Life.SREDA VC CEO Decodes This Year’s Trends and Challenges for Fintech | Techsauce

Life.SREDA VC CEO Decodes This Year’s Trends and Challenges for Fintech

During the outset of the fintech era, many financial institutions denied the importance and potential impact of fintech companies; later the same financial institutions started to study and observe fintech startups. Today, we have now entered the stage that banks are collaborating with and investing in fintech. During a presentation at Techsauce Summit 2016 powered by Digital Ventures, Vladislav Solodkiy, CEO and Managing Partner of Life.SREDA VC – which specializes in fintech and finserv investments and has recently launched a 100 million USD blockchain innovation fund – shared not only the investment results and major fintech trends in 2016, but also the most common challenges that fintech companies are facing at the moment.

“In the first half of 2016 we witnessed an unprecedented growth of investments in the fintech sector: they reached 15 billion USD. During the first half of the year Asia became the leader in fintech, financing and investments. This is in line with Life.SREDA’s forecast 2 years ago,” said Solodkiy, whose research indicated that the lion share of these investments – a whopping 10.55 billion USD – was actually invested in nine Asian countries. Life.SREDA itself has already invested in 20 companies in the US and Europe, and six in Asia since its launch.

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According to Solodkiy, we can clearly see the trend of banks willing to finance and increase their investments in the fintech sector. In 2015, only around 24% of fintech investments were financed by banking institutions. On the other hand, in the first half of 2016, already 30% of the “new money” in fintech was poured in by banks, with Goldman Sachs, Citi Group and Barclay’s leading the cohort of the banking giants investing in fintech.

Challenges for fintech in 2016

Solodkiy identified three major challenges for the Fintech industry in 2016:

  1. Scaling – The majority of the players, both large and smaller ones, encounter the problem of scaling. Says Solodkiy, among 5000 fintech start-up players worldwide, only 30 of them have proved that they can scale with ease to export their products and services internationally. Particularly, Asian companies are facing a competitive disadvantage in scaling compared to their European and American peers. The Asian start-up entrepreneurs spend around 80% of their resources on finding the new clients and only 20% on attracting and serving the clients, a ratio that is in reverse in US and Europe.
  2. The “Round B problem” – a really challenging stage for fintech start-ups is to attract funds during the so-called transition period, when the company might already have a large portfolio of clients, nevertheless, it is not profitable yet. Each year, a lot of good fintech start-ups vanish due to lack of “Round B” funds – something that investors should take into consideration about how to strike the balance with offering Round B startups a chance at one of their most critical points.
  3. Many startups also struggle from a combination of the two previous challenges; in order to reach scaling and obtain “Round B” funds, the investors might be facilitating the “packaging” of a few complimentary businesses into one. For example, one player may be characterized by cheap and fast customer acquisition though low margins. It can be bundled with another player, which has high margin and high customer acquisition costs. The question is whether these mergers and acquisitions will ultimately benefit the startups and truly help them to achieve the needed scaling.

For Asia, Solodkiy pointed out that the lack of infrastructure – particularly advanced banking infrastructures underscored by open APIs and BaaS-platforms – to support launching a fintech startup and scaling faster and more effectively as being a challenge particular to the region, whilst a new prospective sphere is “fintech for the unbanked,” for which other trending technologies such as IoT, Online-to-Office (O2O), big data and chat bots might ultimately become solutions. Another prospective sphere is Insurtech – a new development in the prevention of cyber breaches that Life.SREDA’s research indicates has already brought together more than 150 startups.

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Solodkiy also listed a couple of “booming fintech trends” worth noting in fintech in the coming year.

  • Online remittances – Life.SREDA noted that almost all major players in online remittances successfully raised new funding rounds in the past six months, but as for social based remittances, none of the messengers (except WeChat) showed any outstanding performance in terms of turnover and number of clients
  • e-Wallets – While they are growing at a fast pace, to Solodkiy, the challenge for e-Wallets is to diversify their product line and grow beyond being just a payment method; he draws upon Alipay as one example of a fintech startup that has successfully diversified.
  • Neo- and challenger banks – These organizations have gotten a second wind and are entering a new growth phrase with the support of the British regulators.

Finally, fintech companies should enter into partnerships to enlarge their product offerings to better meet clients’ needs, suggests Solodkiy. Previously, the fintech players were like ‘toothbrushes’ – they used to provide only one product or one service, and excelled even beyond what was needed for each product. However, this is not sufficient anymore to meet the clients’ financial needs, he said. The bottom-line of this is that soon, by providing additional products/services and by entering in partnerships with other market players, fintech companies might further challenge the conventional banking system status quo, and might even lead them to be able to offer the whole spectrum of products and services currently offered by the traditional financial institutions.

More information about the main trends in fintech can be found in Life.SREDA’s most current bi-annual industry report, “Money of the Future 1H 2016” at www.fintech-research.com.  

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