fintech venture investment has grown 3x since 2014, driven by a new wave of virtualization of financial services by technology companies. In 2013, traditional finance companies invested $2.4B in fintech ventures; that amount is expected to grow to $8B by 2018. In the US, the financial sector has grown from 6.2% of GDP in 2008 to 7.1% in 2015. Gartner says that this sector is the largest consumer of technology, representing 18% of the global spend in IT. The fintech sector is hot. But what’s driving it?
Having spent a good portion of our time in the fintech sector over the last 15 years (we’ve closed around 200 transactions, by my count), we at Marlin & Associates feel the additional vigor in the sector on a daily basis. With the large and diverse array of trends currently impacting the space, it’s easy to get lost in the noise, but it’s worthwhile to focus on one of the key drivers that has the attention of financial institutions, investors and technologists: Taking humans out of the equation.
A digital revolution in customer behavior is unfolding before our eyes. Alternative investment platforms such as Betterment, Wealthfront, OnDeck, Prosper and Lending Club, crowdfunding providers such as CircleUp and Kickstarter, and automated mortgage loan origination platforms such as Quicken Loan’s Rocket Mortgage garner much attention not only because of their rapid growth but also because they have managed to use technology to combine rules, alerts, escalations and more to make financial transactions easy and less expensive for the client. Along the way they have reduced the cost of reviewing, approving, and maintaining the volumes of paperwork involved and thus reduced costs for the financial institution as well. These processes still require both structured and unstructured human interaction and collaboration – but now it can be done with much less human interaction.
Banks and brokerages large and small have noticed – realizing that successful millennials and others comfortable with modern technology do not insist on talking to a live person, in fact in many cases they prefer the approach where they can fill out forms themselves at their own paces and in their chosen location. And this trend is only getting stronger. Spend five minutes in a room with teenagers and their smartphones and you’ll understand.
One example of the way technology is looking to take more humans out of the equation in the future is the Blockchain. About 300 different startups have raised $1 billion in venture money for Bitcoin and Blockchain efforts – just in the past 18 months. That’s a lot of money pouring into a technology that (even though it’s been around for 7 years) is largely in the early innings of what we expect to be a very long ball game. You can call it “Blockchain Fever,” but the technology holds lots of promise to allow for the automation of more processes that today are still disorganized and prone to human error. BlockStream, Digital Asset Holdings, IBM (with its Hyperledger Blockchain), R3 and many others are getting a lot of press coverage. But anyone who thinks that the Blockchain landscape (or the technology) will look even remotely like what we see today in 5 years is naïve. The current limitations are too strong for most high-volume applications. However, sharp minds continue to improve current capacity and scalability constraints. And no doubt someday, Blockchain – or something like it – will indeed become the “Internet of Money.”
Change is constant. And these days the rate of change in fintech is constantly increasing. It may be a scary time for some traditional financial institutions, but it’s an exciting time too – a time we will all remember – a great time to be around fintech.