8 FinTech and Crypto Predictions for 2020

It was a big year for FinTech and Crypto in 2019 – and 2020 is shaping up to be every bit as exciting.

 As per our tradition since 2015, here are 8 FinTech and Crypto predictions for the coming year:

1. Catalysed by Libra, Central Banks Jump on the Crypto Bandwagon?

Central banks have traditionally been slow to react to developments in the crypto space. Although over 70% of them are looking at central bank digital currencies (CBDCs), most are still at the research stage. However, Facebook’s Libra catalysed the topic and brought it to the top of the agenda.

In 2020, expect not only many of the global policy-makers, from the BIS to the ECB, but also many leading central banks, to actively focus on this topic. Don’t be surprised to hear about countries seriously exploring launching their own CBDC. While smaller nations including the Marshall Islands have made such announcements in recent months, China’s PBOC is without any doubt the elephant in the room with its talk of a digital yuan, called the Digital Currency Electronic Payment (DCEP) coin.

2. Forget Being Mobile First: Voice Is the New User Interface?

 Voice-enabled assistants – from Amazon’s Echo and Google’s Home in the West to Alibaba’s Tmall Genie and Xiaomi’s Xiao Ai in Asia – are increasingly becoming part of our everyday lives. It is estimated that 25% of US adults now have one following a growth of over 40% in smart speaker ownership last year.

 While we are still in the very early days of voice-controlled banking, this change in customer behaviour may have a transformative effect on the industry, much in the same way that internet browsers impacted online banking and smartphones revolutionized mobile banking. Expect some of the forward-looking banks to actively and seriously experiment in this space as they try to be ready for this voice-first reality.

3. Tax Clarity on Crypto?

The past 24 months have seen many regulators provide regulatory clarity on cryptoassets. For example, according to Cambridge University, only 5% of regulators don’t have someone working on cryptoassets. Unfortunately, the same cannot be said of tax authorities today.

 But things are changing. Tax authorities, from the US and Brazil to Spain and the UK, made headlines in recent months by reminding individuals that taxes may be due on their crypto holdings. However, calculating how much you owe is difficult when there is no clear guidance. Expect this to change in 2020 as tax authorities become active in this space. While nobody likes to pay taxes, clarity in this space will be much welcome.

 4. Institutional Players Continue to Enter the Crypto Space?

The crypto industry has seen the rapid entry of institutional players in recent months. This past year saw the likes of Julius Baer and J.P. Morgan join names such as Nomura and Fidelity, which both made the leap previously. With increased regulatory clarity and client demand, expect more financial institutions to follow in 2020, especially with lower growth prospects in other traditional verticals of finance.

 We may also see an increase in institutional investors. For example, the various new regulated solutions, from regulated crypto funds to regulated custodians, may provide enough comfort for some of the more conservative institutions to dip their toes in the water. For others, the new crypto instruments offered by regulated traditional venues, from the CME’s cash settled bitcoin futures to ICE’s physically settled version, may be a way for these investors to gain exposure via familiar instruments and counterparties.

 5. Decentralized Finance: The Newborn Starts Crawling?

The topic of decentralized finance, or “DeFi” for short – which promotes a financial ecosystem without any centralized entities, such as brokers or central banks – has been gathering increased attention in recent months, although very few DeFi projects have managed to gain traction so far. The decentralized Maker lending platform, which allows the creation of a decentralized stablecoin, is one of the rare examples, having recently surpassed US$300 million of cryptoassets locked as collateral.

 Expect more discussions on DeFi in 2020. One possible development to watch is the recent legal statement on cryptoassets and smart contracts by the UK Jurisdiction Taskforce, which stated, among other things, that a smart contract is capable of having contractual force, that computer code can define the parties’ contractual obligations and that a ‘signature’ requirement can be met by a private key that is intended to authenticate a document. While there is still a long way to go, we should not underestimate the importance of any possible legal clarity as a potential catalyst.

 6. Gaming and NFT: The Next Frontier of Finance?

 The global gaming industry is estimated to be worth more than US$150 billion and growing fast. With the rise of freemium games, a significant portion of those revenues comes from in-game virtual items purchased by players, from unique character skins to particular weapons. For many young players, their virtual in-game assets could be their most valuable digital asset! However, players do not really own those virtual assets and they are at the mercy of the video game companies, which may release additional similar items or forbid them from using them in other games. Also, criminals have recently been using such virtual assets for money laundering.

