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From silos to ecosystems – how fintech will evolve in 2018

Future banking
By Jonny Davis - Vice President of Global Client Management - Partnerships

Fintech growth is unquestionable. However, long-term success requires collaboration and consolidation

‘Get big, get niche or get out.’ This old mantra for tech firms will ring very true for the fintech industry in 2018. A largely fragmented market, you could argue fintech is ripe for consolidation. While 2018 may not be a year of mass mergers and acquisitions, it will certainly be a year of increased collaboration as financial services companies and fintech businesses build closer ties. What will be key are dynamic and secure ecosystems.

In its Global Fintech Report last year, PwC highlighted some interesting findings. It revealed that 88% of financial services incumbents are increasingly concerned they are losing revenue to innovators, while 77% will increase internal efforts to innovate as a result. Around 82% expect to increase fintech partnerships in the next three to five years.

It’s not a surprising picture. It’s a standard response to disruptive technology, a sort of ‘if you can’t beat them, join them’ strategy. But what it does show is that there is increasing scope for volatility. As more fintech firms receive VC funding and more emerge offering nuances of existing services, will this just confuse the market? Will it make people nervous and send them scurrying back to known brands?

Secure ecosystems

This potential for volatility makes ecosystems more important. A fintech firm with a secure ecosystem that embraces a variety of complementary services, is sure to hold greater sway than a start-up just offering a new take on just one service.  

That’s not to say that fintech start-ups offering specialist services in 2018 will struggle. On the contrary, innovation will continue to thrive. It’s just that for start-ups to get a strong foothold in the market in the coming months they will have to consider how they fit within existing payment and financial management infrastructures. Are they open to partnerships? Can they work within existing ecosystems to offer a cohesive set of value-adding solutions?

Interestingly in Europe this year we could see a surge in fintech investment, as the European Commission is developing legislation designed to remove investment hurdles imposed by single member states. It’s part of the digital single market proposals. This means that, with new laws in place allowing fintechs to scale more easily across Europe, funding could balloon into billions of dollars – although as the EU is notoriously slow at ratifying laws, this could take a while to happen.

Nevertheless, the scene is set for substantial growth. What we don’t want, however, is wild and unfettered growth. We want innovation, of course we do, not just from new entrants but also existing fintechs and banks. But that innovation has to move the story forward and not just be a ‘me too’ challenger. At least not in isolation. That could be damaging. Innovation that works within or towards existing ecosystems will stand a stronger chance of adoption and go a long way to making this the most dynamic and fastest growing industry on the planet.