To start with — FinTech is not a new thing. In some form or another, financial companies have always used technology to conduct their business. What has changed, however, due to technological innovation, is that the financial sector is no longer a “banks only” playground. Instead, it is undergoing significant change and disruption caused by new players — startups, new technologies and new business models.
Having worked in FinTech both with startups and banks, we’ve put together a beginner’s guide to the world of FinTech. As with every guide, it is definitely not conclusive, nor is the categorisation absolute, but it does give you a good overview of what’s happening, and why it matters so much that everyone is talking about it.
Core FinTech — More “Fin” than “Tech”
Core FinTechs provide financial services or products (rather than simply engaging in providing technology solutions) to end-users. Thus they are product-focused and typically operate B2C business models. They are “old” in the sense that the products and services core FinTech companies provide have been around for decades, if not centuries, but recent developments in technology have opened this frontier to new players and models.
There was a time not so long ago when banks and credit card companies ruled the world of payments. As more people, however, are paying for more things on mobile devices, and online shopping has gone up, companies like Stripe, Klarna and Transferwise are all lining up to challenge old-school, incumbent payment providers by offering to meet customer demand for faster, cheaper, and easier-to-use services. The amount of customers they have has proven that they are obviously succeeding in it, too.
In addition to innovations in payments, new players such as N26, Revolut and Monese have changed the fundamental understanding of how our daily banking should work. By offering the possibility to open a mobile UK account without a UK address or credit history, make free international money transfers, and spend money abroad without exchange rate fees, they have made services that did not offer any flexibility in the past obsolete.
The lending business of banks is facing unprecedented competition by peer-to-peer lending platforms that aim to change the lending and investment landscape. The model’s success lies in its ability to connect borrowers with investors through online marketplaces. These platforms often provide access to credit for people with little or no credit history, opening up possibilities and contributing to community wellbeing, as does Kreditech.
InvesTech (Capital Markets and Investing & Trading)
InvesTech was created so investors would not have to deal with large financial institutions in order to access trading platforms, relevant and timely financial information, or charting software, but could do it in a more flexible and customised way. Whether it’s financial news and information, trading platforms and investing solutions, or social trading and investing, platforms like ScalableCapital and Betterment offer safe, cheap, and easy-to use ways for investors to control their money and how it’s being handled.
Put simply, PropTech refers to businesses using technology to change and improve the way we buy, rent, sell, design, construct and manage residential and commercial property. While it used to be only rent or mortgage, now thanks to companies like Wayhome or Point, you can sell small fractions of the equity in your home to investors, and you do not have to just keep living there, but live there as if it were your own home. Meaning, you can re-decorate and design your house the way you want.
Financing & Funding
Owning a small business can be challenging, as accessing capital for your business is a slow and difficult process and you have to spend your days juggling your working capital to pay for projects that help you grow. Companies like BlueVine and Fundbox give their clients access to capital, speed, simplicity, and transparency — no long waits, paperwork, or hidden fees that often come with other financial institutions.
Just as FinTech is transforming the banking world, InsurTech has set its sights on the insurance industry, where it is exploring areas that large insurance firms don’t care about, such as offering social insurance, and using new streams of data from internet-enabled devices in order to price premiums in a dynamic manner. Good examples are companies like Oscar and Lemonade, which have created a different and modern user experience in dealing with an insurance company.
FinTech Marketplaces & Aggregators
The aggregation of financial data has become a great business because if all the personal and banking data of a customer are available in a single space, it makes it much easier to use information and operations of all kinds. FinTech marketplaces such as Raisin, which have an unlimited scale and are not burdened by the constraints of conventional transactional businesses, are thus some of the fastest growing businesses.
Enabling FinTech — More “Tech” than “Fin”
So far, we’ve seen how companies have used new technologies for innovation. Now we’ll take a closer look at the innovative technologies that have enabled companies to not merely modify services, but come up with totally new business models. It’s only a question of time before this list will be as long as or even longer than the one above.
Enabling Processes & Technology
Until now, global banking has been described by the complexities of legacy technology, managing global compliance, and legacy bank processes, in turn creating a slow, complex and costly experience for customers. Companies like Railsbank and solarisBank aim to change that by letting you build your own banking products using a banking and compliance platform that connects a global network of partner banks with companies that want API access to global banking in order to transact business digitally, and in a compliant way. They’re using BaaS to do that, too.
Like SaaS (Software-as-a-Service), IaaS (Infrastructure-as-a-Service) and PaaS (Platform-as-a-Service), BaaS is an industry-specific service. BaaS platforms provide a cost-effective, easy and fast way for non-banks to launch various financial products by letting you pick the bricks you require and assemble custom solutions to fit your business needs. And all that without you needing to become a bank and have all the regulatory and compliance responsibilities that banks do.
Financial Data Analytics
When it comes to FinTech, data is everything. So it is not surprising that the development of machine learning and the growing access to Big Data has resulted in solutions that use data as their core input. Big Data Scoring, a cloud-based credit decision engine, helps banks, telecoms and consumer lenders improve credit quality and acceptance rates through the use of Big Data. Tala, whose credit models allow them to evaluate an applicant’s creditworthiness and capacity using the data on their mobile device, can evaluate and score even those customers who have no formal credit or banking history.
RegTech refers to the use of new technology to facilitate the delivery of regulatory requirements. As the rise in digital products has increased incidences of data breaches, cyber hacks, money laundering and other fraudulent activities, agile regulatory technology that uses tools such as predictive analytics helps large companies better understand and manage their risks. Good examples of this are ComplyAdvantage — the world’s only AI-driven risk database, which predicts the crime risks of people and companies, and Fenergo, an end-to-end Client Lifecycle Management solutions provider.
As said in the beginning, the list above is not by any means conclusive. There are also very interesting things happening in the areas of accounting, invoicing, working capital management and, of course, cryptocurrencies, which you can start exploring on your own, as you are already finding your way around better than before. Nevertheless, I’m very interested in your thought and comments, so shoot!
Mooncascade is a Machine Learning & Product Development company focused on building new disruptive solutions with real business and market impact. With a team of nearly 100 specialists, we are chosen product development partner for all regional telecommunication companies, work closely with financial companies, and are often brought in when large industries require an agile and experienced product development partner.
If you happen to be interested in developing a Fintech product by yourself and need a Product Development partner, then have a look at what we’ve done for FinTech companies, and get in touch!