Happy New Year everyone. As I do every year at this time I make a few predictions for the year ahead as well as review my previous year’s predictions. I like this process because it gets me to focus on the hot trends that will shape the year ahead and also to review what I missed at this time last year.
Review of my 2018 Predictions
First, let’s review my predictions I made at the beginning of last year. While the fintech industry had a great year in 2018 my predictions fell short in many cases.
- Five top 25 banks will launch their own online lending platforms
I would say I was almost spot on with this one. In the last year we have seen new platforms from a number of large banks: PNC Bank (small business loans – powered by OnDeck), HSBC (personal loans – powered by Avant), US Bank (small dollar personal loans built in-house), American Express (point of sale loans with GreenSky). Barclays also launched personal loans this year but this was officially announced late in 2017 so I can’t really include it.
- Two new pieces of legislation will be passed that will benefit the industry
While we did not get the long awaited for Madden fix bill in 2018 despite bipartisan support or the IRS modernization bill it was left to the states to take the lead on legislation. Arizona became the first state in the country to pass a bill creating a regulatory fintech sandbox. Then California signed into law SB 1235 which requires consumer-like disclosures on small business loans and merchant cash advances. But I was really thinking federal legislation when I made that prediction so I will give myself a fail on this one.
- One of the top five (non-bank) online lending platforms will be acquired
I thought this one was going to come true as there were some rumors during the year but we ended 2018 with no major online lending platform being acquired. Another fail.
- A major lending platform will get hit with a cyber attack
I am happy to be wrong on this one. The industry suffered no major cyber attack.
- The tech giants consolidate their positions in online lending
So, Amazon was probably the most talked about company in fintech this year but despite that no major news broke about new inroads into fintech from the tech behemoth. Square launched consumer lending with a big splash and filed paperwork to open its own bank. PayPal continues to expand its loan book and has raised its lending limit to $500,000. As this recent CNBC article says Square and PayPal are leveraging data to expand their lending operation while Amazon is still lurking.
- 2018 is the year of product line expansion
The tone was set by Rob Frohwein, CEO of Kabbage, who said on the LendIt stage last April that monoline online lenders would go the way of the dinosaur. New products were announced by a large number of online lenders from Prosper (HELOCs), OnDeck (equipment finance), SoFi (SoFi Money), Kabbage (payments), MoneyLion (checking account), Upgrade (line of credit), Square Capital (personal loans) just to name a few. It was a breakout year for new products.
- Messaging apps start to get integrated into online lending
This was my long shot prediction and it did not come to pass. While p2p payments are being incorporated into messaging apps we are not seeing loans yet, at least not in the US.
If I tally up my predictions here I probably scored about 3.5 out of 7, barely a passing grade. I will see if I can do better in 2019.
My 2019 Fintech Predictions
- Three companies will be approved for the OCC Fintech Charter
Despite lawsuits from the states the OCC is pushing ahead with their new fintech charter. I expect several (I am going with three) new companies will apply for the charter and be approved.
- Three new fintech hybrid “bank” accounts will be launched paying more than 2%
SoFi Money launched with significant fanfare in mid 2018. This is a hybrid checking/savings account and pays 2% interest (as of today). I expect we will see three new fintech entrants here in this space paying more than 2%. Despite the travails of Robinhood’s offering I think this will mark the beginning of the end of bank checking accounts that pay no interest and charge monthly fees.
- The tokenization of lending will begin
Tokenization has become a bit of a buzzword in the blockchain space as everything from art, diamonds, stocks and real estate is being tokenized. But in the securitization space we have not even really begun yet. With the launch of Figure and the work being done by Global Debt Registry this is about to change. I am sticking with the number three as I think we will see three end to end securitization deals completed on the blockchain in 2019.
- Employer-based lending becomes a thing
There is more awareness than ever about the importance of employee financial wellness. And in a tight labor market companies are always looking for ways they can offer new benefits to employees. We have had employer-based loan offerings enabled by companies like Kashable, HoneyBee and TrueConnect for some time but they have yet to gain wide traction. I think 2019 will be a breakout year for employer-based lending with dozens of Fortune 500 companies offering it as a benefit.
- Explainable AI hits center stage
Artificial intelligence continues to be a hot topic in so many areas of finance and particularly in underwriting. We had the No Action Letter granted to Upstart in late 2017 which gained a great deal of attention. Now, many lenders, both online and traditional banks, are clamoring to incorporate AI into their underwriting with the big challenge being it needs to be explainable to consumers as well as regulators. Many lenders (more than 10) will have this in production by the end of 2019.
- Results-based lending takes off in student loans
The student loan industry is moving towards a crisis. Student loan defaults are remaining well above 10% and have the highest delinquency rates of all the major loan categories. Something needs to be done and I think we will see a move towards results-based lending for student loans in 2019, This will mean many universities will adopt student loan programs based on the ROI of their degrees. This will be difficult to quantify but expect to read more about results-based student lending in 2019.
- The new major buzz word in finance will be quantum computing
The idea of quantum computing has been around since the 1980s but it is only quite recently that the concept has come to finance. With the explosion in data sources in recent years finance now needs more computing power than ever to understand and make sense of this data. Serious research has already been conducted in this area and while I don’t expect a lot of practical use cases we will see quantum computing embraced as a concept throughout finance in 2019.
Now, there are many other trends that I have left out of this list but this is what I am thinking will be big in 2019. Let me know what you think. Happy to hear your feedback in the comments.