Whether you realize it or not, you are most likely using traditional financial institutions as well as fintech companies on a daily or weekly basis. Just think, when was the last time you started a crowdfunding campaign or donated to one? When was the last time you used Square, PayPal, or TransferWise to send money? The answer is probably at least once in your life. These are just some of the big names in fintech, so there are many other companies out there, both big and small, that work to disrupt traditional financial structures. But disruption is not always a bad thing. It is very likely that we will all continue to use more fintech in the future as they take billions of dollars worth of revenue away from traditional financial institutions every year.
Fintech touches many areas of finance
Fintech touches many areas of finance: account management, trading, lending, financing, payments, transfers, banking, and others. Their impact will continue to grow as experts predict that $150 billion will be invested in fintech over the next five years.
Why Fintech is on fire
Fintech has done an excellent job of leveling the playing field. Before technology, many financial services were off limits to various populations around the world. While it is still not a perfect system, fintech has made more services available to small businesses, women, minorities, immigrants, and other groups.
Data and services available at anywhere and any time
Fintech has also made services and data available anywhere and at any time. Technology, apps, and mobile services give customers access to their accounts whenever they need it. Many customers have come to expect these types of mobile services and rely on fintech to provide them.
Many customers are turning to fintech because of speed. Technology changes quite rapidly. But traditional financial institutions are usually quite slow to adapt. The bigger they are, the slower they change. Customers who expect certain services turn to fintech to get them. Fintech companies are usually on the forefront of technology innovation. While it can be difficult for a startup to compete with large financial institutions, if they fill a need they can become quite successful.
Short term thinking
Another reason for the rate of fintech growth is due to the nature of startup culture. Many startups fail, a large percentage in fact. That means that when one goes under, there is another to fill the void they left. The new startup, hopefully can make better business decisions and survive longer than the startup they are replacing. Many businesses are learning to think in the short term, rather than the long term.
The speed of technology itself gives an advantage
Technology itself is more beneficial to fintech than to traditional institutions. Technology allows fintech companies, which are looking for new ways of doing things, to provide various solutions. As technology evolves, fintech companies will be able to innovate financial services faster than the slow moving institutions. The speed of technology itself gives an advantage to fintech.
Fintech companies to watch in 2017
There are quite a few fintech companies that represent the next generation of what fintech is and where it is going. They have amassed billions in investment and who no signs of stopping as they challenge the status quo.
There was a time when fintech was so new, everything seemed innovative and fresh. Now, fintech companies are competing not only with large financial institutions but with each other. Stride is a payment services company trying to take on PayPal. At the end of 2016, the company was valued at $9.2 billion.
Founded in 1999, this fintech startup provides end-to-end payment solutions to marketplaces and vertical markets. They have grown to provide $15 billion worth of payments a year, increasing their revenue 7 fold since their inception.
This fintech company was one of the first to get in on the mobile commerce business. They now process credit, debit, PayPal, Apple Pay, Android Pay, Venmo, and bitcoin payments for sites like Airbnb, Uber, LivingSocial, Angry Birds, among others. Their transaction volume has grown about 25 times, almost 3 times per year.
Serving over 4,500 businesses around the world (Netflix, Facebook, Booking, Vodafone, Crocs, SoundCloud, Airbnb, Spotify, and KLM just to name a few), Ayden provides a solution to accept payments from anywhere in the world. The currently have a valuation of over $2 billion.
With about $16 billion in loans, Lending Club is the world’s largest peer-to-peer lending platform. They provide services where borrowers and investors can connect to perform lending transactions.
Addepar has created an integrated financial software platform used by single offices, multi-office companies, wealth advisors, foundations, and large financial institutions. With more than $500 billion worth of assets on their platform, they will no doubt continue their growth.
Student loan debt has become a very important issue for students, families, universities, and even political candidates. There are trillions of dollars wrapped up in student loans, so it is no wonder that fintech companies like Commonbond have entered the market to help give borrows more options. The platform connects borrowers with investors, creating more competition and saving borrowers about $14,000 over the life of the loan.
Seeing as it is more and more difficult for small businesses to get loans from banks, Kabbage set up a system that allows businesses to get loans of up to $100,000 based on a variety of factors.
Bringing trading to the masses, Robinhood created a smartphone app where people can invest and trade stocks and funds without paying a commission.
Using roboadvisors, Wealthfront is an automated investment service that helps consumers invest their money with the help of big data and algorithms.
Another fintech company in the lending business, SoFi provides student loan refinancing, mortgages, and personal loans. Their algorithms ignore the credit score structure and are more attuned to ability to pay standards.
This fintech company helps consumers protect themselves from fraud and hidden fees. The application scans various payments and alerts consumers to suspicious activity, errors, fraud, and hidden fees.
Fintech will continue to be a major driving force
As technology changes, so will fintech. But if these companies are any indication, fintech will continue to be a major driving force in change and innovation in the financial industry.