Technology is upending established workflows and processes in the financial services industry. Tasks once handled with paper money, bulky computers, and human interaction now are being completed entirely via digital interfaces. Given how pervasive financial services are across the globe, the disruption opportunity for fintech startups is massive. Startups, some of which have garnered blockbuster investments, are re-imagining almost every type of financial activity. Meanwhile, the old guard is trying to solve the puzzle the fintech revolution presents — how can incumbents benefit from the rise of digital, and how can they avoid obsolescence?
Below are our top predictions for fintech in 2016. Our predictions are based on the research we’ve been conducting over the last year, including forecasts of industry trends, data tracking, and conversations with executives in the industry.
1. Blockchain technology will become more than a fad as global banks commit to a unified blockchain solution for inter-bank transactions.
Blockchain technology — the same technology that underlies bitcoin — has the potential to eliminate the need for trusted intermediaries in financial transactions, thereby reducing the costs associated with those transactions. Although banks have different perceptions of how disruptive blockchain technology will be, most seem to agree on its underlying potential to spur cost savings.
In 2016, we believe banks will rally around a unified solution for implementing a global blockchain for managing inter-bank transactions. This will likely manifest itself in a multi-year timeline, with clear steps for gradual implementation. Thirty global banks have already joined blockchain startup R3CEV to work on developing an open source, globally distributed ledger, setting the stage for this timeline.
2. Apple, Google, and Samsung will build out commerce experiences around their payments products.
In 2015, we saw the future of mobile payments take shape with the release of Android Pay and Samsung Pay, both of which closely resemble the user experience of Apple Pay. But mobile transactions are just the beginning. In 2016, we’ll see these companies focus on building out commerce experiences around their payment products, which will include an increased emphasis on loyalty, store cards, and coupons.
Part of this experience will likely include an in-store component that utilizes beacons to push offers to customer’s phones. These ecosystems will become a key driver of mobile payments adoption. Offers and rewards are the top incentives that would get North American adults to start using mobile payments, according to Accenture.
3. Business management apps housed on mobile point-of-sale devices will become a necessity for small businesses.
The mobile point-of-sale (mPOS) is following a similar trajectory to the development of the smartphone. Now that droves — over 40% according to some surveys — of small businesses have adopted mPOS devices, such as those offered by Clover and ShopKeep, we’ll see an increased focus on emerging app marketplaces.
At the heart of this trend is business data. Apps that can generate actionable insights using this data will gain widespread adoption. For the businesses that use these apps it will mean increased foot traffic and transaction size in the front office as well as increased operational efficiency in the back office. For the developers and acquirers who partner to create these marketplaces, it will mean a significant new revenue stream and reduced churn.
4. Mobile ordering apps will become an important transaction channel for quick-service restaurants.
Quick-service restaurants (QSRs) are introducing digital ordering platforms to increase average ticket sizes, order frequency, loyalty, and ultimately sales. For example, Taco Bell’s average order values are 20% higher in its mobile order-ahead app than in its stores. Starbucks recently launched its own mobile order-ahead feature, which is used heavily, according to the company.
Other QSRs are seeking a similar boost, and now 80% of the top 20 QSR brands in the QSR 50 offer or are testing some type of mobile ordering capability. In order to maximize the benefits of mobile ordering, restaurants will likely incentivize customer usage through loyalty programs and rewards. These campaigns, combined with the heightened presence of mobile ordering, will drive up customer adoption.
5. Traditional financial institutions will respond to the threat of FinTech startups by partnering with them.
Legacy banks face the greatest disruptive threat from nonbanks that provide similar services, according to a recent BI Intelligence study. There are a number of options for responding to this threat including building similar products inhouse, acquiring their competitors, or forming partnerships. We think banks will adopt a strategy of partnering with smaller fintech firms in order to leverage their services and bring them to a wider audience. That’s because it’s often easier than building these services in-house.
Fintech startups can often focus all their efforts on building great user experiences while banks must overcome the friction of innovating within a legacy system. Nevertheless, many of these startups still have a lot to prove before they become acquisition targets. Partnerships give banks an opportunity to try before they buy. We’ve already seen this strategy adopted in the alternative lending industry. Major banks like ING and JPMorgan Chase have partnered with digital-based alternative lenders like Kabbage and OnDeck in order to better fund small businesses, for example.