KEY POINTS

  • Fintech broke onto the scene as a disruptive force following the 2008 crisis, but the industry's influence on the broader financial services system is changing. By this point, the fintech industry is far more than a group of digitally native, consumer-centric startups. In many ways, fintechs are the new face of financial services, representing the direction the industry as a whole is headed.
  • The fintech industry no longer stands clearly apart from financial services proper, and is increasingly growing embedded in mainstream finance. Eventually, "financial services" and "fintech" will become indistinguishable. And we’re now seeing the initial stages of this transformation, as funding grows more internationally distributed, and startups make the necessary adjustments to prove sustainability and secure a seat at the table.
  • Most fintech segments in the ascendant at the time of our last Fintech Ecosystem report have continued to rise and grow more valuable to the broader financial system. For instance, insurtechs are tackling more difficult areas of insurance, while regtechs are capitalizing on a slew of new regulations that incumbents are struggling to cope with. Personal finance management (PFM) services, meanwhile, are finding their propositions perfectly suited to an open banking environment. And rapid change in the payments industry continues to be a boon for fintechs in the space.
  • However, several fintechs are being forced to make adjustments for the future. Most neobanks, for example, gained popularity by offering cheap or free services, but now face pressure to monetize, leading to business model changes. And robo-advisors are having to find increasingly creative diversification strategies to fend off growing competition from incumbents. Additionally, alt lenders in the US and UK are moving away from marketplace lending and toward balance sheet models in an effort to insulate themselves against market fluctuations.
  • Blockchain and distributed ledger technology (DLT) fintechs, meanwhile, are proliferating at breakneck speed, driven by booming demand for the underlying technology from incumbents, enthusiasm for cryptocurrencies and initial coin offerings (ICOs), and continued discovery of financial services areas where the technology can introduce efficiencies. Moreover, a growing number of incumbents and established blockchain players are launching big funds targeted specifically at blockchain, DLT, and cryptocurrency startups, suggesting that investors believe such companies hold value for the global financial services industry.
  • This past year also [...]