Fintech Finds A Home In Real Estate Tech
Fintech Finds A Home In Real Estate Tech
We are witnessing immense value creation from the emergence of a new paradigm in financial services and markets. Driven by rapid improvements in technology, disruptive new business models and an appetite for change, we have seen fintech radically transform the financial sector. As this pace of innovation continues to accelerate, we will also witness vertical applications of these innovations as fintech impacts adjacent industries. One vertical application that is particularly exciting is the real estate industry, given that financial transactions, and therefore fintech applications, are at the heart of the real estate ecosystem.
Where Fintech Meets Real Estate Tech
Before describing the impact of fintech on the real estate tech landscape, and the symbiotic nature between the two, it is important to first clarify the nuances between fintech and real estate tech.
Picture the real estate tech industry as a pie, and to make your pie you need to gather all of your ingredients: flour (construction tech), eggs (smart cities and buildings/IoT), sugar (property management tech), butter (sharing economy) etc. However, in order to bake your pie you need a pie dish, and that dish (fintech) is the foundation of the entire pie.
While the other ingredients are important, without the dish you would have no pie. As the fintech wave — the pie dish — continues to foster disruption in the financial services space, those innovations will have a direct impact on the real estate tech landscape — the pie.
The potential for fintech applications within the real estate tech space is massive. Insurtech providers, digital mortgage services, rent-to-own solutions and loan servicer platforms, to name a few examples, are each fintech innovations which can deeply impact a fundamental part of the real estate transaction. However, prior to the rise of real estate tech, integration was always a primary challenge for fintech solutions looking to effectively penetrate the real estate industry. The simple reason here, unless fintech solutions went full stack, real estate incumbents lacked the technology or desire to integrate fintech solutions into the existing real estate transaction process. While some were able to build technology solutions on top of legacy processes (ex. early platform marketplaces such as Zillow and Redfin) these workarounds were often faced with clunky integrations and incomplete data which impacted user experience.
Now, with the rise in real estate tech, the entire real estate transaction process has become increasingly digitized. For fintech solutions, this means that they can now find a strategic beachhead to integrate directly into the real estate transaction process, without having to exist in parallel. Going back to the pie, if real estate tech is the pie and fintech is the pie dish, then the rise in real estate tech funding and corresponding wave of disruption is the oven. The final product: a freshly baked — and seamlessly integrated — dessert.
Key Enablers Of Vertical Integration
‘Seamless integration’ can mean many things in relation to fintech solutions, but there are a few key advancements within real estate tech that allow for fintech to vertically impact the real estate transaction:
Availability of data: As the real estate industry has become increasingly digitized, the availability of data has grown exponentially. Critical data points that were once only available offline (title documents, history of property, ownership cost, etc.) can be easily accessed through API integrations and data scraping methodologies. This newfound wealth of data has allowed for frontier technologies such as artificial intelligence, to play a greater role in the real estate tech landscape, analyzing mass/unstructured data and deriving key insights that inform better decision making, forecasting and value analysis. Machine learning applications have benefited greatly from the rise in real estate data as well, as machine learning algorithms and tools can be used to automate previously manual processes with the newfound availability of data.
Fintech has benefited greatly from the accessibility of real estate data, as processes such as securing loans, mortgages and insurance can leverage data collected elsewhere in the real estate transaction to accelerate and optimize required financial processes. As more of the real estate transaction becomes digitized and additional data is captured, the potential use cases for this data within fintech applications expands dramatically.
Growth of platforms: The expansion of platform offerings in the real estate space has also allowed for fintech to integrate vertically. As platform services increasingly go full stack, and look to handle the end-to-end real estate transaction, a previously fragmented industry becomes suddenly very aggregated. This allows for companies to manage the entire experience for the consumer, providing an unprecedented level of transparency and efficiency. Plus, it allows for external applications to integrate easily into the platform without complicated development and/or customization needs.
With platforms, fintech services can become fully embedded in the end-to-end process, providing a totally frictionless experience. Additionally, with easy integration points, they can offer a B2B/B2B2C SaaS business model and service multiple platforms (and much larger audiences) with marginal effort or marketing cost.
Focus on user experience: The digitization wave that has come to the real estate sector has provided a huge benefit for the end consumer: a more pleasant and simple user experience. With simplicity and transparency becoming key focus areas for real estate tech solutions, the end consumer better understands their options and can make more informed decisions. Plus, because of this improved user experience, customers have started to expect the same level of experience across all aspects of the real estate transaction.
This desire for an improved user experience holds true for financial transactions that are part of the real estate process. Many incumbent financial institutions who are involved in the real estate transaction process have not innovated their customer experience, and offer legacy processes that are opaque, clunky and inefficient. Because of this, customers are increasingly turning to fintech solutions which provide an enjoyable customer experience and offer processes that are simple, transparent and efficient.
While there are certainly other advancements within the real estate tech space, these capabilities are arguably the three largest catalysts for the vertical adoption of fintech solutions within the real estate landscape, bringing massive innovation and disruption to what was previously — although to some degree still is — an offline, outdated and inefficient industry.
It’s likely that we are only at the beginning of what will be a massive disruption cycle. To frame how new of an investment area real estate tech is, in 2010 only $33 million was invested across the industry. Fast forward to 2018, and more than $9.6 billion of funding poured into the space, a number that is only expected to grow.
Driven by the surge in real estate tech, the real estate industry is becoming increasingly digitized and migrated online. With that, antiquated processes are being optimized and efficiencies are being found, leading to more streamlined end-to-end transactions. Enabled by this surge in real estate tech, as fintech solutions become more integrated and embedded seamlessly into real estate transactions, an enormous number of possibilities emerge.
We’d Love to Hear From You
If you’re working at the intersection of proptech and fintech and have an idea that you’re excited about, please reach out. We are always eager to meet incredible founders and companies who are working to transform the financial services space, and look forward to hearing from you.