FinTech: Golden Decade?

One of the most fascinating areas within the global entrepreneurial sphere is Financial Technology (FinTech). FinTech is disrupting the global financial system landscape for the positive ranging from consumer and small business loans to wealth management.

The area of the finance world which has not missed this unique opportunity to invest in this space is Venture Capital (VC). For example, consumer financial services company Betterment announced $100M in new financing this morning, at a valuation of $700M. The funding follows a record-setting year for investment in FinTech companies: $13.8B in total VC investment in 2015, which represents a 106% jump over 2014 (Source: CrunchBase).

This revolution is as much a customer-centric marketing evolution as it is a technological revolution. FinTech disruptors are leveraging data science and software to offer superior customer relationship management (CRM) and better risk management (Data Science vs FICO).

Ian C. MacMillan and Larry Selden assert in their article, “The Incumbent’s Advantage”, that industry incumbents are sitting on a gold mine of unrealized profit potential from their existing customer base. These disruptors do not have the incumbent’s advantage but have found other ways of information extraction for analysis such as LinkedIn, Twitter, Facebook, etc. As these disruptors collect, warehouse, and analyze actual customer payment, product preference, market basket analysis (people who buy X also buy Y), and retention data; their market share and competitive advantage will only grow.

Thus, the former non-incumbent will soon have an incumbent’s advantage which will force conventional banks to either “build” or “buy” these technology platforms.

About the Author: Christopher Brookins is a Pittsburgh-born, Carnegie Mellon trained Entrepreneur and Investor looking to change the world for the positive.