2017 has proven to be a fantastic year to be a FinTech entrepreneur. As per a PwC report, the funding for FinTech startups has been growing by over 40% year-on-year. The FinTech industry is now at a stage where it is experiencing mass consumer adoption and rapid growth. As per E&Y, almost 33% of the all digitally active citizens are using at least one FinTech product. In developing countries like China and India, this number is even higher – crossing the 50% mark. But what exactly is driving this unparalleled growth? What are these new FinTech firms offering to customers that they are abandoning traditional banks and joining the FinTech bandwagon at such an unprecedented rate?
To answer that question, we need to look what sort of FinTech tools consumers are using. The biggest driver continues to be the payments sector – paying for online shopping, cross-border remittances, using cryptocurrency and so on. Payments is followed by the insurance and investments sector. Crowdfunding platforms, robo-advisors, peer-to-peer investment platforms etc. are driving the growth here. Finally, FinTech enabled lending platforms and financial planning tools round up the list. These include web-based financial planning and budgeting tools, peer-to-peer lending platforms and so on.
Together, these innovative FinTech platforms and tools are providing the bulk of FinTech volume. By offering a better, faster or cheaper way of providing financial services to the end consumer, these companies are carving out an ever larger slice of the market. Here, is a breakdown of the 10 most promising FinTech innovations and technologies.
1. Peer-to-peer financing
The crowdfunding industry has been exploding with all sorts of new and innovative products being launched on a daily basis. These platforms have allowed even niche products to find financial backers and potential customers thanks to the global reach of the internet. However, peer-to-peer financing is not just about crowdfunding products but also includes peer-to-peer lending. It’s very similar to what a bank does – allocation of capital from one party to another, while acting as a middleman and risk mitigator. Obviously, the higher the risk, the higher the interest rate demanded.
2. Cognitive AI
Cognitive AI is making deep inroads into mainstream business decision making. We are not talking about sentient intelligence yet, but there are tools which are so good at making sense of mountains of data that they are already providing valuable business insight that’s going right to a company’s bottom line. Cognitive AI systems go a step beyond normal data crunching and can see and analyse patterns and accelerate/ optimize decision making. IBM Watson is one example of such a system which is continuously being improved.
3. Digital-only banks
Almost every bank of any respectable size is now offering omni-channel banking which includes mobile and web-based access. However, Digital-only banks go one step further and completely eliminate the branch network and rely solely on a digital interface for customer onboarding and service delivery. What’s so great about that? The fact that they save enormously on retail and office costs and (hopefully) pass that on to the consumers.
4. Mobile payments
The payments sector retains its top spot at the head of the FinTech value pyramid for now. More people use payment apps than any other FinTech service and it’s not hard to see why. Mobile payment apps have reduced the time and cost to make online payments. In 2017, an estimated USD 800 billion worth of transactions will be performed using a mobile payment app. And the innovation is not over yet – there is a huge market for inter-account and inter-currency payments that is just waiting to be revolutionized!
5. White Label Banking
White labelling allows companies without a banking license or a regulatory infrastructure to offer financial products to their customers. They do this by utilizing the core systems of a bank which acts as a service provider, and building their customer-facing end product on top of that core infrastructure. One crude example may be a co-branded credit card – issued and branded by a retail store but using the payment infrastructure of a licensed bank.
6. Telematics (Insurance)
Insurance premiums are probably the most obvious example of making sweeping generalizations. For example, auto insurance premiums are based on age, gender, profession etc. and rarely take into account how an individual actually drives. This is where telematics comes in. A small device is installed in your vehicle which tracks your car and eventually determines your premium based on how you drive. Most devices also provide a bit of additional security against theft. There are far-reaching applications not only in auto-insurance but also for safely renting out vehicles.
Complying with regulations costs companies worldwide an estimated USD 8 to 10 trillion! Although some of that cost is unavoidable, there is a great deal of money that is wasted because of inefficiencies in processes or unoptimized systems. RegTech companies intend to jump into the fray and tackle these issues head on! These service providers currently target everything from credit card fraud detection and performing faster KYC checks to reporting derivative transactions and monitoring financial risk thresholds.
8. Virtual and cryptocurrencies
To be fair, cryptocurrencies deserve more than one measly slot on this list. Many of them offer remarkable and entirely new applications that no one even thought of before. Cryptocurrency developers are not only racing to create the fastest, most secure and cheapest way to transfer value, but they are also creating solutions ranging from smart contracts and decentralized storage to leasing smart devices.
9. Web-based financial planning tools
Most large corporates use highly customized enterprise resource systems to manage their financial budgeting, planning and forecasting needs while smaller businesses and individuals are still using Excel or other similar software which takes up a lot of their time. This is the market segment that is being targeted by a slew of web-based financial planning tools. Essentially, all you have to do is feed in the raw data and define the relationship between certain variables, and the system automatically produces a number of reports, graphs and even insights that can directly be plugged into an investor presentation.
10. Financial learning
App and web-based financial learning tools have come long way. Although simple video and text-based lessons are still available, many apps now offer the opportunity to practice your trading skills in real time using dummy accounts on simulated exchanges. And it’s not just for potential traders, there are apps and tools which are providing financial literacy to millions of people.
Trading Game – Forex & Stock Market Investing
Robo-advisors have already been chipping away at the heels of traditional wealth management companies. While there is still some way to go before these algorithmic programs master the multi-disciplinary approach to investment management, they are indeed proving useful in cases where investor goals are simple and straightforward. Where these tools excel is in the handling of a large volume of smaller clients which means that first-time investors find them to be very cost-effective.