As we head into a market correction, 2019 and beyond will be very interesting for the evolving Fintech industry. This sector of finance saw significant M&A activity and massive fundraising during the 2nd half of 2018 and I predict that we will see more of it again in 2019.
But first, before I share my outlook for the coming year, let’s first review what I forecasted 12 months ago and see if we can stump the chump. See my complete 2018 predictions here.
10. New Asset Class – New Asset Backed Lending for Crypto
The likes of Nexo, SALT, CoinLoans & Unchained Capital have emerged in the recent months unlocking the value of your cryptocurrency. There is a list of crypto lending sites here.
Technically speaking, loans backed by assets always outperform personal loans, however, that’s yet to be seen given the heavy correction in the cryptocurrency market this year. It would be interesting to see if any of these companies will find the right balance between asset valuation and credit risk. Given the number of token backed lending platforms out there since my last article, I’d say I am spot on with this prediction.
9. The Alternative Internet
We didn’t see an introduction of an alternative internet designed specifically for entertainment, banking, social networking etc. But I still think it’s inevitable that the internet, as we know it, will split. If it’s not by providers but by nations influenced by geopolitical events.
Jamie Dimon of JPMorgan is opening up a new campus in Silicon Valley
There’s no doubt that old finance has finally started building, buying, and innovating. We have seen big banks leveraging Fintech platforms from OnDeck and Avant in 2018. More of it will come in 2019 as banks begins to decentralize banking again. The first decentralization was the advent of the Automated Teller Machines (ATMs), the second wave was the Smart Phone, and the next wave will be Point of Sale and Payment endpoints.
7. Everyone will be rich (unlocking home equity value)
I attend a talk by Mike Cagney of Figure at 2018’s Lendit China conference. He’s creating something completely different to unlock the potential of the entire “supply chain” process from home equity lines of credit to bundling and tracking this asset class utilizing smart contracts and blockchain. He wants to eliminate the hurdles and ambiguity for the secondary market.
As home equity value rises and interest rates increase, home equity products will need a ton of tech. It has become a forgotten art since the great depression. I am predicting that a lot more of Fintech companies will come to light in 2019 working with the banks to unlock consumers’ home equity value.
6. “Baby Boomer Financial, Inc.” (Fintech for the aging but wealthy population)
There are a few Fintech companies designed specifically for the aging population. But there isn’t enough. Perhaps the angle is fewer transactions but targeting Wealth Management and Financial Advisory. There are several established wealth management companies out there that might be on the war path to create technology for a new secure financial future for our aging population
5. Shared Risk Platforms
I’ve seen companies such as VouchForMe with a social vouching slant hedge risk, similar to what Vouch tried to accomplish a few years ago.
I’ve also seen Insurtech evolving into micro-insurance, especially in developing countries where health, disability, and life insurance are hard to come by.
There are still many hurdles such as regulatory and licensing issues here in the United States for any Insurtech companies to overcome but it’s just a matter of time for this industry to be completely disrupted.
4. Zero Latency Payments
We were so close with this one.
Venmo finally enabled instant bank transfers but quickly shut it down due to massive fraud-related losses.
What happened to all the A.I. fraud detection algorithms when you needed them?
All joking aside, I think the reality of faster, or real-time, payments is coming very soon. Amazon, Google, and Walmart just banded together to urge the Feds to enable real-time payments clearance.
3. Social Networks Venture into Credit
Facebook and Twitter have enough problems with data security, foreign government influence, and fake news to deal with. However, Facebook is actively looking for financial partners to be part of the messenger network. Perhaps payments might be their next move before credit.
2. Vertical Integration (i.e. Uber moves into Lending)
I think vertically integrated Fintech startups will be something to watch in 2019. This will be on my Fintech prediction’s list once again (see below).
1. Generation Z (Fintech for the next billion people)
Generation Z population is born between the 1990s and 2000s. The oldest GenZs are getting out of college and their perspective on wealth and spending are dramatically different than the millennials.
We didn’t see many Fintech companies targeting GenZ specifically in 2018 but they will be here before we know it. Perhaps the angle is not coming from the traditional Fintech approach, it might be an experience (point of sale, transactional) based approach.
Now for my top 10 Fintech Predictions for 2019.
10. Consumer Lending Market Correction
We already know the obvious. Rates are going up and it will be harder for Americans to borrow. But the problem may be two-fold.
We are overdue for an economic correction. We have already seen housing prices in some key markets deteriorate and subprime auto loan portfolios are experiencing high default rates. As the US economy softens, and credit default rises, prime lenders will need to quickly diversify their offerings to maintain investor yields in the coming year.
9. The Rise of Debt Relief Companies
According to the Federal Reserve’s latest figures, outstanding credit debt has exceeded $1 trillion dollars and is growing.
Before the Great Recession, this figure was just over $800 billion dollars.
The debt relief industry was responsible for resolving over $160 billion dollars of unsecured credit card debt.
As the looming correction nears, I predict that the debt settlement industry will experience another period of significant growth. This time, I believe technology, such as A.I., will be the dominant force to alleviate millions of Americans from overburdened financial obligations or worse, bankruptcies.
8. Subprime Lenders Rejoice
This is my third prediction related to the impending economic correction.
