Before we can look ahead into H2 2019, and the top trends to watch out for in Fintech, we need to rewind and take a look back at 2018. According to a market report by CBInsights, global fintech financing hit a new record topping $39 billion in 2018. Although VC-backed fintech deals declined in Q4’18, they remain above 2017 levels.
The report titled 2019 Fintech Trends To Watch highlighted that Fintech is happening on a global scale with deals outside of core markets (US, UK, and China) accounting for 39% of deals – Fintech deal hubs are starting to emerge globally. The US remained the top market for deals with 659 investments worth $11.89B funding, both a new annual high. However, the report found that Asia made a run at the US as the top market for fintech with a surge in early-stage and mega-round investments: Asia saw the biggest boost in deals, growing 38% YOY and a record level of funding raising $22.65B across 516 deals.
So, according to CBInsights, what can we expect to see in 2019?
1. The battle for deposits
Fintech firms are becoming more aggressive in expanding their lines of business beyond their initial use case. Fintech startups are rebundling products and services ahead of their maturing customer base moving from mono-line to multi-line.
2. Fintech firms up focus on regulatory compliance
Emboldened regulators globally are 1) Cracking down on bad actors – As startups look to launch new products, it will be essential for fintech challengers (and incumbents) to continue to build inroads with regulators to avoid roadblocks, and 2) Collaborating and spreading innovation – Regulators globally have been actively promoting innovation and embracing tech to break up local banking monopolies. Regulatory support has lowered the barriers for startups to enter markets.
3. Southeast Asia sees hotbed of fintech activity
Fintech in Southeast Asia is heating up with record year for deals and funding – up 143% YOY. Southeast Asia fintech startups are attracting bigger financings and foreign investors.
4. The next Ant Financial & WeChat Pay
QR codes are the entry point to digital payments.
5. Unbundling the paycheck
Household debt balances have accelerated and total over $13 trillion. First, startups went direct to consumer to head off debt. Fintech firms are unbundling the paycheck to alleviate and prevent predatory debt. Startups are partnering with employers to offer salary-linked benefits.
6. New investment platforms and asset classes
Fintech is democratising investing.
1) Alternative access to investing – The first wave of investing apps lowered the barriers for investors to access existing markets with tech.
2) Access to new assets – Startups are now looking to lower barriers to enter alternative asset classes and creating new commercially available assets.
3) New investing models to tap existing assets – In tandem, startups are creating next-gen investment platforms that are focused on creating new methodologies to access alternative asset classes.
7. Fintech meets real estate
2018 saw the tech landscape in real estate expand. Deals flowed across the commercial and residential real estate markets. Broad investment themes included platformification, digitisation, and portfolio optimisation. 2019 will see these companies look to take advantage of consumer demand and supply of residential properties, and investor demand for portfolio exposure and diversification.
8. Rise of impact fintech
“Going green” is not new, but there is renewed demand driving how ESG scales.
1) Sustainability is a global priority – Tech companies are jumping to head off concerns over the health of the environment, sustainability, and corporate governance (ESG). Upcoming initiatives will turn up the heat on companies to prove countries are progressing positively.
2) Markets & Economy – Tech companies are tapping into the ESG and impact investing space which have seen an uptick in inflows and are gaining traction among economists and investors. Market volatility could drive more inflows into impact investments and position impact fintech firms to bring standardisation to investment criteria.
3) Demographic shifts – Startups are creating next-gen wealth management platforms for the next generation of investors who increasingly want investment portfolios that align with their values. To grow distribution and increase engagement, fintechs with scale could look to tap into ESG and impact investing.
9. Lack of fintech M&A by banks continues
European banks are challenging back. In H1’18, competition between high street banks and well-funded challengers continued to heat up. While incumbents look to boost their digital capabilities, challenger banks are growing market share and their global footprint. As predicted, fresh off mega- round ($100M+) investments and unicorn designations, N26, Monzo, and Revolut all announced plans build out their US operations.
10. No-go for fintech IPOs
2018 started the year with 25 unicorns valued at $75.9 billion. Despite hype, only three fintech unicorns went public.