Who made it into the Forbes Fintech 50?

The Forbes Fintech 50 2019 reveals that although the crypto markets may be going through a frosty period, investment in the growth of fintech businesses surged in 2018. As Forbes reports, total investment reached $55 billion in 2018, double that of the previous year. The Forbes list of the top 50 finteches also shows that the businesses themselves are getting bigger, with 19 of the 50 firms valued at, or in excess of, $1 billion.

This is only the fourth time that Forbes has published this list and it’s pleasing to see that there are 20 startups that have made the cut for the first time. It is also interesting to see that the sector showing a strong growth in startups is that of payments services, particularly those focused on providing a service to the unbanked. In the case of the USA these people are typically migrants without a US credit history, or people who live hand to mouth on a wage paid weekly. The lack of access to banking and payment facilities is a greater problem in developing countries, but let’s not forget it happens in the first world as well.

Exchanges dominate

There are few surprises at the top of the list, as many of the names are familiar: Axoni, Bitfury, Circle, Coinbase, Gemini and Ripple are all headline makers. Bitfury is the only non-US based of this top six: it is based in Amsterdam. It started off as a bitcoin mining outfit, but then launched its own blockchain plus software designed to help U.S. law-enforcement and others investigate illicit activity using bitcoin. It has a valuation of $1 billion plus and received more than $150 million from Korelya Capital, Macquarie Capital, Dentsu & others.

Axoni may be less famliar than say Coinbase, Circle or Ripple. It uses blockchain-based smart contracts to overhaul the back office of the world’s biggest derivative markets. It received funding from Goldman Sachs, JP Morgan and others to the tune of $59 million.

Circle, with a valuation of $3 billion and Coinbase with a valuation of $8 billion are big hitters; they even sometimes work together. Last year they partnered to launch a stablecoin USDC — a crypto asset using the ethereum blockchain and backed by US dollars.

Payments services present in big numbers

Payments services make up 25% of the Top 50 list. The Forbes list is skewed towards US companies, but it is notable that in the payments sector, it includes Transferwise, a UK registered company, widely used by Europeans when they need to transfer large sums of money across borders. Other payments services listed include Bolt, which is the ‘smallest’ with a valuation of only $20 million, whereas Stripe is one of the largest with a valuation of $685 million.

Forbes predicts that the leaders in the blockchain sphere will stop trying to outrun each other in 2019 and will instead start seeking partnerships within the mainstream world of finance.

Online Lenders vs The Banks

The financial crisis of 2008 has spawned a number of innovations in the world of finance. Cryptocurrency and fintech startups are two of them, but these were preceded by a new wave of online lenders.

The truth is, and it remains so, that the Big Banks failed to respond to the financial crisis in a meaningful way for consumers. They caused the problem, but they remained in denial about the effects on the person in the street who needed access to credit. Furthermore, the banks simply didn’t want to take on more risk. The banks instead of thinking about people, concerned themselves with regulatory challenges and stuck to technology that first saw the light of day in the 1960s.

Online lenders get VC support

Enter the online lenders, supported by venture capitalists who could hear the money dropping into their coffers. Lending money appeared to be an easy and profitable game, however it wasn’t all plain sailing.

Still, online lenders had their customers well figured out: they knew what they wanted and what they didn’t want: they wanted instant access to loans and they didn’t want to visit a physical branch and discuss every detail of their lives with somebody in a suit. That aspect of it all went well.

Online lenders at a disadvantage

However, the economies of lending have been another matter. As fintech expert, Ben Cukier writes, “Loan profitability is driven by the spread (the cost difference between the interest charged on the loan, less the cost of funding those loans), the cost of acquiring the loan, and the default rates of those loans.” From the outset online lenders were at a disadvantage when compared with the traditional banks, because the old-school bankers uses low cost deposits to fund loans. By contrast, the new online lenders had to rely on “raising debt or even more expensive equity,” as Cukier points out..

Enter Big Data

Plus, customers knew the bank brands, whereas the newcomers had to invest a lot in raising brand awareness. But they did have a weapon that the banks did not posses: the newcomers had Big Data. They talked up their Big Data platforms, which use disparate data to better underwrite credit risk in ways common credit scores did not. And, they leveraged this data to target specific consumers on social media, and then used the data they mined from customer behaviour on social media enabled them to dictate borrowing terms.

Fintech is the real financial innovation

This gave the banks a wake-up call, and now bank customers can interact with their banks through apps and even get quick credit approval. Plus the banks offer a range of products, whereas online lenders only offer loans. Then fintech startups came along and offered more help to the big banks. Mark Hookey, CEO of Demyst Data says, “Fintech innovators demonstrated that a data focus matters, however banks can apply that insight at a far greater scale to know their customers and launch new products.”

In the end it is these fintech companies, rather than the online lenders, that offer the promise of a real revolution in lending.

