Fintech 2016 – A Year in Review

2016. It’s been a turbulent year for the global markets with the mid-year Brexit shakeup and the recent election of Donald Trump. Despite the tumultuous developments, the financial technology landscape has continued to thrive and disrupt conventional financial services with a range of new startups on the scene and existing major players making even further impacts on both the retail and institutional economies. Below, I’ve outlined a few areas of note. These include the obvious blockchain revolution, robo-advisory, the progress in payments infrastructure, dedicated fintech hubs and accelerators and changes in legislation affecting Australian financial technology startups.

As a follow up, I will also be releasing a full financial technology trend analysis in a fortnight on my predictions for 2017 – watch this space!

Blockchain Technology

Perhaps the most influential impact on both the financial tech scene and the wider services sector as a whole in 2016 is blockchain; the technology that is best known for powering the cyber currency bitcoin. Sure, bitcoin has been around since 2008 when the elusive programmer (or group of programmers) operating under the name of Satoshi Nakamoto released the concept behind bitcoin to a cryptography mailing list however, the databasing concept of blockchain has began causing major commercial waves this year.

The concept is essentially a databasing system using timestamped blocks of data linked together meaning it’s security measures are perfect for the financial services sector. It has the ability to change peer to peer spending and lending fundamentals along with eliminating double spending in digital economies.

Each of the big four banks in Australia are now investigating the usage of blockchain in the industry alongside new companies such as Ripple who are creating global banks for instant lending and online payments. In 2017, we’ll likely see the implementation of blockchain tech into banking infrastructure, affecting payments, security architecture and systems management that has the potential to be one of the most tectonic shifts to the banking status quo in years.

Predictive Analysis, Robo-Advisory and Investment Autonomy

Personally, robo-advisory and investment autonomy has a special place in my heart – centrally because i’ve created great things in this space, both in the USA and Australia and the idea of a computer processing algorithms and earning a passive income while I sit on a beach drinking craft beer is beautiful. 2016 has been yet another year of hardcore improvements in terms of the investment industry, both institutional and retail, with robo-advisory services, alongside automatic wealth creation tools taking home more industry awards, venture capital and international growth.

Case-in-point is Acorns which I had the pleasure of guiding my mother through over Christmas lunch last weekend – she thought it was remarkable and is now actively using it to save for my parents next holiday. Acorns Grow officially launched earlier this year in Australia, providing the first autonomous fund management solution of it’s kind in the country. Betterment, a US based robo-advisory firm raised one of largest capital raises in March, scoring a cool $100m in VC to further growth both in US and abroad.

In the local neighbourhood, autonomous advisory has been a hit with notable brands such as StockSpot and SuperAlbert have emerged and demonstrated Australia’s appetite for smart financial analytics.

Payments, Payments, Payments

Perhaps the most prominent launch this year to come out of the financial technology landscape was the release of Apple Pay. Australia and New Zealand Bank quickly became the first of the big four to take on the careless payments technology with American Express cardholders also benefitting from the iPhone ‘tap to pay’ system.

What’s even more poignant is the introduction of Apple Pay into Australia’s consumer economy and the subsequent responses from major institutions and the ACCC. This wakeup call is arguably the first time Australian financial institutions have seen the impact of financial technology with one bank embracing the innovation and others accusing it of piggybacking on already paid for infrastructure.

Even More Dedicated Fintech Hubs and Accelerators

Nothing excites me more than being in a space full of of financial technology enthusiasts. Australia now has several fintech dedicated spaces such as Stone&Chalk and Tyro’s FinTechHub which regularly hold events and rates of startups in residence have been growing faster per capita than other international cities. S&C celebrated it’s first year in action, boasting over $100m raised for it’s startups, a 100% increase in residents and over 20 public launches.

Hand in hand with the overwhelming success of the various fintech specialist hubs in Australia, dedicated acceleration and seed funding programs have amped up to bolster the growth. Acceleration funding in fintech companies alone rose to over $500m in 2016 seeing 75% annual growth rate. At this rate, we should see around $4.2bn of annual investment by 2020 – that’s a staggering amount taking into account that the industry will add about $1bn to to Australian economy, year on year. Big auditing player KPMG has launched their own investment centre donned mLabs and took on 14 new promising startups. Backing up 2015’s investment successes, H2 Ventures has once more produced another round of disruptors and enablers via the H2 Accelerator. H2 resident, LoanDolphin who’s taken the 1.5 trillion dollar market by storm successfully raised 1.1 million in further venture capital while fellow graduate HashChing raised $1m.

Increased Efficiencies in Legislation and Regulation

Changes in Australian legislation have rocked the metaphorical fintech boat throughout 2016 with both frustrating back peddling and genuinely positive advances in the landscape. The commencement of 2016 saw the introduction of the crowd-funding specific legislation known as the Corporations Amendment Bill which was quick to fail in parliament as a result of the senate dismissing key stakeholder concerns. In the past two months however, the Senate has had another crack at the amendment, collaborating and making changes to allow retail investors with less than $25m in annual turnover and $25m in gross assets to raise capital via crowdfunding. This in turn opens up a plethora of opportunities for startups in the peer-to-peer lending and alternative finance space in the same way that the JOBS act in the USA kickstarted the crowdfunding revolution earlier in May.

For the those disrupting the wider financial sector, a major announcement was made only several weeks ago – ASIC would broaden it’s scope of the financial technology regulatory ‘sandbox’. This sandbox essentially grants new Australian entities to an exemption when dealing in financial products (excluding high-regulation products such as insurance and derivatives). In turn, Australian fintech’s can bypass the ASIC ‘gatekeeper’ and further validate truly innovative financial concepts in a high fidelity economy, rather than an artificial environment where the numbers are meaningless.

The process of utilising the sandbox is simple. Those intending on using the system are required to notify ASIC and thats it. Theres not complex regulatory ‘hoo hah’ or lengthy approval processes – just notify and begin validating. This is a monumental, world first push that will ultimately bridge the gap between conceptual financial products and their ultimate end users.

2017 – What to Look out for?

With 2016 coming to a rapid close, the question on everyone’s mind is what is to come for fintech in 2017? What changes in legislation are going to impact the industry? How will the markets react to Trumps presidency? What new startups will emerge and shift consumer mindsets towards traditional financial products and services? Watch this space in January to see my predictions for fintech trends in 2017.

mattjones ()

Co-Founder and CTO of Mosaic.