Fintech Talk: January 9, 2018
While we have entered into a new year, the fintech sector is still caught up in the cryptocurrency craze, with valuations and market capitalisation (the value of the entire digital currency in circulation) continuing to sky-rocket. With Bitcoin, the largest cryptocurrency by market cap, having a quiet start to the year, many investors have begun looking at alternative cryptocoins, including Ethereum and Ripple, which have seen fairly large increases in value over the past few weeks. Ripple's current circulation is 38,739,144,847 digital coins. At Monday's price of $2.49, its market cap was $96.46 billion, according to CoinMarketCap.com.
It is not all rainbows and butterflies for cryptocoins as investors who have invested into bitcoin futures on the Chicago Board Options Exchange (CBOE) in December are currently facing hefty loses as the first contracts are set to expire on January 17, according to City AM. Frantic trading caused the price of the January contract to rise from around $15,000 to almost $20,000, but the contracts' value has plummeted - hitting a low of under $15,000 last week. Designed to allow investors exposure to bitcoin through a recognised financial instrument, without actually having to own the cryptocurrency, the introduction of bitcoin futures has been a controversial move. The US Securities and Exchange Commission and investor protection group the North American Securities Administrators Association have both warned that bitcoin could present a high risk of fraud, while Andrew Bailey, head of the Financial Conduct Authority (FCA), said bitcoin investors should be prepared to lose all of their money.
These concerns are shared by several market participants and influencers, who question the longevity of the cryptocoins with Susanne Chishti, CEO and founder of Fintech Circle, commenting, "Investing in bitcoin is clearly overhyped, and I expect to see large fluctuations in price in 2018. So, the key is understanding that cryptocurrencies are fantastic inventions of our times, and we will see many use cases in 2018. But investing in bitcoin now should only be done with the part of one’s asset allocation mix which is reserved for high-risk investments." Tadas Viskanta, founder and editor of investment blog Abnormal Returns, added, "Bitcoin, blockchain, basta! I think we all recognise the potential for the blockchain to fundamentally change how we do business, but the hype is simply overwhelming for someone who looks at this stuff on a daily basis. I need a blockchain vacation."
Brexit and its impact on the UK’s fintech sector continue to drive the media agenda, with discussions continuing to focus on the potential reasons for concern. That said, there appears to be plenty of money out there for entrepreneurs and little sign that it will dry up. UK companies, in general, raised $7.7 billion last year (more than double that of 2016), with fintech companies accounting for the biggest share ($2.9 billion), according to Dealroom. TransferWise raised £211 million ($286 million) while Funding Circle took in £81.9 million, according to lobby group London & Partners. The strength of the sector is further reinforced by the news that peer-to-peer giant, Funding Circle, is lining up banks and is set to pick advisers for a £1bn float within months, for a potential listing as soon as the late autumn, writes Sky News. The company, which launched in 2010, has matched lenders to tens of thousands of small business borrowers, facilitating loans totalling more than $5bn globally during its seven-year existence.
Finally, no fintech blog written at the beginning of the year would be complete without a look ahead, so here are three of the many predictions for the year to come:
- PSD2 and GDPR will both come into force in the first six months of the year and will see the market for solutions to aid open banking and data protection regulation compliance boom. PSD2 will allow banks to bring in new services more quickly but will also present opportunities for fintech innovators. Demand for tech solutions to fast-track Know Your Customer (KYC) regulatory compliance will also increase as more players enter the banking and payments arenas.
- With the increased familiarity and understanding of Fintech by banks’ senior management, expect many Fintechs to avoid innovation teams altogether and deal with the relevant business lines directly. As well as saving fintech startups’ time and energy, this will continue to embed innovation as a mindset across organizations rather than having it limited to just the innovation team, which is easier said than done.
- E-wallets and digital payments will continue to mature as increasingly more people turn to the digital side of things and digital payments become the preferred choice for a lot more users. Fintech firms and applications will make purchasing even more seamless than they are now.