As banks tighten up their credit standards, interest rates move higher, and consumer spending slows, the downward cycle begins. However, demand for credit will still be here and investors will still be looking for yield. During these times, subprime lenders are here to pick up the pieces when big banks and credit card companies don’t, or are not allowed to, do business.
7. It’s the Credit Union’s Turn
Credit Unions are regulated and structured differently than big banks. They are often forgotten by Fintech companies but don’t count them out just yet.
I suspect that there are going to be some interesting collaborations happening between Fintech enablers and Credit Unions in 2019. Teams like CUDirect in Orange County are at the forefront of Credit Union innovation. However, we need more than just technology. New products and operational efficiencies are needed to really hit the ground running. We will see a lot more in 2019.
6. Student Lending Rising
The often forgotten student lending market is poised for innovation. Fintech startups such as SixUp in San Francisco are building the next generation of student lending platforms that put student experience at the forefront of their core offering.
Companies like Alchemy Coin utilize new blockchain technology to further advance the interconnectivity between students, lender, and schools.
The student lending market is truly a massive area ripe for automation and disruption. It is a huge undertaking that involves schools, lenders, and services to work together to underwrite over 4 million Americans annually going into our university system. 2019 and beyond will see a ton of Fintech players enter into this enormous space
5. Vertical Financing Will Dominate
Generic Fintech players like LendingClub are a thing of the past.
In comes vertical lenders that are gaining momentum in areas such as cosmetic surgery, home improvement, and other point of sale verticals will shine in 2019.
Companies such as PatientFi.com are leading the charge in the patient financing space, building technology around patent’s experience, and office automation. They are building something unique to drive their core competency in the patent financing space.
I am seeing more of these vertical players that found a niche with their deep understanding of the market to bring true tech-driven solutions to market.
4. Biometrics are coming (again)
I predict that payments and facial recognition will finally come to the United States.
During my last China trip in the summer of 2018, I saw a glimpse of the future. Chinese Fintech companies are showing off devices and apps utilizing facial recognition to make payments, bypassing iris and fingerprint scans.
We played with keystroke biometrics a decade ago at a bank with some success, however, facial recognition is the way of the future if we can work through all the privacy issues that comes along with it
3. Breakthroughs in Cost to Acquire
Search Engines, Social Media Sites, Aggregators (LendingTree), Radio (Terrestrial or Satellite), Television, Streaming and even physical mailboxes have been played out for decades. The toll way charges (SEM, Display Ads, Postage, Airtime) are going through the roof.
Not everyone can start buying planes like Amazon to reduce the cost of logistics or, in the Fintech space, the cost to acquire customers.
One may argue that understanding the data is key to deploying your marketing spend but the data cost is going up as well. And, there are only so many ways you can analyze a four factor tool (Age, Gender, Income and Geography… e.g. Facebook Ad Manager).
One may also argue that Point of Sale is the best way to reduce the cost of acquisition, like what Affirm is doing. However, the B2B sales cycle are long and it adds another toll/middle man in the middle of the acquisition channel. You might not truly own that customer at the point of sale, it’s the storefront that owns the customer, since they spend the money to acquire that customer in the first place.
The struggle for eyeballs continues but there has to be a new way in 2019 to lower the cost of acquisitions and unbind ourselves from the traditional online and offline privatized channels.
2. Artificial Intelligence Everywhere
Artificial Intelligence (A.I.) has been talked about forever. The skillset required to deploy and use A.I. algorithms is an entirely different scenario.
A.I. doesn’t solve all problems and it could be detrimental to your business if it’s not used correctly. We overemphasize the power of these tools without understanding the fundamentals of statistical and mathematical theories behind these techniques, which I think it’s dangerous.
Until we develop A.I. to check A.I, or regulations that give guidelines on what type of A.I. is applicable to certain scenarios, I urge folks to have a statistician at the helm to guide these tools and solutions.
Elon Musk stated: ‘Mark my words — A.I. is far more dangerous than nukes’ – March 13th, 2018.
1. The Birth of Micro-Fintechs
I predict that the “App Culture” driven mostly by Apple’s iOS devices will become the central thesis of the next generation of Fintechs, I dub it “Micro-Fintechs”. The meme “There’s an app for that” will come to Fintech.
In other words, Fintech still feels very transactional, unnatural and prescribed. It should be micro, settled, and baked into our day to day experience. The Starbucks App, Amazon Go Stores are getting there, but it’s not pervasive and the experience is still incomplete.
Paypal and Venmo are trying to get there, but it is still bound by the archaic banking system. Cryptocurrency has velocity, volume, and last-mile issues of their own.
But the entire Fintech community is moving from transactional in nature (LendingClubs of the world) to a more experience-based approach (SixUp, PatientFi).
I am looking forward to what’s coming in the next 365 days. Let the innovation continue. See you guys next year.
Timothy Li is a Senior Contributor for Crowdfund Insider. Timothy is the Founder of Kuber, MaxDecisions, Alchemy and has over 15 years of Fintech industry experience. He’s passionate about changing the finance and banking landscape. Kuber launched Fluid, a credit building product designed for college students to borrow up to $500 interest-free. Kuber’s 2nd product Mobilend is a true debt consolidation product, aiming to lower debt for all Americans. MaxDecisions provides financial institutions with the latest A.I. and Machine Learning algorithms and Alchemy is a state of the art end-to-end white labeled Lending Platform powering some of the best FinTech companies. Li also teaches at the University of Southern California School of Engineering.