From paying for a cup of coffee with your iPhone to handling complex financial data at work, you deal with fintech every day. The explosive growth of the technology, that we have been witnessing recently, triggered major changes in every aspect of our life, especially such fundamental one as finance.
With $31.6 billion of investment in the US, with additional $18.1 billion invested globally over the last five years, fintech is currently one of the hottest technology sectors. Both accomplished players like Intuit, PayPal, or Square, and disruptive startups like Plaid, Kabbage or Robinhood are reshaping financial industry.
Fintech market is far from being saturated. The top industry trends include lending and payments. Yet, more opportunities remain to be taken. Here is the definitive list of fintech opportunities that both established businesses and entrepreneurs can use to their advantage.
Another promising market player is Monese, a mobile banking tool providing expats and immigrants in the UK with the main banking services, regardless of their address and credit history. With the total transactions value of £12 million (about $14.6 million) processed by the company this July, the startup shows a steady month-over-month growth.
This clearly indicates not only a great opportunity to enter mobile banking, but also a major potential of catering to the underbanked population. As stated in a report by DeNovo, a PwC strategy consulting platform, “... an estimated 2 billion adults, or 42% of the global adult population, are absent from the formal financial system. Therefore, even modest strides in achieving economic inclusion present the single largest addressable opportunity in FinTech.”
The undisputed leader in personal finance niche is Intuit Inc. One of its core products, Mint.com, allows its users to keep track of bank accounts, credit cards, investment, loans, and transactions, all within a single app.
However, there is still substantial opportunity for better, smarter personal finance and banking. Namely, another personal finance management app, Level Money, allows the users to connect their accounts in any of 2,500 available U.S. banks, making it easy to manage their finances.
In 2015, the company was acquired by Capital One, a Fortune 500 company and one of the top 10 largest U.S. banks. As the company representative explained, this was only “one of many steps that Capital One is making to deliver a next-generation banking experience.” This clearly indicates the digitization trend among enterprises.
However, the real revolution has just begun: With the transition to cloud SaaS technologies, accounting has become easier, more secure, and affordable. For example, Wave provides tools aimed to simplify accounting for small businesses and freelancers, free of charge. Providing an alternative to heavyweight enterprise solutions, the company offers a complete set of financial tools, from accounting and invoicing to payments and payroll services.
Be it a mobile payment system (Stripe), a hardware device that can process credit card payments (Square), or alternative money transfer service (Transferwise), any product that meets the need for cheaper, faster and easier payments processing has a great potential. Moreover, the fact that giants like Apple and Google bet on mobile payments, speaks for itself.
The expected launch of the Innovative Finance Individual Savings Account (IFISA) in the UK, will foster growth in P2P lending sector due to the favorable tax conditions it grants. Dominating mostly in the developing countries, microfinancing is another significant area of opportunity in fintech: it is expected to show the steady growth of 10-15 percent in 2016.
Affirm, a startup, founded by the former PayPal CTO, Max Levchin, combines lending and payment services, offering alternative financing options. Namely, the product offers installment loans allowing the users to buy goods from a number of selected online eCommerce platforms, including Expedia and Eventbrite.
All in all, the loan and lending market is a highly promising industry that is expected to reach $1 trillion by 2025.
As machine learning and AI technologies currently gain momentum, this tendency is yet to see widespread adoption. Automated and personalized service, deep data-backed insights and smarter financial decisions are just several possibilities that these intelligent algorithms open up for fintech.
As the Title III has come into effect in May 2016, the non-accredited investors (i.e. regular citizens) are now able to participate in equity crowdfunding projects and invest in any venture that offers such possibility. This is seen as a massive breakthrough for early-stage startups, leading to the further growth of the crowdfunding industry. The early results are impressive: It’s been reported that 20 out of 82 filed campaigns have exceeded their target amounts. This means 24.4 percent success rate, which is 2-3 times higher than the one reported by Indiegogo.
Actionable business insights, sourced with the help of the innovative technologies, is what major enterprises use to keep up with the challenges industry disruptors are setting. Thus, their interest in advanced analytics and big data finance startups (Versive, Kensho Technologies, Dataminr, and Antuit) is easy to explain.
Citi Ventures has recently invested in a data science startup, Feedzai, an innovative machine learning platform, used to prevent fraud in eCommerce. As stated in the related press release, “with its investment in Feedzai, Citi Ventures will support the development and commercialization of new solutions with the potential to transform how to identify and prevent malicious activity in financial services.”
Indeed, fraud prevention and risk management are some of the most talked about the fintech areas, where data science and machine learning has proven to be most useful.
One of the most notable products in Insurtech is Oscar - a health insurance startup, backed by some of the leading investors, such as Google Ventures, Google Capital, Goldman Sachs, with almost $3 billion evaluation. It uses technology, data, and design to improve health insurance experience and make it accessible to anyone. However, a number of other insurance areas haven’t yet seen any transformation.
