2019 FINTECH PREDICTION: Government and Enterprise Platforming, led by AI and Mixed Reality

We have saved our favorite for last. Over the last decade, consumer tech has undergone a cycle of platform building, user aggregation, data mining, and value extraction, resulting in GAFA monopolies. Exhaustion with social media networks and big tech, and the adjacent issues of privacy and radicalization, in our view, will lead to problems building new splintered consumer attention platforms for AI, AR/VR and other new media ground up. This implies that consumer platforms based on new technologies will be much more long-tail oriented, serving niche markets with very strong fit. Communities may be passionate, but smaller.

Enterprise tech lags retail adoption by, give or take, 5 years. Similar platforming has not fully penetrated on the enterprise side -- Salesforce is not yet the AI monopoly we should all fear, and Open Banking is barely a fizzle. Therefore, we expect increasing data transparency, aggregation and monetization to occur in enterprise underwritten by venture capital investors. As an example, augmented reality adoption and economics will be driven primarily by municipalities, utilities, large industrial manufacturers, and the military. We have seen this from multiple big tech players. Earlier this year Facebook doubled down on the enterprise-centric use case for mixed reality -- announcing its Oculus device-management subscription for enterprise users. Similarly, VR has found a fruitful niche as a training platform with OssoVR teaching the next generation of surgeons, and Walmart using VR to train its retail staff. Additionally, artificial intelligence at scale are to be directed largely at the workflows and manufacturing processes of large corporates. Take South African deep learning startup DataProphet who use AI and machine vision to reduce defects and scrap in the manufacturing sector by more than 50 percent. Don't get us wrong -- consumer AI is extremely important -- but within Financial Services, the scope for this in the corporate world is even larger.

The corollary is that the pricing pressure that started in consumer Fintech -- roboadvice (150 bps to 25 bps) or in remittance (600 bps to 10 bps) -- will spill over into B2B banking, money movement, insurance, treasury management and product manufacturing. An inevitable outcome, like that in the first entry above, is pressure on profit margins as prices equilibriate. For those companies that are able to re-design operations using a digital chassis, they will be able to compete on the margin with Fintech unicorns. Those that are not should exit, or retreat into more bespoke, relationship-driven business lines. This is where we are likely to see even more M&A activity over the course of the year.

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