Artificial Intelligence, Algo-Banking, Blockchain, Cryptocurrencies and Robo-Adv
Source: Frost & Sullivan
Fintech is a disrupting force and a decentralising movement in the financial services sector. Fintech's apply information technologies and modern internet protocols for data exchange, and deliver financial services using data storage, data analysis algorithms, or personal telecommunication devices. Digital ecosystems are fundamental to the success of both Fintech and traditional banks.
Saranga Sudarshan, Research Analyst, ICT Practice, Frost & Sullivan Australia & New Zealand
Frost & Sullivan's study, Fintech in Australia – Trends, Forecasts and Analysis 2015 – 2020 defines and focuses on the growth and challenges of the Australian Fintech sectors' three market segments; Digital Payments, Personal and Business Finance, and Financial Infrastructure and Data Analysis. Each segment relies on its own set of digital technologies.
Digital Payments
Digital Payments are services offered through a smartphone, POS device, or web-based tool allowing consumers to make payments (online or mobile point-of-sale), exchange currencies and trade funds (foreign exchange, international funds transfer and cryptocurrency trading and payment) in a purely digital platform. Digital payment methods are low cost, instant, and global.
Saranga Sudarshan, Research Analyst, ICT Practice, Frost & Sullivan Australia & New Zealand says decentralisation of the payments network will allow Fintechs to offer convenient and competitively priced payment solutions. New EFTPOS and online charging solutions will permit more credit card payments to merchants at a reduced cost of receiving payments. From 2016, digital payments will have steady revenue growth with the segment forecasted to be worth AUD1.897 billion by 2020.
"Mobile payments (payer and payee services) are expected to take off in 12-18 months. Apple Pay and Google Pay will revolutionise this market. Smartphone prevalence facilitates a high adoption rate for a more convenient and secure form of paying compared to physical cards or cash," added Saranga.
Near Field Communication (NFC) enables consumers to pay with their mobile phones instantly, with any payment company, for any purpose. NFC payments integration into Apple Pay and Google Pay will challenge established and existing payments players in the digital payments segment, who will ultimately have to pay a fee to have their credit and charge cards carried on these platforms. As Apple and Google develop stronger ties with banks, they could bypass Visa and MasterCard's global payments network. If Apple and Google expand their payments system beyond NFC and mobile apps, and enter online payments, Paypal's online payments system will be threatened as customers will prefer integrating their mobile and online payment method under one system.
Smartphones allow the possibility of completely digital banks to operate internationally without any physical branches. Mobile applications are developed to be the sole platform for mobile banking and investment tools. 60% of the top 100 finance apps are Fintech and 100 most downloaded free financial apps; 65 on the Australian Google Play Store and 54 on the Australian Apple App Store, were for services offered by companies that are not established banking or investment firms. Mobile payment apps include PayPal, PayPal Here, Square Register and Woolworths Money.
Cryptocurrencies (CRCs) such as Bitcoin or XRP offer anonymity, accessibility and an unregulated low cost model payment method. The value of one Bitcoin grew 314.41% (CAGR) from 2011 to 2015; however this growth has been underlined with a high degree of volatility. With high volatility, low merchant acceptance and consumer confidence and no integration of cryptocurrency transactions into the settlement system of Australia's new payments platform, coupled with security of an individual's cryptocurrency wallet remaining a long-term issue with increasing levels of cybercrime, mainstream adoption is unlikely over the forecast period.
Key players in the digital payments segment include BitPOS, Coinjar, iDats, Tappr and Tyro Payments. Frost & Sullivan predicts that these companies are poised for strong growth; with the next goal for Fintechs in the digital payments segment being to grow existing revenue streams. Whilst opportunities will present for security and hardware services for companies innovating merchant ayments, it is anticipated that business acquisition opportunities will exist largely in companies offering bitcoin payments.
Personal and Business Finance
Personal and Business Finance services improve the consumer experience by offering easy to use mobile applications and web portals and enable consumers and business to manage their financial affairs with quick access to investment and credit opportunities through either peer-to-peer models of investment and borrowing, or through algorithm based financial planning and investing.