Protecting humanity as AI grows

Artificial Intelligence (AI) is going through the process of evolution. To date we have seen the emergence of artificial narrow intelligence (ANI), and artificial general intelligence (AGI) to artificial super intelligence (ASI). Those working in the field predict that it won’t be long until AI is able to “combine the intricacy and pattern recognition strength of human intelligence with the speed, memory and knowledge sharing of machine intelligence,” as Jayshree Pandya writes in his recent Forbes article.

One of the upshots of this progress is that people feel less insecure and fear what this may mean for their future, particularly with regard to employment. After all if AI can replace most manual and mundane work that will affect a significant number of people in manufacturing industries. As Pandya points out, “with all these new digital assistants and decision-making algorithms assisting and directing humans, more complex day-to-day work for humans is being greatly lessened.” It would be nice to think that this will mean humans can put their feet up and relax, but who will fund that? The robots won’t pay for sure.

Of course, there is hope for humans, because no mater how much AI technology is hyped, it simply can’t replicate the human brain, because elements like memory and conscience are as yet a long way off and are only a part of some computer scientist’s dream of a human-like artificial intelligence.

Super scary Super ASI

Pandya believes that the “potential development of artificial super intelligence points to a frankly scary scenario in the coming years.” He thinks that the processing power of the human brain may not be able to match that of ASI in the long-term, which is indeed a frightening thought. It may well be inevitable that AI will reach a point where it will be able to improve its own software design and capabilities far beyond what its designers envisioned: like the monster that Dr Frankenstein could not control.

Will AI overtake human intelligence?

Another concern is that human intelligence may dumb down as AI takes over tasks. If the human brain is not allowed the opportunities to learn new skills, how will its development suffer? That is a tough question to answer. And the answer to it may define the future of humanity, which has for all of recorded history relied on the sophistication of human natural intelligence for survival. Pandya says, “the question everyone across nations needs to evaluate today is whether our efforts should be towards enhancing human intelligence or artificial intelligence.”

We need to start planning now for the future when our intelligence may be seen as inferior to that of AI. It sounds like science fiction, but we can no longer dismiss it as a scenario created by a novelist or Hollywood.

Top Risks in 2019

According to the Eurasia Group, a consultancy founded by Ian Bremmer, the global geopolitical environment is right now the most dangerous that it has been for many decades. So what is likely to impact on businesses, regional economies and society during 2019? There are around 10 areas of concern for us all.

Bad Seeds

There used to be an Australian band called The Bad Seeds, but we’re not talking about them. What the term ‘bad seeds’ means in this instance, is this: decision makers are so obsessed with an array of global crises in a world without trued global leadership, that they are allowing a range of future risks to take root and germinate, but these future risks are the ‘bad seeds.’ For example, the future of the European Union, the WTO and the relationship between Russia and China are negative.

US-China relations

The US leadership used to try and keep things smoothed over, but with Trump in office that approach has been dumped. Expect to see more confrontations between the two, especially in the areas of technology, economics and security.

Cyber Power

The US is going to exert its use of cyber power more seriously this year. However, it’s likely to backfire on it rather than create a system of global deterrence.

Populism in Europe

Europe is holding elections in May and it is likely that we will see more eurosceptics win seats. We have seen the rise of eurosceptics in the last two years, the UK and Italy being two prominent examples. These populists blame Brussels for their domestic problems and now they are winning support at home by promising to flout EU rules, or leaving the EU. They will win more seats and undermine the ability of the EU to function.

US domestic politics

The government has been closed down since before Christmas 2018. This year will bring more chaos and volatility to US domestic politics.

Reduced innovation

There will be a reduced level of investment in driving technological development. Eurasia Group believes this will be driven by concerns about security, privacy and economics, as leading countries “put up barriers to protect their emerging tech champions.”

Mexico

The new Mexican president Andres Manuel Lopez Obrador –or AMLO—wishes to improve Mexico by taking it back several decades. His strategy includes more spending and poor policies that are more interventionist. While Mexico was ahead of other Latin American countries, expect to see it look more like them this year.

Ukraine

Putin wants Ukraine to be within Russia’s sphere of influence. It is likely to interfere in Ukrainian elections this year, which will pose a problem, for Ukraine and leaders in the European Union who will have to decide how to respond.

Nigeria

This year Nigeria is about to hold one of its biggest and most fiercely contended elections since the country became a democracy in 1999. Neither of the two leading candidates have anything to offer the country, or policies that will reduce its problems.

Brexit

At the time of writing, the Parliament at Westminster is about to vote on the Withdrawal Agreement negotiated by Prime Minister Theresa May. Neither those who want to leave the EU, nor those who want to remain in the EU like it. Nobody knows what will happen when the deal is most likely voted down, but it is going to be an even bigger shambles in the UK throughout 2019 and that will affect the rest of Europe as well.