Top fintech predictions for 2018

In Europe, fintechs including Klarna, Zopa and Revolut have recently applied for banking licences to expand product offerings.

Four of the predictions for fintech in 2018 relate to particular niches gaining more traction with investors. These are insurtech, regtech, proptech and blockchain.

AI influence

Venture capital "insurtech'' investment reached a record high of $US2.1 billion in 2017 as insurance offerings become more personalised, including, for example, the growing use of telematics. Pointing to on-demand insurers like Cuvva and Trov, incumbent insurers are expected to take it up a notch, such as using AI to make underwriting more efficient.

Ditto for "regtech''. Machine learning can be applied to reading regulations; red flags can be thrown up on emerging risks in real-time, which will change the nature of compliance work by making it more forward-looking.

Two other areas of the market that could outperform this year: online mortgage platforms (like Blend in the US or locally, Tic Toc or Uno); and blockchain, in which VCs invested $US512 million over 92 deals last year.

The final three predictions relate to changing relationships in the market. KPMG expects greater collaboration between big fintechs and banks, a broadening of offerings from mature fintech companies, and more partnering between fintechs and technology giants.

Investment changes

According to the quarterly Pulse of fintech report, the number of fintech VC transactions was more than 1000 last year, for the fourth year in a row, and involved $US13 billion. Corporate VC funds, often owned by banks or insurers, participated in more than 19 per cent of all fintech venture financings.

But the nature of this investment is changing. Bank-owned VC funds have typically taken a portfolio approach to investing, with a few million dollars here and there being put into to large group of start-ups, in the hope of gaining understanding about opportunities.

The report says corporate investors are now getting more confident and focusing on strategic investments to defend profit pools or explore adjacencies.

"Both fintech companies and investors have matured significantly, with maturing companies looking for bigger rounds of funding, and investors shifting their focus from making widespread investments into placing bigger bets aimed at achieving value or sustainability," says KPMG.

The professional service firm's global fintech practice is co-led by Sydney-based partner Ian Pollari.

In another recent report forecasting fintech investment trends in 2018, CB Insights agreed banks will deepen partnerships with regulatory and insurance technology players. But it predicted banks would take a more aggressive approach towards competition, and could "forego partnering in favour of fighting fintech with fintech".

This may be survival instincts kicking in. CB Insights also expects Amazon to get more aggressive in fintech this year outside the US – starting in India.