Yes, 2015 was the year that the Fintech bubble exploded.  It hasn’t burst yet, but it’s clear that Fintech is the word of 2015.  Everyone is talking unicorns, start-ups, disruption, Fintech and yet this is nothing new.  I often say that I’m only known in the Fintech world because I’ve worked in technology in finance all my life and finally someone decided to put the words together and merge them.  Like Brangelina, Kimye and Bennifer, Fintech is of the moment.

I blogged the other day about the Fintech numbers and don’t intend to do that again, but did want to touch on a different view: what is emerging in the Fintech world?

For me, there are five clear areas of change:

Value Transfer: from TransferWise to Square to Stripe to Currency Cloud to Azimo to WorldRemit, all aspects of payments and currency movements are being revamped and rethought by the new Fintech players;

Value Form: with the rise of so many forms of cryptocurrency from bitcoin to Gaelcoin, alongside other value tokens such as mobile minutes, we are seeing the way in which people exchange value being redesigned by the internet, particularly as value tokens are now data rather than physical bank notes;

Value Management: our stores of value are also being redeveloped by robo-advisors like Nutmeg, Betterment and Wealthfront, as well as the way our accounts are presented to us from a mobile wallet to a fully-fledged personal financial management system with visualization tools;

Credit Risk: everything related to connecting people who have money with people who need money is being targeted by new platforms and marketplaces that enable these two communities to connect at better rates and lower margin than through traditional credit markets, and this is not just for peer-to-peer lending but for everything from crowdfunding trade finance to mortgages; and

Trading: the fact that the internet enabled day traders to rise from their home offices has now extended to social trading and automated trading structures; although most high frequency traders are using proprietary low latency infrastructures, the ability to piggyback markets and trading oracles is giving rise to whole new forms of investment markets.

There are other nuances of these markets and, in 2015, everyone seemed to wake up to the fact that this is headline news.  I guess it’s because we finally woke up to the idea that Fintech is actually redesigning banking, insurance, wealth management and financial services generally to be marketplaces based upon technology platforms instead of localized markets based upon physical exchange.  This does not take place fast, so expect the interest in Fintech to continue in 2016.  Then, the natural question is: is this a bubble about to burst?

I answered this in March, saying that the re-architecting of an entire system is not a bubble but an evolving ecosystem.  However, the hype around Fintech might get dented in 2016 as Square’s IPO disappoints as will several more in the next year.

According to M&A advisers Magister Advisors this means that 2016 will see:

Don’t hold your breath for tech IPOs

IPOs come in waves, and all signs point to a quiet sea next year. Interest rate rises coupled with macro/political uncertainty will give an already unsteady IPO market serious vertigo.

Expect a unicorn (or two) to blow up…

The tale of showed just how quickly you can go from a $1 billion valuation to a $15 million fire sale. Magister Advisors are expecting at least one tech unicorn will go to the glue factory in 2016.

…leading to inevitable mass lay-offs

Unicorns, with an aggregate valuation of $500 billion, are overvalued by $200 billion, according to Magister Advisors, which expects layoffs will be inevitable next year as valuations compress, leaving the “weakest 10-20 per cent” of workforces to look for their next job unexpectedly early.  The biggest losers of a decelerating market will be the “Unicorn aspirants” aiming to raise $15-50 million at $100-500 million valuations.

Overheated mergers will cool off

M&A activity has hit a record high in 2015, but will slow considerably for the tech sector in 2016 as valuations reset, Magister Advisors predict.

Expectations take time to reset, and always lag reality. Many investors will not accept a new lower normal, until at least 9-15 months have passed. Meanwhile there will be an imbalance between seller price expectations and what buyers are prepared to pay, taming the M&A market while price expectations re-align.

Expect M&A activity to return with a vengeance by 2017-2018 though, once expectations are more in line with reality.

Blockchain will dominate the fintech sector

2015 saw large financial institutions accelerate their pursuit of blockchain initiatives, and we will enter 2016 in a “race to production”, with vendors and financial institutions alike vying to see who can be first to reap the benefits in actual deployment.

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