In an industry as young as fintech, every year is an action-packed watershed one, and 2018 didn't disappoint. Here are #fintechFT's highlights.
Spare a thought for anyone who filled an awkward silence at last year’s Christmas dinner by recommending friends and relatives pile into bitcoin. The iconic cryptocurrency — the biggest use to date of blockchain technology — was trading at around $14,000 on December 25 last year; now it’s down to less than $3,500. But investors and speculators who put their money into the cryptocurrency aren’t the only ones who bear the scars of a torrid 2018.
Initial coin offerings (effectively IPOs where people are rewarded with crypto tokens instead of ownership), have also fallen off a cliff since the crypto crash, with less than $1.9bn issued between September and December (to date) this year, versus the $4.5bn issued in the last four months of 2017.
Another harder-to-measure casualty of the crypto crash has been confidence and belief in blockchain as a technology, despite blockchain proponents' very best efforts to stress that blockchain isn't responsible for the wild gyrations in crypto valuations.
Blockchain comes of age (slowly)
Cryptocurrencies aside, it has been a decent year for blockchain in finance. Banks have banded together for their largest single blockchain project, with more than 130 signing up to the Interbank Information Network, which uses distributed ledger technology to quickly resolve issues that delay cross-border payments. Spain’s BBVA issued the first corporate loan on the blockchain in April and followed up by completing the first syndicated loan on blockchain in November. In the insurance world, the US’s State Farm has just begun testing a blockchain platform for processing auto claims. Consultancy Ernst & Young, insurers XL Catlin and MS Amlin, and broker Willis Towers Watson have also teamed up for a project that uses blockchain to insure shipping containers as they make their way through war zones and natural disasters. However, finance executives, including those in the innovation world, stress that there's a long way to go before blockchain becomes a mainstream cog in their industry. One executive posits that even when blockchain technology is ready to deliver on its promises, big banks like his will run shadow systems for years. Still, progress is progress.
Realists replace evangelists in AI
In the summer of 2017, #fintechFT’s intrepid agents met with a neuroscientist who claimed that his artificial intelligence tool could perform “virtually every job” humans are currently carrying out, with the possible exception of the creative arts. Luckily for the millions working in finance, 2018 was a year when the industry got real about what AI can and can’t do in the short term. The upshot is that there will be job losses — as detailed by Citi’s investment boss Jamie Forese who bravely told the FT that up to half of his 20,000 tech and operations staff could be cut over the next five years as machines, including those powered by AI, supplant them. But, crucially, banks and other financial services firms accept that there are many limitations to what AI can do, and that it won't live up to its early hype, at least not in the short or even medium term.
Banks, asset managers and insurers have been drowning in data for years as regulators demand ever-increasing amounts of information about the customers they serve and the processes they use. New technology offers up an ever-increasing amount of ways to leverage that data to tailor make products and services. Still, this year came with its challenges. “2018 was the year for data, from security to regulation to leveraging it to surprise and delight consumers,” says Vanessa Colella, chief innovation officer at Citi and head of Citi Ventures. “Although General Data Protection Regulation (GDPR) came out of the EU, its implications were global.” Data-focused fintechs, including Citi-backed Immuta, OneTrust and Senzing have seized on opportunities to help firms rise to the new challenges, while data have also become a big destination for financial services firms’ own fintech spending.
It's been coming for a while, but 2018 will go down in history as the year when big banks, insurers and asset managers all welcomed fintechs into their embrace instead of taking them on with all the gusto of Christmas Eve shoppers battling it out for the last of the supermarket's cranberry sauce. “The era of competition between banks and fintechs is dead,” says Sinead Fitzmaurice, co-founder and CFO of payments firm TransferMate. “The era of collaboration is in full swing.” She cites ING’s investment in TransferMate this year as a case in point. Spain’s BBVA was also prolific, putting in more than £100m in new fintech investments in the space of a couple of weeks.
Further fintech fascination
Checking out at Robinhood With a $5.6bn valuation and a rapidly growing customer base of more than 6m, America’s zero-fee stock trading app Robinhood was always going to make a splash when it launched its long-awaited checking account. Unfortunately, the splash was more belly-flop than an Olympic dive. Just two days after launching “checking and savings” last Thursday, Robinhood had to hastily rebrand the new offering as a “cash management service” after the Securities and Investor Protection Corp publicly denied the group's claims that it would protect any deposits lodged in the accounts. Robinhood’s founders now say they're “revamping” their marketing materials and working with regulators.
Inside the revolution As the year draws to a close, and bonuses are in sight, many bankers might be wondering if now is the time for a new challenge. For anyone thinking that new task might be fintech, this piece from eFinancialCareers offers a helpful whistle-stop tour of the ups and downs of working for rapidly expanding payments firm Revolut, which has just won a European banking licence. From 13-hour days in order to “get sh*t done”, to a culture of “ownership” and only hiring those who are “super super high calibre”, Revolut isn’t for everyone. Still, the firm says it has more than 1,000 hopefuls sending CVs in every week.
Not so stable coin The world's best funded stablecoin — aka cryptocurrency with mechanisms to stabilise its value — is no more. Intangible Labs raised $133m for its basis cryptocurrency earlier this year, attracting support from big name investors including Google Ventures and Bain Capital. But Intangible Labs CEO Nader Al-Naji told Forbes he was pulling down the shutters after talks with regulators. Al-Naji said he “got the impression” from the SEC that stablecoin would be classified as an unregistered security, limiting ownership to accredited investors in the US for the first year and mandating background checks for foreign investors thereafter. All the money raised is being returned.
Bits and bobs
Real politique We’ve seen plenty of bankers trying their luck at fintech, but politicians are a rarer sight. Enter George Osborne, the UK’s former chancellor, who has joined a San Francisco-based venture that invests in “decentralised finance”. 9yards Capital is run by Osborne’s brother Theo, who said the former politician was “very plugged into the Stanford ecosystem”. He’s also very well plugged into the global political ecosystem, and 9yards has already been citing those connections in conversations with investors and other prominent Silicon Valley figures, the FT hears.
Happy Christmas at Plaid Plaid, which powers apps for big financial services firms like Venmo, Amex and Citi, secured a $2.65bn valuation and $250m of investment in its latest funding round, various media reported last week. That’s a good result for the five-year-old firm, since a few months back it was reported to be in talks to raise $200m at a valuation of around $2bn. Backers of the latest fundraising include existing investors Goldman Sachs, NEA and Spark Capital, as well as Index Ventures and Andreessen Horowitz.
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