“Follow the Money!”: How Fintech Changes Financial Market
Typically, fintech startups are companies that, due to technology – artificial intelligence, blockchain, etc. – successfully compete with traditional financial organizations: banks, insurance companies, etc. They work in the B2B and B2C segment and today serve about 2 billion people worldwide.
According to CB Insights, as of 2019, 39 fintech companies have raised about $1 billion from venture capital funds. Their combined valuation reaches $147.4 billion. As a rule, consumers use from one to three applications to manage their finances but every year their number has been growing due to the emerging new services and needs. So, which fintech companies today cause the greatest resonance? There is a list of top-5 most discussed fintech startups in 2020.
- Plaid. Startup was founded by Zach Perre and William Hawkey in 2013. It allows various applications (for example, payment) to connect to users’ bank accounts and provides fast authentication. Plaid has technology that allows ACH verification to be completed in just seconds and allows banking data to be quickly accessed and organized into comprehensive statements. In 2019, the fintech company cooperates with 10,000 banks and is valued at $2.7 billion. In January of this year, Plaid bought Quovo investment data aggregator for about $200 million.
- Coinbase. Coinbase is one of the most popular platforms for trading cryptocurrencies; it is considered to be the most “friendly for beginners”. The service appeared in 2012 thanks to Brian Armstrong and Fred Ersam, and today it is estimated at $8 billion. Coinbase recently acquired Earn.com for $120 million – a startup that allows users to get bitcoins and spend them.
- SoFi. The startup was originally created for online refinancing of students. But today, it gives individuals an opportunity to refinance a number of debts including student and personal loans, mortgages, MBA loans and opportunities for investors, for example, robo-advising offers help from a robot advisor on investments. A distinctive feature of the project is its focus on millennials. The company was founded in 2011 by Mike Cagney and is valued at $4.4 billion.
- Planwise. This startup was established to help people in a simple way to gain confidence and skills necessary in financial planning. A user-friendly software program guides customers as they evaluate their current financial status, add monetary goals, and develop plans-of-action to reach these goals. Total funding amount of a platform is $1.5 million.
- Upsolve. It is free software that automates bankruptcy to help people clear their debts. Since it launched in 2018, Upsolve is a winner of Fast Company’s 2019 World Changing Ideas Awards in the Social Justice category as it has helped more than 500 people clear their debts, more than any other nonprofit. Upsolve is supported by the US government, that’s why it is free for users.
So here we are: fintech changes it all. Big data and its analysis technologies, artificial intelligence, robotics, biometrics, cloud technologies, open interfaces, distributed ledger technologies – financial technology industry is represented by a huge number of solutions and services. All this forces banks to bring their processes in line with the new realities. “Follow the money!” – this quote from the movie “All the President’s Men” has become the slogan of the new era on the financial market.
Banks, financial corporations, businesses become more and more interested in including some new technologies in their processes. According to Forbes, the “hottest” technologies in banking are the most invested in them. In the new study, the top five technologies for 2020 are digital account opening, P2P payments, video collaboration/ marketing, cloud computing, and application programming interfaces (APIs).
Digital accounting opening (DAO) is the most popular technology for the third year in a row, which a quarter of banks and credit unions expect to establish in 2020. An additional 46% plan to modify or enhance their existing DAO systems, 39% who said they would do so in 2019.
The continued focus on digital account opening begs the question: Why can’t banks get digital account opening right? There are a number of reasons but the primary cause is ineffective process design. Many banks approach the account opening process from a regulatory compliance perspective. It actually takes minimum data to get an account open. Banks should redesign the process to allow for the simplest account opening and funding possible—and then work on reducing the risks and meeting regulations.
Roughly three of 10 institutions plan to select a new or replace P2P payment tool in 2020. That percentage is down from the 35% who planned to do so in 2019. But the number of banks and credit unions looking to enhance or modify their P2P payment capabilities rises from 25% in 2019 to 40% in 2020.
One of the biggest P2P payment providers is Zelle – 21 of the 25 largest US banks use it. If more banks and credit unions adopt Zelle and then, like PNC, lockout Plaid, consumers will increasingly find Zelle to be the most convenient P2P payment option to use, causing some switching behavior. In fact, consumers will adopt services verified by banks instead of the third party.
Video collaboration/marketing is new and enters the charts with a little more than a quarter of survey respondents indicating that they plan to add video collaboration/marketing tools in 2020. This would more than double the number of institutions deploying this technology, as just one of five institutions say they’ve already implemented video collaboration/ marketing platforms to date. Vendors—and some analysts for that matter – have been hyping video for a while now. One study found that more than three-quarters of bank execs surveyed said that video technology:
- accelerated decision-making;
- improved productivity;
- boosted product innovation;
- improved customer experience.
If that were true, why has it taken so long for banks to make investments in the video? The reason is that nearly every technology promises the benefits listed above, and it has taken this long for banks to get serious about branch transformation, which is driving this uptick in video investment.
A ¼ of financial institutions plan to invest in or implement cloud computing technologies in 2020. 40% say they have already done so, and half of them will enhance or modify what they’ve got. Despite these numbers, many C-level execs still oppose cloud computing.
The banking industry is on an inevitable journey to the cloud, however. Three trends are driving this:
– AI implementation. Without a sufficient quantity and quality of data, AI tools are hampered. Banks will need to turn to and rely on data sources from third parties, partners, and vendors to feed their AI appetites. Bringing all those data in-house won’t be feasible and, in many cases, won’t be an option at all. Cloud apps and tools will become requirements;
– The platformification of analytics. Over the next 5 to 10 years, data and analytics services will be provided “as-a-service” by open platforms that aggregate analytics tools, data sources, and data management services. This will force even more institutions to move to cloud computing in order to enhance their analytics capabilities;
– Financial health as the basis of competition. Competing on who can best manage and improve consumers’ financial health and performance is becoming more prevalent. This will require more integration of both data and services between players in the banking ecosystem—again forcing more FI’s to the cloud.
One of four community-based financial institutions plan to invest in or deploy API’s in 2020, on top of the 35% that have already done so.
API’s are about speed, agility, and personalization. Today you are dead in the water if it takes 9 to 12 months to integrate partners’ products and/or data, or the partnership process requires significant time and resources to negotiate legal matters, revenue sharing, pricing, etc. All those talks about personalization in banking are nothing compared to what is possible in an environment with a robust set of partial-stack fintech providers and smart full-stack banks integrated through APIs.
Also, we can’t ignore such technologies as chatbots and machine learning (ML). Their popularity is so huge that it’s hard to believe that financial institutions still ignore them. Going into 2020, just 4% of the institutions surveyed have already deployed chatbots—twice as many as had deployed them going into 2019. But going into 2019, 13% of the survey respondents said they would be making investments in chatbots—and most ended up not investing.
So, finance is one of the most changing and most consumer-dependent areas. Fintech startups conquer big market players that have been leading for centuries and everybody must accept changes as quickly as possible.
Collaboration with IT is vital for businesses so if you are interested in implementing something new, UAPP can help you. We are open to your ideas and ready to advise the best and most appropriate IT decisions.