Forecast 2020 - Fintech: Innovations in B2B Payments; Struggles for Cryptocurrencies

Robert Dittmar is a professor of finance and co-faculty director of the Michigan Ross FinTech Initiative who has conducted research on cryptocurrencies. This post is part of a series highlighting Ross faculty members’ forecasts on important business topics in 2020.

What changes in fintech will directly affect consumers or businesses in 2020?

Dittmar: My answer is highly speculative, but I keep hearing about two spaces that may have promise. The first is what I’ll loosely call fintech banking, by which I mean the entrance of non-bank tech incumbents into the banking space. This new competition could potentially bring lower costs, more choices, and new banking products to consumers. This has already happened a lot in China, but I suspect there will be a stronger regulatory headwind in the U.S. 

The second is business-to-business payments. There have been massive innovations in consumer-to-business and consumer-to-consumer payments, but B2B payments remain relatively idiosyncratic and analog. I’m interested to see to what degree fintech innovators can streamline business’ ability to pay other businesses and improve efficiency.

Will we continue to see fintech be a favorite industry for large investors?

Dittmar: The trends suggest that fintech continues to be attractive, particularly for venture capital, due to the sector's exciting innovations and massive growth potential. I am awaiting more vetting of the quality of investments in fintech specifically, and tech in general. The market has the “frothy” feel of the late 1990s and early 2000s, where a lot of money chased dot-coms, and as a natural-born pessimist, I’m waiting for a similar correction in investment that results in an improvement in investment quality.

Will 2020 see cryptocurrencies gaining broader mainstream acceptance?

Dittmar: I think the answer to this is a bit complicated. Ethereum and XRP have seen their values decline fairly steadily since crypto’s late 2017 peak, and Bitcoin and Litecoin have fallen off since slight recoveries. Cryptos continue to fail to deliver on one of the main purposes of money: representing a stable store of value. There may be some more interesting developments internationally, but the resistance to Facebook’s Libra does not, in my opinion, augur well for the near-term acceptance of cryptocurrency.

I think cryptocurrencies, as they are formulated right now, will never gain mainstream acceptance. I can't see a world in which the decentralized network of crypto owners gains as much trust as a developed sovereign government. This is not to say that a digital currency will never work — there are a lot of advantages to digital currencies, and I think those are likely to be developed. 

Is the number of new initial coin offerings likely to grow, stabilize, or fall?

Dittmar: The number of what were specifically called ICOs, which were blockchain-based unregulated tokens used to finance startups, is likely to continue to decline. The ICO market was unregulated, and there was a substantial lack of transparency and fraud.  Regulators appear to have come in and suggested that tokenized assets are in fact securities, and thus subject to regulation. Thus, while ICOs are not likely to continue to grow, I think that the tokenization market has a future, with securitized token offerings and initial exchange offerings succeeding the ICO market.

Robert Dittmar is a professor of finance at the University of Michigan Ross School of Business.

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