The blockchain ecosystem represents a competitive environment. The technology itself can be applied to almost any of the above listed fields, including payments and transfers, lending, trading. However, there are some companies that offer blockchain-based infrastructures and APIs as a service. For example, Chain, a blockchain technology startup, has raised over $40 million in investments to provide tools for building and deploying blockchain networks within financial companies. Its technology is currently used by NASDAQ, Visa, Citi, Capital One, and Fiserv to “enable a smarter and more connected financial system by digitizing the world’s assets.”
With more regulatory freedom, advanced technologies, and innovative business models, opportunities in fintech still have a strong potential. While both established financial institutions and emerging startups strive to seize the moment and get their piece of the fintech pie, the market will continue to expand in 2016 and years to come.
With $31.6 billion of investment in the US, with additional $18.1 billion invested globally over the last five years, fintech is currently one of the hottest technology sectors. Both accomplished players like Intuit, PayPal, or Square, and disruptive startups like Plaid, Kabbage or Robinhood are reshaping financial industry.
Fintech market is far from being saturated. The top industry trends include lending and payments. Yet, more opportunities remain to be taken. Here is the definitive list of fintech opportunities that both established businesses and entrepreneurs can use to their advantage.
1. Mobile Banking and Financial Inclusion for Underserved
If you ever happen to doubt the importance of mobile, just look at the crowdfunding campaign run by Monzo (formerly known as Mondo), a mobile-first banking startup. The company raised £1 million ($1.2 million) in just 96 seconds, using the UK’s most popular crowdfunding platform, Crowdcube.Another promising market player is Monese, a mobile banking tool providing expats and immigrants in the UK with the main banking services, regardless of their address and credit history. With the total transactions value of £12 million (about $14.6 million) processed by the company this July, the startup shows a steady month-over-month growth.
This clearly indicates not only a great opportunity to enter mobile banking, but also a major potential of catering to the underbanked population. As stated in a report by DeNovo, a PwC strategy consulting platform, “... an estimated 2 billion adults, or 42% of the global adult population, are absent from the formal financial system. Therefore, even modest strides in achieving economic inclusion present the single largest addressable opportunity in FinTech.”
2. Smart Personal Finance Management
With the rise of fintech, you don’t need a degree in business or finance to manage your accounts. There are lots of great tools on the market, offering automatic budgeting, finance planning, and asset management services.The undisputed leader in personal finance niche is Intuit Inc. One of its core products, Mint.com, allows its users to keep track of bank accounts, credit cards, investment, loans, and transactions, all within a single app.
However, there is still substantial opportunity for better, smarter personal finance and banking. Namely, another personal finance management app, Level Money, allows the users to connect their accounts in any of 2,500 available U.S. banks, making it easy to manage their finances.
In 2015, the company was acquired by Capital One, a Fortune 500 company and one of the top 10 largest U.S. banks. As the company representative explained, this was only “one of many steps that Capital One is making to deliver a next-generation banking experience.” This clearly indicates the digitization trend among enterprises.
3. Affordable and Easy Accounting for Small Businesses
While having a simple and efficient tool to automate your personal finance management is nice, professional accountants also need help with bookkeeping. Using pen and paper or Excel sheets to manage business finances is no longer an option in a time of total business digitization. From VisiCalc back in 1979, to Quickbooks by Intuit in late ‘90s, there were significant innovations in this area of fintech.However, the real revolution has just begun: With the transition to cloud SaaS technologies, accounting has become easier, more secure, and affordable. For example, Wave provides tools aimed to simplify accounting for small businesses and freelancers, free of charge. Providing an alternative to heavyweight enterprise solutions, the company offers a complete set of financial tools, from accounting and invoicing to payments and payroll services.
4. Innovative Payment and Money Transfer Processing
Providing transparency and low cost that most of the bank transactions lack, payment processing has seen significant growth over the last years. Due to the exponential growth of the eCommerce and mCommerce, it is predicted that over 5 billion people will be making payments using their smartphones by 2019.Be it a mobile payment system (Stripe), a hardware device that can process credit card payments (Square), or alternative money transfer service (Transferwise), any product that meets the need for cheaper, faster and easier payments processing has a great potential. Moreover, the fact that giants like Apple and Google bet on mobile payments, speaks for itself.
5. Peer to Peer Lending and Microfinancing
Peer to peer lending companies solve a problem that banks often cannot solve. They disintermediate the process of crediting, simply by connecting loan providers with prospective borrowers through specialized P2P platforms (LendingClub, Prosper). Thus, consumer and business credits are easy to access; the process becomes simple, convenient and fast. The potential that lies within this area is yet to be discovered.The expected launch of the Innovative Finance Individual Savings Account (IFISA) in the UK, will foster growth in P2P lending sector due to the favorable tax conditions it grants. Dominating mostly in the developing countries, microfinancing is another significant area of opportunity in fintech: it is expected to show the steady growth of 10-15 percent in 2016.
