KEY POINTS

  • The fintech industry is no longer a distinct entity from traditional financial services. Virtually every incumbent financial institution (FI) is now engaging in an innovation drive, spurred on by competition from tech-savvy startups. Additionally, incumbents are now actively investing in, acquiring, and collaborating with their fintech rivals. This growth in partnerships points to the paradigm shift taking place within financial services, as incumbents and fintechs redraw the boundaries that once separated them.
  • Fintech funding has already reached new highs globally in 2018. Overall funding hit $32.6 billion at the end of Q3, up 82% from 2017’s total figure. This acceleration in fintech activity can be primarily attributed to Q2, when fintechs secured $20.6 billion, accounting for almost two-thirds of the total from Q1 to Q3. We saw 1,164 fintech funding deals occur through Q3, and this number is expected to rise to 1,460 by the end of the year, per CB Insights, which would be a new record for the fintech industry.
  • More established fintech segments are showing clear signs of maturation. We've seen considerable scaling in older corners of the fintech ecosystem, including among neobanks and alt lenders. Additionally, the payments industry continues to mature and is one of the few segments to boast at least one profitable fintech; UK-based cross-border money transfer company TransferWise turned a profit for the second year in a row in 2018. Meanwhile, nine fintechs have gone public so far this year, including US-based alt lender GreenSky and UK-based Funding Circle.
  • Meanwhile, others have dipped into new markets to escape heightened competition. For example, a number of insurtechs are now tailoring their products to underserved, niche markets to stay relevant in a tighter environment and increase their chances of success. In the personal finance management (PFM) space, startups are migrating to investments as the savings market grows increasingly crowded. And digital wealth managers are exploring business-to-business (B2B) models to counter an avalanche of activity from incumbents in the segment.

  • Regtechs have benefited from an onslaught of new regulation in 2018. Various regulatory schemes that came into effect this year, including the EU's Revised Payment Services Directive 2 (PSD2) and General Data Protection Regulation (GDPR), have brought with them enormous handbooks and vast reporting requirements that FIs’ compliance teams [...]