We Try To Spy Out The Key FinTech Trend For 2021
Today is the final day of the prediction season for 2021. The prognostications we’ve seen are pretty standard. We agree with most of them – although of course the majority never really achieves much more than a mediocre consensus:
- There will be more digitisation of financial services. Mainstream banks are already following the lead of digital newcomer banks, and this trend will continue.
- There’ll be more acquisitions and mergers in the Fintech sector, a function of the struggle for competitive advantage.
- SMEs will seek more and more funding from digital sources – be they challenger banks or the digital arms of mainstream providers.
- The giants of information, goods and service providers – Google, Amazon, Facebook – will attempt to extend their hegemony to financial services. Indeed, this is already happening in tokenisation and the launch of digital money substitutes. It’s this area that’s of most interest – and into which we look more carefully below.
The Key Trend
The interest is driven by a rampant bull run in Bitcoin, the bellwether cryptocurrency, which closed 2020 at almost £21,000 – up some 30 per cent from the highs achieved three years ago (a $20,000 peak).
The trading platforms seeking a broader support base (you might argue target base is the not-so-smart money) are re-entering the advertising market – playing back to cryptocurrencies again, after hyping the US tech stocks that have done so well in this Covid-stricken era.
For some, cryptocurrencies still have the stigma associated with a very unusual early user base – moving quickly from techies and the elusive (some say illusory) founder of Bitcoin, Satoshi Nakomoto, to far-right libertarians with their own agenda for avoiding centralised monetary power. Worse yet is the association with criminal activity – the long-gone days of the Silk Road website and the underground market in drugs and weapons and illegal services.
But Dave Birch of Hyperion Consulting, a renowned expert on payment systems, argues that those days are over, if only for practical reasons: “If I was a Mexican narco-terrorist, I wouldn’t use Bitcoin because of the public record. The police and maybe the opposition would be able to trace the movement of money… You simply can’t have a society that operates with a completely anonymous cash system.”
Birch, however, sees a compelling future in tokenisation: “I am a technological optimist – I believe in the regulation of tokens.”
The argument runs that tokenisation – the linking of a digital entity to an asset is the next big trend – bigger than cryptos, bigger than blockchain. You don’t have to be a cryptocurrency believer to think that the underlying technology of cryptocurrencies (value transfer without an intermediary, with double-spending prevented through distributed consensus) is going to change the financial sector.
Birch argues that the use of “that underlying technology may well mean that cryptocurrencies in their current form are never needed, because more general digital asset transfer platforms will supplant them. These platforms, which enable the exchange of digital assets without clearing or settlement (let’s call these digital assets ‘tokens’ for short), have real potential.”
- These are persuasive arguments – and this writer’s bet for the key trend in FinTech for 2021. Watch this space.
