Fintech, short for “financial technology,” is dramatically changing how consumers and businesses access and manage their money.
Today, thanks to technology and the internet, consumers have access to many financial products, from peer to peer payments to foreign exchange to online loans. Lending in particular has become far more accessible online, including online mortgages, auto and student loans, as well as funding for small business. Data-based technologies allow lenders to make rapid recommendations and decisions. In most cases, it’s a seamless, paperless process.
But like other new and emerging industries, fintech is undergoing periods of disruption.
Read: How much do you know about fintech? Take this quiz and find out
In the wake of the troubles experienced by some online lenders, skepticism about the future of the broader fintech industry has lingered. But the continued strength of major fintech players, many of which post solid growth, has encouraged big investors to provide fintech startups with equity and debt-financing.
By the end of 2018, fintech companies, investors, and consumers can expect big shifts, including these three meaningful developments:
1. Fewer one-trick ponies:
Many fintech companies started by focusing on a single need that they sought to address with one product. Some startups offered quicker, more convenient ways for consumers to get a mortgage or a car loan, for example, while others built platforms to make it easier for small businesses to accept credit card payments.
The days of one-trick ponies in fintech are numbered. Increasingly, startups will look beyond their original products to address other needs. Companies will broaden their product suite within their core markets. At the same time, companies will seek opportunities beyond their core markets. For example, lenders could move into payments or wealth management, and vice versa.
My company, BlueVine, is a good example. After focusing initially on invoice factoring, we saw the need to offer business lines of credit, and we are constantly looking to expand to other markets, to fill other needs.
This trend will become even more pronounced as fintech startups acquire more experience and continue to build their infrastructure. They may not be opening branches and offices as banks and other traditional financial services companies have done. But fintech companies are building infrastructure — data, compliance, payment systems — all of that can be leveraged to address market needs.
Online lenders, for example, are building their capabilities in areas of payments processing, risk management, and capital management, among other areas. They’re amassing data, holding money and moving money, and all while adhering to complex industry regulations. The foundations of their core business can later be used in other financial services areas.
A quick word on blockchain, the technology propelling the advance of cryptocurrencies, such as bitcoin BTCUSD, -0.47% . While it certainly is driving big changes in finance, blockchain isn’t likely to be adopted by fintech lenders anytime soon.
2. Big acquisitions and mergers:
Among the biggest news in online lending in 2017 was PayPal’s PYPL, -0.97% acquisition of Swift Capital. The move underscored what I expect will be a continuing trend in fintech in the coming years: Consolidation.
Expect more acquisitions in 2018, including a bank or large software company buying a major fintech player. It makes sense for big banks and other major companies to become more interested in this growing market. Some are trying to develop their own technologies and platforms. But it’s more likely that big players will realize that in many cases it makes more sense to acquire companies that have already created robust offerings.
3. Focus on local markets:
The fintech market has grown steadily in North America and Europe, which has led some startups to consider expanding internationally. But it’s more likely that the dominant trend in the next few years will be for fintech companies to go deeper domestically. In the United States in particular the financial services market is huge; accordingly, there’s much untapped potential for fintech companies.
Furthermore, it is quite challenging for fintech businesses to scale internationally. A company must scale many hurdles, including regulatory requirements, technical infrastructure, and cultural considerations.
There’s no doubt that fintech will have become even more significant by year-end. Of course, many challenges and major changes are in store. But due to fintech’s increasing influence, the same is true for established financial services players.
Eyal Lifshitz is the CEO and founder of BlueVine , a fintech startup based in Redwood City, Calif., which offers working capital financing to small- and medium-sized businesses.