FINTECH: What Will 2018 Fintech & Crypto Look Like?

We are thinking about 2018, and here you will find our best educated guess about the year to come. 

Crypto Eighteen  

If you thought 2017 was loud about crypto, just wait till 2018. Up or down, that doesn't matter -- what will certainly be in play is massive volatility as the crypto economy beats on against traditional finance, regulators and sovereign power. The largest mountains to climb are the development of institutional crypto custody and a vanilla ETF product to absorb the splurging demand, and we think this will happen. In terms of creative destruction, we expect one of the top ten 2017 currencies to collapse 80%, one of the enterprise blockchain consortia to fall apart, and new technical solutions like the Tangle or Hashgraph to challenge our assumption that Bitcoin is the endgame.

  Source: Pexels CC0

Source: Pexels CC0

 

Augmented Commerce 

Let's go out on a limb, with that limb being a 3D rendered object in virtual reality. We think there's a storm brewing in digital goods spilling out into our real world (think Crypo Kitties), and physical goods becoming virtual (think Ikea). Machine vision combined with Whole Foods, Amazon's augmented reality app, and the iPhone X signals to us that a new type of commerce is emerging. Symptoms like the dominance of eSports and the popularity of sponsored SnapChat filters will only increase, and lead to a new purchasing and payments experiences. Financial companies will miss this completely.

  Source: Minecraft

Source: Minecraft

 

Social Selling Meets Propaganda Bots 

How can financial advisors, insurance agents, bank tellers and other human front office staff compete with bots? How can they compete with Kim Kardashian and kitten GIFs for attention? They can't -- at least not without some automated help. We think that 2018 will see a much fuller implementation of Social Selling, i.e., using social networks like LinkedIn to prospect for business, and that this channel will become plugged into roboadvisors, neobanks and insurtech startups. Further, social selling is all about content marketing, by using writing, podcasts and video. To distribute these at scale, we expect the technology behind propaganda bots to find a way into the mainstream economy and become a more acceptable strategy. Call it demand generation.

  Source: Pexels CC0  

Source: Pexels CC0 


Here is the long form update on all the themes we are tracking for next year.
 

#Blockchain for Enterprise

  • A major incumbent custodian will offer an institutional platform for crypto assets and will see inflows of $5 billion in response
  •  Traditional securities, like equities and fixed income, will be traded on a production blockchain platform that also supports crypto instrument trading (not just futures, but the actual thing)
  •  An industry consortia will fall apart and give up its proprietary blockchain format for a public alternative instead; and a non-blockchain technology, like the IOTA tangle or the Hashgraph, will create a new rush of excitement for incumbents 
  •  1,000 back-office financial services staff will be laid off resulting from settlement / reconciliation automation

#Bitcoin & Initial Coin Offerings

  • The SAFT will face a well respected challenger for how to legally paper crypto currency investing
  •  Five exchange traded funds will be in the American market by year end, two of which will purely track single instruments (Bitcoin, Ethereum) and three of which will be indexes of the top coins. Decentralized exchanges fail to be widely adopted due to a lack of global liquidity.
  •  There will be 500 crypto funds managing 20 billion in assets, using strategies from AI to distressed investing, and two of them will be managing over a billion each.
  •  Protocol-level token interest is replaced and outgrown by use-case/app level token interest (e.g., machine economy, fintech startups) in terms of ICO funding and human capital. ICO funding eclipses all Fintech venture capital funding.
  •  One of the top 10 crypto currencies today will collapse over 80% in market cap

#ArtificialIntelligence

  • Things get worse before they get better. Deep Fakes (i.e., videos with superimposed faces of other people and their voices) spread by propaganda bots hit the Internet and cause a media stir, with a particularly painful media scandal affecting a political party
  •  The Asian artificial intelligence giants (Alibaba, Baidu, Tencent) outcompete anything Google or Facebook can do by (1) creating a more powerful neural network cluster, say by a factor of 2x, (2) investing twice as much capital into R&D, and (3) having unprecedented access to government data
  •  Decentralized Autonomous Organizations with certain functions defined by machine judgment start to battle with the traditional economy

#Roboadvisor 

  • An ETF with a price point of 0 bps will be created
  •  Mid-sized stand-alone roboadvisors begin to die in droves, as venture investment into the space moves onto greener pastures. Seed stage wealth tech investment is lower than 2015 numbers. 
  • A micro-investing service reaches 10 million users, introduces crypto currencies and becomes solvent based on the crypto-fees
  •  One of the incumbent roboadvisors (Schwab, BlackRock, et al) turns on industrial-strength content farming and social selling, clogging up LinkedIn and Twitter with bot armies of asset allocation advertising

