Key Trends from Finovate Spring 2017
I was at Finovate in San Jose last week. Kudos to the organizers for pulling off another great show. Two days is hardly enough to cover Fintech — especially with so much happening in the world of Fintech startups in addition to the innovation coming from incumbents. There were about 60 demonstrations over the two days; mostly startups also some incumbent technology companies were showcasing their innovations as well. I was able to attend about half given meetings and other commitments. Here is my take on the key trends:
Historical Financial data is good predictor of Customer behavior — this could be a big economic potential for FIs
Financial institutions have a lot of customer data around spend, income and assets. Big Data analytics initiatives have focused on various marketing, risk management and streamlining regulatory burden work but predicting customer behavior has still not been mastered. Alpharank, one of the 8 Best of show winners, demonstrated a social human graph derived from financial transactions (akin to Facebook/LinkedIn’s social graph) that can be used to predict customer behavior. While these have to be validated with longitudinal data, such graphs have been applied to target marketing campaigns, insurance fraud detections and retention drives and even to build personalized servicing. In a similar vein, Neener Analytics (also a best of show winner) claims to be able to predict credit worthiness with social media/online data. Ability to predictcustomer behavior from financial data has potentially huge economic benefits from financial services in-spite of how sneaky it may seem. High valuations at Facebook, Google and Amazon are in part because of their ability to predict customer behavior.
Are we seeing the 2nd generation of Roboadvisors?
With M&A activity and incumbent entries in the Roboadvisors in the last couple of years (Futureadvisor/Blackrock, Schwab, Betterment whitelabel deals to name a few) one would think that the wave of Roboadvisors in retail wealth was entering the “plateau of productivity”. I’d say not judging by some of the startups this week like Hedgeable.AI, Capitalise.AI (both best of show winners) — introducing natural language capabilities to investment management. There is also a trend to democratize high-end algorithmic trading by creating a marketplace for quants, for example Quantiacs which demonstrated its algorithmic trading platform built for investors and traders alike. There were also a few companies with collaboration/interaction platforms aimed at advisor and client collaboration that I cover under the Messaging category below. Natural language, algorithm differentiation not just by return targets, hedge fund like services for the mass affluent and wealthy and hybrid models of high-touch with high-tech maybe the future of retail wealth management that is likely to see more Fintech and incumbent investments.
Biometrics recognition like Voice, Face and Fingerprint can not only solve password and authentication problems but may solve eKYC and other challenges in financial services
SpeechPro (also best of show winner) combines facial recognition and voice recognition for authentication. Jumio showed how facial recognition technology could compare images from ID with selfies taken during a mobile transaction, something that can be potentially used for eKYC. Several developing countries have implemented national ID cards that have biometrics and even a DDA integrated with them making eKYC for any account open and biometric payment/cash withdrawal (card less and id less) a reality. Now, the likelihood of something like that happening in the U.S is very low given privacy and other issues but it will not be surprising see more Biometrics, AI/Machine and distributed ledgers in areas such as eKYC changing how KYC is done with downstream gains in transaction monitoring and AML.
Real estate lending tech (RELTech) such as mortgagetech. is likely the Fintech flavor of 2017
Several companies are in to change the fragmented customer journey i.e. the house discovery, buying and financing experience. Some established startups are already working with Banks in this space but innovations in this space is far from over. Unison (a best of show winner) has an interesting play around co-investing with consumer on real estate transaction interest free but share the appreciation over the years i.e. in some ways an inverse REIT. Aggregators such as Finicity also showcased how they can streamline income and asset verification, which could profoundly simplify underwriting and originations process for loans as well as insurance in the future. Best of show winner Microblink provides SDK that allows you to scan and convert to text documents on the fly something that could simplify the document challenges in originations. House buying and financing may very well become like buying books on Amazons. With VR/AR based immersive experience of a new homes from a Bank branch, and with asset transfers including real estate title orchestrated on the blockchain with smart contracts (check out Chromaway even though they were not at Finovate) and repository of verified loan docs that are always available on demand to anyone that needs it without expensive document management technology and operations (not at Finovate but check out how Factom reduces compliance costs in mortgage documents). RELTech as in Real Estate Lending Tech disruption across the who lifecycle is coming.
Messaging/interaction manager platforms companies could finally make omni-channel possible.
Onist, Moxtra and Eltropy, Layer and others demonstrated their platforms for better collaboration between bankers/advisors and their customers. While these vendors are looking for use-cases in financial services, I think a verticalized solution based on these platforms that plugs into Branch, Call-Center and replace the current digital messaging platforms at FIs would solve the omni-channel sales and services problems that Banks have been grappling for years. Just like we are seeing convergence of mobile wallet platforms into merchant platforms in Payments, we will likely see the gradual convergence of FI channel platforms into a conversational platform integrated into the new core (see below for new core).
Last but not the least, we are seeing Core Banking vendors investing in core-modernization.
A new modernized Core can give financial institution much needed parity for having the operational agility of Fintechs and present more easier integration mechanism with Fintechs. We heard from Celeritifintech (Hogan Core Banking) on their plans to modernize Core and in building an ecosystem of Fintechs. This new core would not only aid in the ongoing Digital transformation for FIs but would also create the foundation for FIs to develop new Fintech value propositions. As part of this effort, CeleritiFT is hosting Hack the Core, it’s first Hackathon on Core Banking APIs right here at iValley.
Are you curious about how these developments will impact financial services? Connect with us at iValley, we are a Fintech accelerator in the SF bay area that help financial services firms synergistically work with startups and leverage fintech innovation. Our model is unique and unparalleled in the marketplace in that it is execution focussed. If you missed Finovate in the bay area, we will be hosting Fintech Talk, the intersection of silicon valley and financial services event, at iValley in September with focus on Institutional fintechs and how Financial services firms can co-create with startups. Last year we brought together leading FIs and startups for a day of great keynotes, pitches and networking between FIs and startups.
Paddy Ramanathan is Founder and Managing Director of the iValley Innovation Center in the East San Francisco bay area. iValley Innovation Center is a corporate focused Fintech accelerator serving the innovation needs of financial services and technology firms