The changing consumer behavior has transformed the payments industry significantly. Once dominated by the traditional checking/savings accounts has now turned to seamless “one-click” messenger applications like Alipay, WeChat and PayTM. Payment firms such as Stripe, Adyen and PayTM are disrupting banks, credit card companies and payment processors. These companies seek to stay relevant by expanding into adjacent markets, including point of sale and peer-to-peer services. Tech giants like Apple, Google and Samsung all provide cash-less and card-less payment solutions for consumers at the point-of-sale. Major retail chains are already using their platforms. Big tech’s sophistication and considerable financial resources pose a unique competitive threat to legacy financial services providers.

Over the past 4 years, investors have spent more than $130 billion on fintech, led by Blockchain companies, including $40 billion on 1,800 deals in 2017 alone. The first half of 2018 already saw 800 fintech investments, including $2 billion on just four companies: OneConnect, Credit Karma, Armour and Robinhood. Blockchain will reshape many industries, but the distributed ledger technology is changing the banking sector in ways that have not been seen since the ATM.

Blockchain is disruptive because it can bypass financial institutions altogether and allow for direct payments between parties. At a minimum, the technology will prompt financial institutions to re-engineer their systems and value propositions. Blockchain is already making cross border payments and remittances much cheaper because of lesser need for paperwork and middle men. Transactions could be completed in minutes rather than days and weeks. Although regulators are still developing the legal framework for Blockchain, some banks are already partnering with companies like Ripple and Circle to pilot this technology across the globe.

Besides deposits, banks’ most valuable asset is customer data and direct-to-consumer relationships. But the European Union PSD2 directive weakens banks’ monopoly on consumer data.With permission, the merchants or processing companies can directly access customer account information thus making payments faster and more efficient. Banks must also share their APIs, which means third party service providers can access valuable consumer data. This opens up new opportunities for processing companies such as Stripe and Adyen who can now get access to this data and provide useful analytics and insights on customer spending to merchants who can then create focused products. Although the directive currently applies only to the European Union, we expect other countries to adopt this regulation over the next few years.