#Neobanks & Digital Lending

  • Neobanks will become cryptobanks, and cryptobanks will become neobanks. Personal Financial Management and budgeting will recede into the background as currency conversion becomes the most important part of a mobile bank app. The category will raise $2 billion in funding.
  •  The two largest digital lenders by underwriting volume will be Amazon and Goldman Sachs, or similar high tech and high finance players. Standalone digital lenders will continue to struggle with scale and capital.
  •  A neobank will get hacked, and will thereafter die

Financial #APIs and Banks-as-a-Service

  • Open banking and PSD2 will hit Europe like a tsunami and force the opening of data ... but nothing drastic will actually happen. Bank-as-a-service infrastructure startups, like ClearBank, may see a few dozed $ million shift onto their platforms, but incumbents will not see major consumer behavior change.
  •  The data availability will contribute to the progress in virtual financial assistants, who can move money between accounts, spot the top interest rate, and tell you about it on chat and voice channels
  •  An enterprise tech player, like Oracle or IBM, will package all the bank APIs together into a single service offering and capture all the usage

#Chatbots & Voice

  • 3D rendered avatars begin to represent traditional brands in virtual worlds and retail locations, and are able to sell financial products
  •  One of the voice assistant, like Alexa, Google Home or HomePod, will have 100,000 skills, but none of them will be good at financial advice just yet
  • A startup focused on being the virtual assistant for financial services will reach 5 million users

#Regtech, #Crowdfunding

  • Centralized government technology becomes a major investment theme, as sovereigns battle decentralized crypto chaos, North Korea hackers, Russian propaganda bots, and Asian AI giants. A marquee check of over $5 billion is spent on a GovTech venture.
  • Identity solutions -- face ID, blockchain KYC/AML -- create the impression that we are safer. But another massive 100 million person hack happens and catalyzes a major innovation in identity theft recovery (rather than prevention).
  • Billionaire crypto whales becomes patrons of a new wave of art and entertainment, especially in VR and eSports

#Payments 

  • Augmented reality payments are seen in the wild, using for example machine vision on fruits and vegetables at Whole Foods to create an experience without checkout
  • International B2B payments begin to see margin collapse as Ripple, or potentially consortia technology, begins to meaningfully eat into SWIFT's network and technology
  • Standalone messenger apps like Kik will fail to replicate the success of WeChat in combining payments with messaging, but one of the GAFA will see an unexpected surge in payments volume within its broader platform and will offer a savings product

#Insurtech

  • Claims assessment using machine vision goes mainstream at a top 5 insurance company, and results in 500 layoffs for claims adjusters
  • A B2C insurtech startup like Lemonade reaches 500,000 customers, with a better loss ratio than its legacy competitors
  • Another unprecedented hurricane season catalyzes large insurers to campaign against climate change and for green energy

#AttentionEconomy & Millennials

  • Millennials are supposed to inherit $30 trillion in a wealth transfer over the next 20 years, but crypto will have accelerated that transfer by 5 years
  • The number of hours humans spend on media will have peaked at 12 hours, and will stay flat in 2018
  • Media companies will begin to optimize not for attention but for emotion, and advertisers will expect to be able to buy an emotion associated with their brand and web traffic
  • The quantification of human attention units, being built by projects like Brave or GazeCoin, will be integrated as a core functionality by one of the GAFA

#VirtualReality & #AugmentedReality

  • Virtual Goods (e.g., 3D rendered objects in video games and virtual worlds) continue to grow in value relative to the overall economy, and a massive commerce company for AR/VR objects is born
  • Augmented Reality social networks and games will be the new normal. A new viral phenomenon, bigger than Pokemon Go, will take the world by storm.
  • The number of VR headsets sold, however, will be a disappointment as dedicated VR content struggles

#InternetOfThings

  • There will be 3 times more smart IoT devices in the world than human beings. A new botnet more powerful than anything we've seen yet will be run off several hundred thousand of these devices to attack Internet services.
  • On-demand risk insurance -- either via telematics inside of smart cars or biometrics / chip implants inside of humans -- will become a major source of innovation, similar to on-demand cloud storage or processing power 
  • The machine economy, powered by AI aggregators like Amazon or Hut34 and cryptocurrencies like IOTA, will begin to take shape, with a marquee $100 million venture investment in the space as a signal