September 1, 2021
For startups looking around for potential billion dollar ideas, current trends indicate they might do best, by focusing their attention straight towards the banks.
Already in 2019, EY’s Global Fintech Index found that the adoption rate of FinTech is 64%, with a booming amount of success. The end of 2018 saw 39 new fintech unicorns come onto the scene, with a combined worth of $147.47B at the time.
Startup funding is also following the money, with billions poured into industry leaders. Of the 500 fastest growing fintech companies in 2020, 7 of them received funding worth a whopping $10 billion combined. LendingPoint, LANDBAY, and Chime were the three most heavily funded fintech startups. They received $1.7 billion, $1.6 billion, and $1.5 billion respectively.
And the trends aren’t looking to turn down.
According to global newswire, the global fintech market will reach $305.7 billion by 2023.
So how can you jump on this train and apply your expertise in one of the world’s fastest growing industries?
Let’s take a closer look.
Fintech works to integrate new tech in the finance industry to improve and automate their services. Over the years, the industry has seen a massive shift to consumer-oriented services and apps, and the inclusion of blockchain technology and crypto-currencies.
Some of the most active areas of fintech innovation include or revolve around the following areas:
We spoke with fintech founder Bence Radak of Salarify, who gave us his take on hot fintech areas, based on the latest trends and insights working in the industry for 4 years. He maintains that B2B fintechs have a much better probability of success than B2Cs for a few reasons.
"Generally speaking, banks still have a very powerful hold on the market, and with the difficulties of regulatory compliance, they still have a big advantage over fintech contenders. However, institutions looking to keep up with digital transformations are also looking to acquire agile startups. Teams with a good PFM (Personal Finance Management) can whitelabel products and target banks looking to innovate, with the capital to do it but a lack of time and human resources.
In the B2C sector, neobank Wise (formerly Transferwise) is the strongest with a seamless customer interface that makes it easy to create a bank account as a business or individual. SME banking also looks like it’s going to grow, with customized neobank options for cost-conscious small businesses trying to find the best solutions.
Data companies such as aggregators and aggregating banking APIs provide insight into accounts, and help banks utilize their data sets productively. With better data accessibility, fintechs can help banks offer customers more fair financial products and better interest rates."
So where can aspiring founders start innovating in fintech?
There are heaps of problems that fast-moving teams can sort through for banks. We’ve rounded up the top trends and areas of interest based on the latest reports.
Autonomous finance uses Artificial Intelligence and Machine Learning to automate financial decision making processes like utility bills, insurance and subscriptions.
AI-powered chatbots are increasingly being used to help customers navigate or delegate simple transactions and save time. By learning the habits of customers, these chatbots can also work to help users learn more about financial literacy and improve their personal finance. Conversational AI chatbots take this to a whole new level by following an authentic brand voice that mirrors a human operator.
Innovation in this area also has room for clarifying bills, and making confusing line items clear so that consumers know what they are being charged for. For example, Uswitch provides automated benchmarks and comparisons between service providers, to allow consumers to choose the best return on investment for them.
Open banking allows people to invest their money with different financial tools, rather than keep it locked down in a bank. By giving third-party financial service providers access to consumer banking data via APIs (Application Programming Interfaces), users can access software that gives them a better understanding of their accounts or consent to investing their money.
Over the past few years, there has been an explosion in micro-investing and saving apps like Robinhood, Stash, or Betterment that make it accessible for lay people to trade. Not only have they pioneered a movement in minimal or zero transactions for trading, but they also allow people to invest small amounts on an accessible user interface.
Digital banking services are at the forefront of fintech, according to a McKinsey study, as consumers look to avoid standing in long queues at the bank, or going to the banks at all. As software literacy grows and consumers increasingly look to digital devices to complete their tasks, banks are increasingly in competition to provide the best digital banking services.
Neobanks like Cash App, Venmo, Chime, and Money Lion, are taking this trend one step further. These services are banks without physical locations, that provide customers with checking, savings, payment service and loans that are completely accessible via mobile and browser apps.
New technology is opening doors for companies in this sector. API-based card issuance makes it easy for merchants to create tailored debit cards with their own payment plans and rewards. Payment APIs like Stripe let merchants accept and process payment from mobile wallets, and open the door for website payment from Cash App and Venmo to be made on POS devices. Enhanced cyber-security and data protection through encrypted payments and multi-factor authentication protect users if their devices are stolen.
Strict regulations and consumer trends are beginning to stare down the insurance world, as technology investment in the sector increases. According to CB Insights, more than $4.15B was deployed into insurance tech startups globally in 2020, as the younger generation expects the same ease of use and accessibility to insurance services as everything else. Consumers want to quickly measure up their options on their own time to make an informed decision.
Fintech startups are partnering with traditional insurance companies to help automate processes and expand their coverage. This industry is ripe for innovation, as innovators seek to improve everything from construction insurance to health insurance. Leading Insurtech companies like Next Insurance, Zipari, and Policy Genius work with both companies and individual consumers to clear up the process of insurance shopping for life, home, and business assets, keep track of billing, and speed up enrollment by making it accessible on a mobile or desktop interface.
Last year, Andreessen Horowitz partner Angela Strange wrote that every company will be a fintech company.
“Every company, even those that have nothing to do with financial services, will have the opportunity to benefit from fintech for the first time. Startups will be able to launch companies faster and more cheaply. Existing financial services institutions will be able to introduce new products quickly—and spend less on IT maintenance. And most importantly, this means more choices, better products, and lower prices for consumers.”
The advances in financial infrastructure as a service are making it easier for companies that have nothing to do with finance to create revenue through financial services - in the same way that services like AWS made it easy for startups to deploy websites. Apple, Uber and Shopify credit cards are great examples of this phenomenon.
As the ROI on these business models grow, so too will the demand for financial infrastructure — meaning fintech is here to stay.
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