FinTech: What's on the horizon in 2020?

I think the end of the decade saw quite buoyant activity – we saw a range of large fund raisings, we saw some interesting M&A, we also saw the end of some prosperous FinTechs in the early part of the decade whose business models did not quite stack up. We also saw a change in the regulatory landscape, increasing focus on how to think about cryptoassets and other new forms of technology that, until the start of the decade, had not really existed or at least in the main stream. So all in all I would say it was a particularly impactful decade for FinTech. In terms of the use of artificial intelligence in financial services, that's certainly an area we expect to see an increased use, an increased focus from our clients. We have already seen deployments in back office functionalities in terms of automating decision making both in the administrative context, as well as in a business facing context and we also expect to see increasing use in terms of interacting with customers so Chatbots, automated interactions based on customer data, behavioural analysis are all elements we expect to see increasing use cases for in the coming years.

In terms of the outlook for crypto and whether or not we would see an increasing use by institutions of the asset class, I think there are already signs that there is a growing maturity in both the use case and also the infrastructure. We are seeing a number of large financial institutions launch custody service offerings, we are seeing increased robustness and liquidity across market infrastructure such as exchanges and also wallet provision and other ancillary services are also expanding in terms of use case and deployment within the institutional space. So all in all I think it is fair to say there is a pathway there, I think there's still some hesitancy but I think I will expect to see an increasing focus on institutions in this asset class as it matures and develops.

So the end of the last decade in terms of regulation of crypto saw increasing movements from regulators establishing positions. We have seen a split across the globe effectively of some regulators considering these assets to be in the regulatory perimeter and others such as the FCA confirming that in a number of instances they would not consider them to be regulated instruments. So what that means I think is that we have got at the moment a fragmented picture of how to approach these assets in different jurisdictions which is clearly difficult for market participants to navigate. Over the course of the next year or two I would expect to see increasing focus. There are a number of consultations out there currently trying to assess how best to go about implementing frameworks to support the innovation of these asset classes but also protect consumers and ensure a sufficient and orderly functioning of market infrastructure.

In terms of M&A activity and consolidation in the FinTech sector more broadly, I would expect to see increasing activity in this space over the course of the next few years. We saw it at the back end of the last decade. I think that is partly fuelled by a huge expansion of participants leading to inevitable consolidation as larger players establish themselves and align themselves better in terms of product market fit. We have also seen quite aggressive expansion strategies, particularly internationally, and so inorganic growth strategies are something we would expect to see also. In the context of business models and regulatory focus, obviously a number of FinTech business models are quite capital intensive, in terms of personnel and regulatory resources as well as own funds requirements and capital requirements.

So what we have seen and what we would expect to continue to see is firms really being tested in terms of the validity of their business models, the long term viability of their business models and strategies and therefore firms fading away while others ascend and leading to a natural consolidation in space.

In terms of the interaction between BigTech and financial services we have already seen at the end of 2018, 2019 pushes by large tech companies to expand their service offerings into the space so we have had the Apple card, obviously Apply pay is fairly well established now, Google have been partnering with Citi to deliver checking accounts, current accounts to existing client bases. So I think there has been an initial foray, I think what's clear is that there are designs and ambitions in this space and it's certainly an area we would expect to see increasing focus and it is also an area we know from working with our clients that we anticipate that there will be an increasing rise of non-financial institution participants and players in the broader financial services ecosystem.