Where Fin Tech is heading

As the decade draws to a close, a wave of innovative fintech companies are becoming major players in the personal finance, lending, and financing markets. The balance of power is shifting from traditional financial institutions to newcomers who can tailor products and bundles to specific demographics and democratize processes for their customers. The fintech landscape is poised to undergo dramatic shifts as competition increases among new providers, and the ability to identify and target customers becomes more informed by data. The fintech companies are competing for a share of consumers’ ever-growing wallet. The transaction value within the fintech market exceeded $4.4T in 2018, a value that is projected to more than double by 2023. In the last two years, the top 250 fintech startups have raised $31.85B, and 30 of these companies have joined the unicorn club. Customer adoption rates are high, with one-third of digitally active consumers utilizing at least two fintech services. There are many opportunities for startups to capitalize on this growth with data-informed products and marketing.

It is estimated that more than 90% of the world’s data was created in the last two years. The wealth of newly available customer data is important for companies in the financial product market, but the sheer volume of data can be overwhelming to established institutions. In response to this glut of information, companies are being formed to collect and process data, and others created to build appealing new products informed by the data findings.

Data Collection: One specific application of data collection will be the algorithmic adoption of alternative data for consumer credit and underwriting. For example, Papaya Payments, on the surface, appears to be a bill pay app. But they are concurrently collecting data on how long it takes for a consumer to pay different types of bills and how long it takes a business to collect on a bill. This data serves as a very strong predictor of working capital cycles for businesses or an individual’s creditworthiness, allowing Papaya to orthogonally partner with lenders in a mutually beneficial manner.

Data Processing: Data brokers provide a link between the raw information and those who to utilize it. The bias will be for companies to seek out platforms that already have access to this increasing pool of data and can make sense of it. An example would be a health insurance company relying on Noyo Insurance to help them extract and analyze user data from the health insurance carriers.

Data-Informed Product Development: Companies that can develop attractive proprietary products for each individual based on the data collected will ensure high conversion rates. These products will have a low customer acquisition cost and a higher lifetime value. By utilizing adtech, these fintech companies will become a hybrid “fin-adtech” company adept at catering to specific customer-bases. This ability to identify and target customers using data is applicable to a range of financial services including personal finance, wealth management, crowdfunding, and lending.
 As companies become more informed by data, they will also be in competition for the same share of the consumer’s wallet. The customer acquisition costs (CAC) for fintech companies will rise accordingly. The only way to compete is to start bundling products or to focus on community driven virality. A point solution for a single product will be less attractive, whereas products covering a category such as planning for your future or building your credit will have greater draw to consumers. By becoming an authoritative source for a group of products, and bundling products within one platform, companies will be more appealing.

Companies will also target specific communities that are known to have high viral coefficients such as the elderly or veterans. Fintech providers have an opportunity to further tailor bundles of services to meet the needs of those communities, and build a customer base through viral and more grassroots methods.

As these alternative fintech products come to market, consumers will start moving away from traditional financial institutions as the source of truth for financial transactions. In recent years, consumers have grown to trust independent fintech companies for product advice, such as:

RobinHood for trading

Opportun for loans

PolicyGenius for life insurance

The next wave will be customers no longer needing entrenched institutions to validate or verify their financial transactions. By leveraging the blockchain, there will be opportunities to democratize the financial transaction process. For example, Reasi replaces the escrow agent for residential real estate transactions, streamlining the process and lowering the cost to customers. Traditional financial institutions, in an effort to stay relevant, will make more acquisitions and forge more partnerships (creating bundles, perhaps) with modern fintech companies.

In 2019 and beyond startups can leverage their abilities in this newly developing marketplace to help traditional financial institutions utilize their wealth of historical customer data to offer advanced customer-centric, tailored, self-directed solutions.