Going in to 2018, we have chosen five areas of interest to focus on. Each represents a vital area of innovation in the financial industry, and has a particular relevance to Luxembourg’s thriving financial technology ecosystem.
Each week we will be choosing one of the topics to focus on, both in the content we share on social media, but also in a dedicated newsletter looking at the top five stories from that week. First, let’s introduce the topics:
1. Regulatory Technology (Regtech)
Regulatory technology aims to streamline or automate the process of compliance for financial services. In a world where regulators are being pushed to stay in step with innovation, resulting in constantly evolving compliance requirements, regtech can cut a significant burden from financial service companies. 2018 is the year of GDPR, PSD2 and MiFIDII, so regulatory compliance is a particularly hot topic.
Blockchain dominated financial technology coverage in 2017. Fundamentally, a decentralised and distributed ledger technology, operating on a peer-to-peer network providing consensus verification for transactions. Blockchain rose to fame on the back of bitcoin, as the technology foundation for verifying payments, though it also has clear applications for storing secure records such as identity, land registries, and medical information.
3. Insurance Technology (Insurtech)
Insurance is a huge sector, with applications across industries and at every level. Last year saw game changing developments, with consumer offerings that could settle claims in just a few minutes. 2018 promises just as much excitement, with a greater focus on data integrations, machine learning, and on-demand services.
4. Artificial Intelligence
Artificial Intelligence (and the connected technologies like Machine Learning and Neural Networks) became a hot topic as part of the ‘big data’ boom in the first half of this decade. The potential for computers to recognise patterns and make predictions and connections has a vast number of potential use cases in financial technology, such as algorithm-driven financial planning services (robo-advisors) and the recognition of fraudulent activity.
5. Financial Inclusion
Financial technology has the potential to produce billion dollar startups, but it also has the potential to economically empower groups that have been left behind by the traditional financial system. Whether it’s market access and financing for rural farmers in Ghana, or point of sale technology for underbanked merchants in Jordan, the positive impact being driven by some entrepreneurs is changing lives around the world.
The Big 5 Predictions
To start off 2018, here are our favourite predictions around each topic area:
Henri Arslanian: RegTech in 2018
A wave of consolidation ahead?
Regulatory technology (Regtech) will continue to be highly interesting to financial institutions looking not only to deal with their regulatory obligations more effectively and efficiently but also to reduce the risks and costs associated with such functions.
However, the long sales cycles and the procurement obstacles will remain a challenge, especially as legal and compliance teams are often relatively unfamiliar with Regtech. In addition, the lack of dominant players in this space will cause further consolidations in the industry, with RegTech startups likely being acquired by some of the traditional technology providers who don’t want to be left behind.
Don Tapscott: Blockchain in 2018
Cracks in the walls of digital feudalism
With blockchain, people (along with physical and digital objects) can possess unique, immutable identities in a “digital black box.” It will capture data that we can each monetize, use to plan our lives and protect our privacy. Such blockchain identities are underway from multiple sources. In 2018 keep an eye on technology companies like uPort from ConsenSys, Civic, or Sovrin, to provide individuals with authority and autonomy over their identity. Some or the best innovations will be bottom-up, as institutions from hospitals and universities build blockchain identities for their constituents. We will also see the emergence of a new class of “data aggregators.” They will negotiate with individuals and organizations to acquire access to their data.
Laura Watkins: Insurtech in 2018
Frictionless insurance in a land of utility
For 2018, I believe we will start to really tear down the product silos that we continue to confuse customers with and get focussed on being relevant, convenient and frictionless. Our new go-to-market will be driven by attention and engagement. New business models that’s blend or merge these two will create new opportunities for those who really excel. Examples such as Revolut selling Insurance, Bud bringing in utilities into banking and so many more. The winners will be the most efficient at manufacturing and the most effective at engaging. Ecosystems will win beyond single individual providers. We have talked about insurance moving from reactive claims companies to pro-active value adding risk managers, leveraging all this tech — 2018 is the year that this becomes truly possible. 2018 is the year for ‘Frictionless insurance in a land of utility’!” says Deloitte Partner and InsurTech Insider co-host Nigel Walsh.
Thomson Reuters: Artificial Intelligence in 2018
Wealth managers look to AI to compete and grow
The wealth management industry is undergoing transformation driven by digitalization and a significant transfer of generational wealth. The dynamic pressures are forcing advisors to compete effectively, improve their customers’ experiences, and provide new value-added services.
To compete and survive, advisors have to be more efficient. Only then will they have the capacity to provide higher-value services. Efficiency is about cutting costs, saving time, and scaling services.
Automation of repetitive tasks (RPA) and client self-service capabilities are part of the answer, but automation, of course, is a dual-edged sword. It can take over processes that represented much of the value the professional historically provided. Think portfolio construction and rebalancing — tasks where robo-advisors have become prevalent.
Those same capabilities will be available to competitors, making differentiation based on service excellence alone more difficult.
To provide differentiated, high-value service, wealth managers will need to do their current jobs better and grow their capabilities. They need to learn how to adapt and make better use of their clients’ data. AI technologies powering the next generation of tools will help them augment and expand their services.
The Fast Mode: Financial Inclusion in 2018
Bridging the Financial Inclusion Gender Gap
While significant progress has been made in terms of facilitating greater access to and use of financial services among underserved populations, barriers to financial inclusion remain. One of every three women in the world — or 1.1 billion — is excluded from the formal financial system. Identity is everything when it comes to financial services — mobile or otherwise. The telecoms industry holds a unique position to encourage financial inclusion, which gives women greater control over their financial lives and enables labor force participation.
Mobile financial services will play a dominant role in lifting women out of poverty and empowering them to walk up the pathway of financial inclusion. Throughout 2018 we will see a bigger push for telcos and financial services to work together in order to bridge the gap for women’s financial inclusion. The wheels were set in motion in 2017 as we can see in this example from a female janitor based in Jamaica who has found life altering opportunity via access to finance through her mobile phone.
Which is your favourite prediction? Which of the five areas do you think is likely to drive the most change for financial services in 2018?
Don’t forget to subscribe to our newsletter to receive our weekly updates — each week looking at one of the topics above. We also send out a monthly report that covers the LHoFT activities, the Luxembourg Fintech ecosystem, job opportunities, and some broader industry news.