Affirm, a startup, founded by the former PayPal CTO, Max Levchin, combines lending and payment services, offering alternative financing options. Namely, the product offers installment loans allowing the users to buy goods from a number of selected online eCommerce platforms, including Expedia and Eventbrite.
All in all, the loan and lending market is a highly promising industry that is expected to reach $1 trillion by 2025.
6. Accessible Investing and Online Trading
Similar to banks, markets and exchanges are experiencing significant digitization. Online trading has become much more simple and accessible, thanks to the products like RobinHood, the app, as Business Insider puts it, “makes stock trading cheap, intuitive, and mobile”. Another trend that emerges in this area is the “robo-advisors”. They combine smart algorithms and human touch to help the users make better investment decisions (e.g. Wealthfront, Betterment).As machine learning and AI technologies currently gain momentum, this tendency is yet to see widespread adoption. Automated and personalized service, deep data-backed insights and smarter financial decisions are just several possibilities that these intelligent algorithms open up for fintech.
7. Simplified Crowdfunding
The amount of total funds raised every year on the crowdfunding platforms, like Kickstarter and Indiegogo, is close to $3 billion. This was made possible with the adoption of the “Jumpstart Our Business Startups” (JOBS) Act (Titles I-VII), in 2012. The legislation regulates the equity crowdfunding in the USA and creates a friendly environment for a large number of startups and small companies.As the Title III has come into effect in May 2016, the non-accredited investors (i.e. regular citizens) are now able to participate in equity crowdfunding projects and invest in any venture that offers such possibility. This is seen as a massive breakthrough for early-stage startups, leading to the further growth of the crowdfunding industry. The early results are impressive: It’s been reported that 20 out of 82 filed campaigns have exceeded their target amounts. This means 24.4 percent success rate, which is 2-3 times higher than the one reported by Indiegogo.
8. Big Data and Predictive Analytics for Fintech
The advance of Big Data and predictive analytics continues to revolutionize the finance industry. Established financial institutions, like Goldman Sachs, Morgan Stanley or Bank of America, are currently looking for the new ways to apply the data they have accumulated over the decades.Actionable business insights, sourced with the help of the innovative technologies, is what major enterprises use to keep up with the challenges industry disruptors are setting. Thus, their interest in advanced analytics and big data finance startups (Versive, Kensho Technologies, Dataminr, and Antuit) is easy to explain.
Citi Ventures has recently invested in a data science startup, Feedzai, an innovative machine learning platform, used to prevent fraud in eCommerce. As stated in the related press release, “with its investment in Feedzai, Citi Ventures will support the development and commercialization of new solutions with the potential to transform how to identify and prevent malicious activity in financial services.”
Indeed, fraud prevention and risk management are some of the most talked about the fintech areas, where data science and machine learning has proven to be most useful.
9. Digitized Insurance Experience
The US insurance industry is the largest in the world, with $696 billion revenue. Yet, the market is also extremely difficult to enter: it is highly complex and capital-intensive, with a number of regulative constraints.One of the most notable products in Insurtech is Oscar - a health insurance startup, backed by some of the leading investors, such as Google Ventures, Google Capital, Goldman Sachs, with almost $3 billion evaluation. It uses technology, data, and design to improve health insurance experience and make it accessible to anyone. However, a number of other insurance areas haven’t yet seen any transformation.
10. Blockchain and Digital Currency
There is no doubt that blockchain is another area of opportunity, and not only in fintech. Defined by PwC as “... a decentralized ledger, or list, of all transactions across a peer-to-peer network”, the technology behind the Bitcoin is currently gaining momentum. However, cryptocurrency, like Bitcoin, is only one way to use blockchain technology.The blockchain ecosystem represents a competitive environment. The technology itself can be applied to almost any of the above listed fields, including payments and transfers, lending, trading. However, there are some companies that offer blockchain-based infrastructures and APIs as a service. For example, Chain, a blockchain technology startup, has raised over $40 million in investments to provide tools for building and deploying blockchain networks within financial companies. Its technology is currently used by NASDAQ, Visa, Citi, Capital One, and Fiserv to “enable a smarter and more connected financial system by digitizing the world’s assets.”
Final Word
Last year, the fintech investment has increased by 106 percent, reaching $13.8 billion globally. The numbers sound even more impressive when compared to $2.1 billion in industry funding raised in 2011.With more regulatory freedom, advanced technologies, and innovative business models, opportunities in fintech still have a strong potential. While both established financial institutions and emerging startups strive to seize the moment and get their piece of the fintech pie, the market will continue to expand in 2016 and years to come.