At Carmel, we are long on Fintech, and believe that Israel is uniquely positioned as a fertile ground for growing successful Fintech companies. Part of our role is to try to predict what the next ten years will look like vs. what the last ten years have been, so below (in no particular order) are just a few of the interesting and sizable financial markets/services I believe are being disrupted by innovation in Fintech.

1. Insurance
A lot has been said and done in the Insuretech space. We view the underpenetrated Commercial and Life Insurance verticals as particularly interesting. It is likely that in the next few years the commercial insurance broker model will be disintermediated and policies will be underwritten online much like auto and home policies have transitioned. The technology edge, however, still needs to include underwriting capabilities that will save costs for the insurers and enable lower premiums for end customers as opposed to just “bringing it online”.

2. Mortgages
Counter-intuitively, mortgage underwriting has become more expensive despite the advancement in financial technology. This multi-trillion industry is bound to change – whether it’s more efficient underwriting technology, algorithms that can syndicate/bundle and price the mortgages more effectively, blockchain technology that would meaningfully reduce title insurance costs, backend systems that streamline the ops/compliance behind origination, or others. I have no doubt that in the near future mortgage applications will be cheaper, approval processes quicker and default rates lower as a result of technology.

3. Investment Advisory
For decades, investment advisors, advising ultra-high net worth individuals to the mass market, have been working in “queue mode” (in-person meetings or calls) vs. “parallel mode” – trading recommendations that were trickling down in slow motion, rendering them obsolete before reaching their target audience. We’re now seeing tech innovation that will allow better advisor-client communication, enable the reduction of advisory and compliance costs and more importantly, uncover a larger source of transactional/advisory value-add and revenues for financial institutions. And no, I don’t mean just bots…

4. Wealth Management
Betterment and Wealthfront have led the way to democratizing the wealth management space, providing transparency, control and on-demand customized experience. We see a world where a single provider acts as a financial planning hub that manages our payroll, 401k, benefits, insurance and other financial assets. Enablers such as social media, AI/predictive analytics, security, payments, bots (and others) would enrich the bespoke services provided by these hubs, providing 360-degree view and services for all our financial needs.

5. Capital Markets
Changing the current method of trading bonds seems like a no-brainer. The current system in which brokers/market makers exchange quotes telephonically needs to advance quickly (I know I know – IM was introduced as well…). There’s no reason why technology won’t be able to make the process more efficient and less costly, especially with equities offerings already closing the gap. This pertains to a larger set of asset classes across equities, bonds, structured products, currencies, commodities and others.

6. B2B Payments and Supply Chain Financing
In stark contrast to the innovation that disrupted the way consumers pay, businesses still pay and are being paid the same way they did 40 years ago, creating massive inefficiencies and thus, opportunities. There are numerous points along supply chains that can and will be disrupted and we’re excited to see what’s coming.

6½. Blockchain
Although it isn’t a financial service, blockchain is a popular topic of discussion these days which is why I have included it in this list. The real question is how to effectively utilize the distributed ledger database technology within fintech (beyond cryptocurrencies). We view blockchain as an enabler or a horizontal play, similarly to the way we view AI – a platform that can enable the building of products and services on top of blockchain technology. The financial services industry is positioned to be an early adopter of this innovation: domains could include lowering title insurance for mortgages, enhancing AML and KYC regtech offerings or reducing the settlement times in securities trading. (NOTE: Have other interesting applications in mind? I’d be interested to hear about them).

Working on a startup in these areas or in other interesting Fintech domains?
Feel free to reach out at omryb@carmelventures.com

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