Financial technology is breaking new ground when it comes to venture capital investment in Q1 of 2016 according to Bloomberg, KPMG International, and CB Insights. Throughout 218 deals made within the fintech sector, firms have raised $4.9 billion USD in the first four months of the year. This figure is double the funding in contrast to Q1 of 2015 and covers a broad range of technologies that range from wealth management, insurance, P2P lending, robo advisors, mobile payments, blockchain tech, and more.
Distributed Ledgers and Robo Advisors Taking Third Parties Out of the Equation
Financial Technology otherwise known as Fintech is the mixture of financial services and innovative technologies designed to be more efficient. Legacy institutions and startups across the globe are using software to disintermediate traditional financial systems. These services and concepts provide customers with a frictionless environment to their everyday monetary and asset management. New innovations such as Bitcoin and its underlying blockchain technology have been a big part of this evolution in finance. Technologies that don’t need human interaction any more such as robo advisors who can now provide wealth management based on algorithm managed portfolios. These protocols and concepts will pave the way to a progressive future. Consulting firm A.T. Kearney believes robo advisory will rise in popularity in the near future as the company told CNN Money:
“Robo-advisory services will become mainstream over the next three to five years,”
Some of the companies and startups that have received financing for their projects include Lu.com, and JD Finance that have both secured $1 billion in investment or more. Another company led by former JP Morgan executive Blythe Masters is Digital Asset Holdings that focuses on blockchain technology concepts. The startup has raised $60 million in Series A funding round and is collaborating with well-known institutions like the ASX stock exchange and Accenture. Digital Asset Holdings has also helped coordinate the open source initiative the Hyperledger Project with the Linux Foundation. Just recently Digital Asset also announced its acquisition of the Swiss-based technology company Elevence. Distributed ledger technology has been a blossoming fintech environment for these startups and continues to magnetize investors and executives.
Fintech Lifts Off in 2016
Courtesy of KPMG International, CB Insights, and Bloomberg
In fact, blockchain technology and robo advisors are some of the top ecosystems within the fintech sector. Robo advisors are acting as self-reliant risk profilers that optimize investment opportunity for customers. They eliminate the need for physical and real life consultants and advisors within the financial world and are far more affordable. The use of automated advisors has risen quite exponentially just as the subject of blockchains which also eliminate third party arbitration. Both of these innovations could radically reduce infrastructure costs and transaction time by removing the need for outside financial custodians. According to Leigh Drogen, founder, and CEO of Estimize, a company that works with financial earnings estimation believes distributed ledgers will be quite transformative. Drogen tells the publication eFinancialCareers:
“The blockchain is going to change everything, especially financial markets,”
With blockchains and robo advisors the need to trust a banking institution will rely on algorithms, cryptography and technical software as opposed to human error. These specific protocols may lead to a lot of employment losses as far as third party arbitration is concerned and create more jobs for developers and programmers. Just as blockchains assure transactions and assets within an immutable digital ledger robo advisors remove the cost of financial advice from consultancy firms. In the future, all of our wealth management might be handled by robots and computers hashing out equations. The financial giant Deloitte believes blockchain tech will gain ‘significant traction‘ by 2020. Alongside this prediction Feng Yue, CEO of Chinese fintech firm Stockradar believes robo advisors are on the same track saying:
“I think it’s conceivable that robots will be able to provide investment advice to people by 2020. The fund management industry is now charging something like 2.5% for management fees. A robot can do it by charging only 0.5%.”
Source: Bloomberg, KPMG International,eFinancialCareers, and CB Insights