 Non-fungible tokens, or NFTs for short, which are non-fungible and unique digital assets, could be the solution, allowing players to actually own and trade those assets while providing security and traceability. And gaming is just one of the many use cases where NFTs can play a role, from art tokenization to real estate land titles. While the buzz around NFTs has slowed down since the CryptoKitties craze of 2017, we should expect more discussions and experimentation in this area.

 7. Asia as the New Battleground for Digital Banks?

 Challenger/digital/neo/virtual banks have had a very positive impact on the global retail banking landscape. However, while the early challenger banks were start-ups that grew organically and offered customers a different banking experience, only a minority of customers made them their primary salary-deposit bank, which meant traditional banks still had a fighting chance. The next wave of digital banks is being led by the large technology firms, and this new type of competitor may be more challenging.

 Asia may be the battleground to watch over the coming months. In Hong Kong, regulators approved eight new virtual banks, which will need to fight for customers in a market where over 95% of the population already have a bank account. Many other countries across Asia, from Singapore and Taiwan to Thailand and Malaysia, also recently licensed new players or announced that they will soon. Many of these new entrants are the large tech firms that not only have deep pockets and tech expertise but also brand awareness and, to a certain extent, customer trust. Customers should benefit not only from a better banking experience but from personalized solutions such as financial health offerings.

 To compete with these new offerings, many traditional banks may realize that trying to transform their existing bank with all of its legacy systems (and people!) may be a very difficult task and that the most reasonable solution could be to simply launch a new, separate, standalone digital bank or actively partner with one, as was the case recently with the new virtual banks in Hong Kong.

  8. Big Tech in Finance: The Western GAFAs Imitating the Asian BATs?

 China is without doubt the global B2C FinTech leader and is years ahead of any competitors in the West. Any finance professional who wishes to understand the future of finance arguably needs to skip Silicon Valley and go to China to see the impact the large Asian tech firms have had on their financial ecosystem, from Tencent and Ant Financial in China to Grab and Kakao in other parts of Asia.

 The Western tech giants have finally started to wake up. Apple recently launched its own credit card. Google announced that it is moving into banking. Facebook unveiled Libra and its Calibra Wallet. Uber announced the launch of the Uber Wallet. While these developments will not make traditional banks disappear, the banks that do not innovate or adapt risk being relegated in the future to the role of commoditized utility provider handling the boring back end for large tech firms that may control the lucrative customer interface and interaction. Definitely an area to watch!

 Do you agree or disagree with the above predictions? Feel free to share in the comments section below!

*Please note that this article reflects the author’s personal views and should not be seen as legal or regulatory advice.

About the author:

Henri Arslanian is the PwC Global Crypto Leader and Asia FinTech Leader, the Chairman of the FinTech Association of Hong Kong and an Adjunct Associate Professor at the University of Hong Kong, where he teaches the first FinTech university course in Asia.

With over 500,000 LinkedIn followers, Henri is a TEDx and global keynote speaker, a best-selling published author and is regularly featured in global media, including Bloomberg, CNBC, CNN, the Wall Street Journal and the Financial Times.

Henri was named by LinkedIn as one of the global Top Voices in Economy & Finance and is the host of the FinTechCapsules? and CryptoCapsules? social media series.

He has also been awarded many industry and academic awards over the years, from being regularly named one of the Most Influential Individuals in FinTech in Asia to being awarded the Governor General of Canada Gold Medal for Academic Excellence. Chambers Global recently named him the “highest-profile FinTech consultant in Hong Kong” and Asian Private Banker awarded him the “FinTech Changemaker of the Year” award.

Henri’s latest book, The Future of Finance: The Impact of FinTech, AI and Crypto on Financial Services, published by Palgrave Macmillan, was ranked as one of Amazon’s global top 10 best-sellers in financial services and was recognized as one of the “Best FinTech Books of All Time” by Bookauthority.

Before joining PwC, Henri was with a FinTech start-up and previously spent many years with UBS Investment Bank in Hong Kong. Henri started his career as a financial markets and funds lawyer in Canada and Hong Kong.

 Other recent articles from the author include:

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• 8 FinTech and Crypto Predictions for 2019