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The Impact of Fintech on Investment Banking

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Leon Saunders Calvert, Global Head of M&A and Capital Raising at Thomson Reuters explores to what an extent Fintech is now changing the Investment Banking industry.

New technologies, like machine learning/artificial intelligence, predictive behavioral analytics and data-driven marketing, will take the guesswork and habit out of financial decisions. “Learning” apps will not only learn the habits of users, often hidden to themselves, but will engage users in learning games to make their automatic, unconscious spending and saving decisions better.

The Fintech Landscape

Fintech startups received $17.4 billion in funding in 2016 and were on pace to surpass that sum as of late 2017, according to CB Insights, which counted 26 fintech unicorns globally valued at $83.8 billion. North American produces most of the fintech startups, with Asia following. Some of the most active areas of fintech innovation include or revolve around the following:

  • Cryptocurrency and digital cash
  • Blockchain technology, including Etherium, a distributed ledger technology (DLT) that maintain records on a network of computers, but has no central ledger.
  • Smart contracts, which utilize computer programs (often utilizing the blockchain) to automatically execute contracts between buyers and sellers.
  • Open banking, a concept that leans on the blockchain and posits that third-parties should have access to bank data to build applications that create a connected network of financial institutions and third-party providers. An example is the all-in-one money management tool Mint.
  • Insurtech, which seeks to use technology to simplify and streamline the insurance industry.
  • Regtech, which seeks to help financial service firms meet industry compliance rules, especially those covering Anti-Money Laundering and Know Your Customer protocols which fight fraud.
  • Robo-advisors, such as Betterment, utilize algorithms to automate investment advice to lower its cost and increase accessibility.
  • Unbanked/underbanked, services that seek to serve disadvantaged or low-income individuals who are ignored or underserved by traditional banks or mainstream financial services companies.
  • Cybersecurity, given the proliferation of cybercrime and the decentralized storage of data, cybersecurity and fintech are interlocked.

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Fintech Users

Who uses fintech? There are four broad categories: 1) B2B for banks and 2) their business clients; and 3) B2C for small businesses and 4) consumers. Trends toward mobile banking, increased information, data and more accurate analytics and decentralization of access will create opportunities for all four groups to interact in heretofore unprecedented ways.

Customers now expect seamless digital onboarding, rapid loan approvals, and free person-to-person payments – all innovations that FinTechs made popular. And while they may not dominate the industry today, FinTechs have succeeded as both standalone businesses and vital links in the financial services value chain,” a recent industry report by Deloitte and the World Economic Forum (WEB) stated.

According to Deloitte and the WEB, disruptive forces that have reshaped the FinTech industry include, but are certainly not limited to:

  • The growth of online shopping, which is expanding quickly at the expense of in-person shopping, leading to the dominance of online, cashless solutions for transactions.
  • A shifting balance of power that swings from banks and other financial services to those who own the customer experience. Banks are eliminating in-person services and looking to FinTech and large technology companies for other ways to engage customers.
  • New trading platforms that are collecting data to create an aggregated market view and using analytics to uncover trends.
  • Insurance products, which are becoming more tailored to customers who, in turn, are demanding coverage for specific locations, uses and timeframes. That’s driving insurers to collect and analyze additional data about their clients.
  • Artificial intelligence, which now plays a role in differentiating financial services products as it replaces complex human activities.
  • Transaction process improvement and middleware, both of which remain expensive. This is pushing traditional financial services firms to consider partnerships with marketplace lenders for FinTech solutions that don’t require a full infrastructure overhaul

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