Digital Ecosystems are complex and connected to so many diverse products but are crucial in improving customer experience and retention. It is the key to Fintech and traditional bank success. AI systems manage digital ecosystems, providing a uniform consumer experience amongst diverse types of financial services. Self-learning AI Systems are a tool to analyse customer behavior. AI system development will be aimed at analysing customer behaviour for signs of fraud or other financial crimes, but also new investment opportunities and saving methods so financial institutions can sell products more suited to customers at a lower cost based on the customers' behaviour and financial activity.
Customised algorithms within algorithm based banking (Algo-Banking) and robo-advice are interactive advice systems that allow rapid transformation of unstructured raw data into structured data. It analyses global markets and a customer's financial details to customise financial advice to individuals and businesses and can recommend money saving methods at the point of sale and in the long-term more efficiently than any human broker. Customised Analysis Algorithms are easily deployable to any institution's financial data. Replacing financial advice teams with robo-advice teams will be an attractive option for established financial institutions looking to cut labour costs, while lowering investment and financial planning costs to customers.
The growth of algo-banking will be buoyed by the size and stability of Australia's superannuation funds, in particular, Self Managed Superannuation Finds (SMSF) as algorithm based investment tools. Financial analysis algorithms can be applied to grow superannuation funds larger and faster. By 2020, wealth management Fintech solutions will comprise 35% of the Fintech market.
AI systems with data analytics modules, algorithm-based banking with complex projection algorithms and robo-advice will increasingly be used in financial planning and this will disrupt and significantly impact the financial planning market in Australia. As consumer confidence grows and the adoption of short-term lending, digital financial planning, and mobile-centric investment tools become more prevalent in the market and grow in popularity, Frost & Sullivan anticipates the Personal and Business Finance segment will significantly expand its revenue share to reach AUD1.475 billion by 2020.
Key players in the Personal and Business Finance segment are Pocketbook, Cashflower, Boomeringo, SocietyOne and OnMarketBookBuilds. The top players to watch are Prospa, Society One, OnMarket BookBuilds, Nimble, Stockspot, Yourshare, Pocketbook, Vashwerkz, Investsmart, and TradeFloor. Frost & Sullivan expects that opportunities in the Personal and Business Finance segment will be focused in AI and Ecosystem building and acquisition opportunities will be focused on Fintech lenders and micro-investment platforms.
Financial Infrastructure and Data Analysis
Financial Infrastructure and Data Analysis refers to infrastructure-as-a-service, infrastructure management and consumer data analysis for financial services companies. Data analysis and infrastructure services are designed to make traditional financial institutions more efficient by implementing newer digital technologies like blockchain and biometric analysis to improve security and connectivity for financial services. Companies in this segment focus on providing a more efficient product than traditional infrastructure vendors, rather than competing on cost.
"Blockchain is easily scalable to larger institutions and networks. Implementation of a decentralised ledger for financial settlements allows for secure settlement of assets between banks and reduces transactions costs for customers. Blockchain-as-a-service, with a third-party managing the technical backend infrastructure will significantly reduce infrastructure costs for established financial institutions. Blockchain research will allow mature Fintechs to gain a long-term foothold in the global Financial Services Sector. The main drivers of the Infrastructure and Data Analysis segment will be the development of Blockchain-as-a-Service," says Saranga.
Frost & Sullivan foresees blockchain development will be steady and hit key financial systems in late 2017 and early 2018. Partnership opportunities will be strong in data analytics services and database security with a focus on database security for Fintechs offering data analysis and acquisition opportunities focussed on Fintechs developing blockchain solutions. Frost & Sullivan forecasts this sector will increase in revenues, but become more concentrated, with revenue of AUD843.4 million in 2020.
Key Players in the Infrastructure and Data Analysis Segment include Zetaris, Data Republic, Avoka, iDats, Metamako and Quantium. In conclusion, Saranga added, "The growth of Fintechs offering financial data analysis will have a significant impact on the data centre market. Australian financial data cannot be stored in off-shore cloud storage without regulatory approvals, and so will contribute to the growth in use of data centres within Australia."
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