The state of consumer fintech

Tanay Jaipuria
Dec 23, 2014 · 6 min read
  1. It reduces the friction in conducting transactions where friction can be time or effort
  2. It lowers the fees/rates on transactions by serving as a cheaper middle man.
  • Consumption can be greater than income, in which case savings is negative (i.e, that person borrows money rather than invests).
  1. Products that change how individuals save/invest/borrow
An overview of the consumer fintech industry

Consumption and Spending

Consumers tend to consume in two main ways: (1) spend money on purchases/bills etc and (2) send money to friends and family (this might not sound like consumption, but usually this transfer is associated with some “transaction”).

  1. Spending money on purchases/bills (i.e, paying)
  2. Tracking spending

Sending Money

Technology has impacted this activity in three main ways: by making it simpler, cheaper and quicker. Some of the major players in this space which have made sending money to others a better experience include:

  • Pay with gmail which allows users to send money to their friends through email
  • Square cash which allows users to send money to friends
  • Paypal which allows users to send money to any phone number/email address
  • TransferWise which lets users send money internationally for only 0.5% in fees.
  • Coinbase which lets users send bitcoins to others

Spending money

Spending money is essentially the saying as paying. The technology products that fit in this category have disrupted the space largely by reducing friction and enabling smoother payments, and saving the consumer time. Some of them include:

  • Google Wallet which also enables consumers to pay with their phones through NFC
  • Square Order which allows customers to order from local cafes and pay through their phone
  • Paypal which allows customers to pay through the app at participating stores
  • Mint bills which allows users to pay their bills

Tracking spending

Another activity which relates to consumption is for a consumer to learn about how they consume so that they can make better decisions. Technology has impacted this space by increasing consumer’s access to information and helping them understand it better through budgeting and tracking apps. This tends to be known as the “personal finance” space.

  • Level money is a mobile app that helps users budget and spend smarter
  • Billguard helps users track spending and prevent their cards from fraud.

Savings and Investment

As I mentioned earlier, savings can be positive or negative (borrowing). The two categories which emerge naturally from that definition are

  1. Borrowing

Investing

I like to think about technology products and investing on a spectrum of degree of automation, but that’s a whole other concept that I’ll leave for another post.

  • Stocktwits which is a social network for investors and traders
  • Angellist which enables investors to determine which products are seeking investment
  • Angel list Syndicates which allows users to “back” certain angels and get access to their deals
  • Betterment which is an automated investing service that charges between 0.15%-0.35% in management fees
  • Wealthfront which is an automated investing service that charges 0.25% in fees above $10k in assets managed.
  • Personal Capital which is an automated investing service that charges between 0.5% to 1% in fees.
  • Nutmeg which is an automated investing service in Europe which charges between 0.3 and 1% in management fees.
  • Acorns which automatically invests spare change from everyday products into a diversified portfolio

Borrowing

Just like investing, technology impacts borrowing in two main ways: (1) increased access to information, and (2) making it cheaper to borrow by making alternative funds available (either through better measurement of creditworthiness due to data or by better connecting individuals that need funds with those that have them)

  • Help users track their credit score so that they have access to better interest rates in the future. Examples include Credit Karma and Credit Sesame
  • Prosper which is another peer-to-peer lending marketplace
  • Zopa which is a peer-to-peer lending marketplace in Europe
  • Affirm which allows individuals to borrow money to purchase certain products
  • Earnest which offers loans to individuals based on a proprietary measure of creditworthiness

Closing Thoughts

The above was a broad overview of consumer finance in terms of the main activities involved, which companies are disrupting it and how.

  1. Enabling individuals to borrow, invest and transfer money at lower rates than traditional financial institutions
  2. Reducing the friction and improving the experience in conducting transactions (where friction could be time, effort, clicks, etc.)

    Tanay Jaipuria

    Written by

    Product @Facebook. Previously @McKinsey. I like tech, econ, strategy and @Manutd. Views and banter my own.

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