LHoFT CEO Nasir Zubairi recently shared his thoughts on Fintech innovation and the year ahead with the Paperjam supplement, in an article titled ‘5 thématiques Fintech à suivre en 2020’. Below you can find the original English version of the article, including highlighted companies from the Luxembourg Fintech Map.
2019 has been an outstanding year for the Fintech and the financial services industry in Luxembourg. Agility, access, engagement, and diversity are some of the characteristics that place Luxembourg at the beating heart of the EU financial services sector and the perfect environment for Fintech innovation. Looking at 2020, here are the 5 Fintech perspectives to check:
1) Tokenisation
We have witnessed a rapid acceleration in the last 6-9 months in Luxembourg, in the EU and across the world with the development and acceptance of tokenisation of securities and the application of tokenisation in the fund industry. Tokenised securities are a great way to provide liquidity and enable access to assets to a new class of investors. There are many different use cases for tokenisation, such as for art, real estate, private equity. Tokenisation is also driving lower costs and efficiency in traditional asset classes and services like for Equity, Repo, Securities Lending, Collateral Management and, in particular, for bonds, where there are a growing number of tokenised bond issues, increasing in significance. Recent initiatives such as the launch of the Blockchain Hub, an initiative between Infrachain, LëtzBlock, LHoFT, LIST and the University of Luxembourg’s SnT, to set up a landmark EU hub for blockchain research, education and industry projects, seek to develop industry capabilities to aid the adoption of the latest blockchain and distributed ledger technologies (DLT). The traditional financial sector needs to act to ensure that they can manage these assets for their client through custody and administration. We also need to see robust and trusted services for Clearing and secondary market trading. There is a race between several significant sovereigns to issue a tokenised bond by Q3 2020, further; tokenisation and its acceptance as a fast growing model in capital markets and investments must be addressed.
Fintech to watch in this space:
- VNX Exchange – An asset-backed token issuance platform also aiming to create a secondary marketplace.
- Tokeny Solutions – An end-to-end tokenisation platform to issue, manage and transfer securities on the blockchain.
- HQLAx – Provides liquidity management and collateral management solutions for institutional clients in the global securities financing markets.
2) Cybersecurity
In 2019, awareness of the complexity and intelligence of cyber-attacks has increased significantly. The financial services sector in particular is still woefully unequipped; under-skilled and lacking knowledge in this area. It is not a question of ‘if’ but ‘when’ there will be a major attack and potential breach on a firm. “Cyber-risk Management” will become an area of increasing focus in 2020, both internally and in the assessment of equity investments – a major attack could cause untold damage to the value of a firm. 2020 will see more emphasis and hopefully more understanding of the threats faced in financial services, and a growing proliferation and sophistication of risk management, assessment, prevention and contingency solutions with a strong AI focus to ensure the protection of money and wealth.
Fintech to watch in this space:
- Hacknowledge – A managed detection & response cybersecurity company.
- CyberHedge – A financial services company that calculates cyber risk in shareholder value terms for global corporations.
3) Regtech
With the impact of European Monetary policy and the continuous flow of regulatory enhancements burdening compliance costs, Financial Institutions are in desperate need to cut costs to achieve acceptable financial KPIs. There is a limit to resource rationalisation and budget cutting. It is of paramount importance that institutions find solutions that focus on driving down the costs of compliance and improving efficiency. 40% of Luxembourg institutions are still relying largely on manual processes for compliance, so regtech solutions, such as those driving better management of data and delivering process automation, or those that seek to mutualise aspects of operations such as in KYC and AML are key, and the already substantial demand will only continue to grow in 2020.
Fintech to watch in this space:
- Governance.com – Provider of cutting edge data aggregation, process automation and analytics technology.
- Finologee – A trusted platform that simplifies connectivity between financial services institutions and Fintech solution providers.
- Scorechain – Compliance & AML software for cryptocurrency onboarding.
4) Payments
The announcement of Libra this year, a blockchain based stablecoin backed by an admirable consortium of firms, has been portrayed as both a financial opportunity and as a threat. Regardless of whether or not it launches, the announcement was defining and woke up the financial services industry at many levels. Specifically it has increased the attention in the area of Central Bank Digital Currency (CBDG). Christine Lagarde has shown great enthusiasm for blockchain technologies in her time at the IMF and is now as the head of the European Central Bank; a strong potential driving force for the introduction of a Digital Euro. China and Sweden have made significant progress on the development of their own Digital Currencies already. I believe we will see further emphasis on CBDG in 2020. Likewise, more customer orientated solutions off the back of PSD2 and progress in Open Banking. All-in-all, when you think not much more can happen in payments, the evolution is set to continue. I look forward to the day when payments become invisible and frictionless.
Fintech to watch in this space:
- LUXHUB – A leading European Open Banking API Platform.
- Payconiq – One app which can be used for omnichannel payments: in store, online and between friends.
- Satispay – A smart payment platform that enables individuals and merchants to send and receive payments.
5) Artificial Intelligence
The hype around Artificial Intelligence is reaching a plateau in 2020. People will begin to understand that the tools and technologies available around AI are not a threat, but rather a driver of greater productivity for humans in the workplace. Autonomous intelligence, the self-thinking, self-rationalising AI, is still far far far away. There will be more adoption of Automated, Assisted and Augmented Intelligence solutions in the Financial Services industry to drive efficiency, lower costs, to enhance decision making and, hopefully, build new income. AI in our lives will also start to drive changes in behaviour and our engagement with financial services thus presenting an opportunity for new innovation in the sector to facilitate new customer needs.
Fintech to watch in this space:
- EarthLab – Innovative services for professionals managing multiple hazards, integrating earth observation data with varied sources of information.
- Tadaweb – A small data platform to scale human intelligence for discovering and analysing information on the Internet.
- Talkwalker – A powerful social media analytics tool & social media monitoring tool.
