Fintech continues to surprise with little to touch the rise of bitcoin and cryptocurrencies in 2017. This will continue in 2018 and I make some predictions based on what we see happening globally and what we see taking place with our members at AlphaCode, a Rand Merchant Investments club for fintech startup entrepreneurs.
At the end of 2016 I predicted that 2017 was going to be the year that the world would embrace bitcoin. I thought it would go mainstream but I had no idea how mainstream it would become. We have seen the bitcoin price increase from $1 000 at the beginning of 2017 to $14 000. It’s now covered extensively in mainstream media and most people have heard of this cryptocurrency.
Bitcoin has been highly volatile over the last month and there are many naysayers calling it a bubble, but bitcoin has always been volatile and has been called a bubble since the price was $1 000 dollars. There are highly rated analysts who believe it could reach $50 000 this year. There is no doubt that speculation is driving the price up – it is a highly risky asset class, yet it can no longer be ignored. It’s considered a store of value and I believe that the price still has a way to run. Bitcoin now has a market cap of $230 billion, this is larger than Goldman Sachs and Morgan Stanley combined.
It is starting to be taken seriously by Wall Street and Silicon Valley. We are also starting to see the large asset managers saying that they believe their clients should be exposed to bitcoin and are looking to structure bitcoin funds. Serious institutional money is starting to consider bitcoin, and it can’t be ignored.
For bitcoin to be used as a payment mechanism or remittance, people first need to be aware of it. That is what 2017 accomplished. So we will see more experimentation and trials from businesses like Pick ‘n Pay, which ran an internal trial using bitcoin as a payment method. This year we expect to see more pilots and experiments opening onto the bitcoin rails to see whether customers are open to using bitcoin as a day to day payment mechanism. I believe that while the volatility will continue, in 2018 bitcoin could begin to emerge as a payment system.
Insurers are finally waking up to the digital world and we will see the emergence of some exciting new models that will transform a staid industry. We saw that insurtech was the buzzword in 2017 globally at conferences and in fintech research reports. The South African market lags a bit but we are starting to see new insurtech businesses come into AlphaCode such as Click2Sure, Cascade and Fo-sho. We will start to see the rise of micro and on-demand insurance locally. We will also start to see more alternative models like Fo-sho (a peer to peer insurance player) or Cascade (an alternative risk management model in insurance).
Our existing insurance industry will not stay static; insurers are also jumping on the digitisation bandwagon. For example OUTsurance has rebranded, launched an app and they are creating a far more digitally friendly interface which allows customers to log a windscreen claim or insure their laptop or cellphone on the app.
When AlphaCode started out, the thinking in the industry was that fintech would destroy the banks. This hasn’t happened. In fact, we are seeing a rise in partnerships between fintechs and financial institutions. Two aspects have driven this. Globally, we saw a pull back of VC investment into fintech and there’s been a dramatic increase in banks’ investment and partnerships into fintech. There is recognition that fintech businesses require a lot of money to scale and it takes time to build a brand that customers trust.
In South Africa, we are seeing a lot more interest from banks and insurers to work with fintechs. A few years ago, the incumbents were more interested in building solutions themselves, but now they are opening their platforms to see how they can work together with fintechs. Banks are realising that they need to do more to keep customers happy – something that fintechs are good at. In addition, fintechs are maturing and figuring out how to work with corporates.
Chatbots have been very high profile overseas in the last year. A number of banks and insurers have tried to build their own chatbots but are now looking to partner with businesses like FinChatBot as this allows them to radically cut costs without impacting customer experience. In addition, chatbot intelligence is advancing quickly, which increases the appeal.
South Africa’s FICA bill was a long time coming and it was eventually passed last year. It means that we have moved from a rules based to a risk based FICA approach. Banks have been nervous of adopting any digital FICA processes until the bill was promulgated but now they need to embrace a risk based approach. Two digital banks – CBA Tyme and Discovery – will put other banks under pressure by using digital FICA processes. Banks need to radically reduce their costs and migrate to digital channels if they hope to compete. Precedents are being set and the SA Reserve Bank is signing off on these processes so there is no reason not to adopt digital FICA. Mama Money, for instance, allows you to FICA by taking a selfie. This focus on digital FICA augurs well for players like ThisIsMe and DocFox.
Fintechs that enhance convenience will gain traction. Players like Walletdoc, Karri, Zapper and SnapScan will continue to gain traction because they solve a very specific pain point for customers. The banks will try to enhance their apps but if you get used to paying bills with Walletdoc you will continue to do so and if you don’t like sending your children to school with money, you will continue using the Karri app.
In 2017 we saw the launch of a mainstream robo advisor, OUTvest which offers a great customer experience. We will start to see more robo advisors coming on stream. The younger market wants slick and convenient processes to capture savings and investments. I also expect there will be an increased interest in passive fund managers like Coreshares as there is kickback against high fees. We see a drive towards efficiency, simplicity and low cost – people love the Easy Equities platform and experience.
Start-ups to watch in 2018
Click2Sure allows a customer to purchase a high-value consumer item via an online e-commerce provider and during the checkout process, the customer is offered a policy of insurance on the item they have just purchased.
Luno allows you to buy, sell, send, receive and securely store Bitcoin or Ethereum in just three steps with a minimum of R10.
Karri is a mobile payment app that allows you to make quick payments for school events. Instead of sending children to school with envelopes of cash for civvies days and class outings, you’re able to make fast payments of exact amounts straight to your school.
FinChatBot offers intelligent chatbots for the financial services industry, reducing time and costs.
Isazi Consulting is a data science company that applies rigorous, best practice scientific methods to extract meaning from data.
Electrum is a payments technology provider that offers a cloud platform that is used by banks and retailers to accept payments, process Value Added Services transactions and enable omni-channel integrations.
Dominique Collett is a senior investment executive at Rand Merchant Investments and the head of AlphaCode.