The Future of FinTech: Companies that Change the World of Money Today
According to a report by CB Insights, sixteen new FinTech unicorns have appeared on the international market. Two more, N26 and Confluent, joined them at the beginning of 2019. There are thirty-nine FinTech unicorns in the world that have received funding from venture capital funds. The total value of the companies is more than $147B.
The number of deals in the earlier stages of development have decreased over the past year, but according to data in the same report, the financial values have increased. Investors are ready to invest in products that have already shown their viability in the market.
Source: 2019 Fintech Trends To Watch / CB Insights
Markets that are outside of the industry-leading countries such as the United States, Great Britain, and China, already account for 39% of all cash injections. Meanwhile, the United States remains the largest market — in 2018, FinTech projects received 659 investments worth $1.89B.
The most active region is South East Asia. The growth rate is up to 143% annually, with local startups receiving funding from foreign investors. The active expansion of the market is spearheaded by Art Financial, a subsidiary of the Alibaba Group, which is actively expanding the sector by entering into partnerships with local companies.
That’s how it was in the FinTech market in 2018. What should we be on the lookout for in 2019? Let’s consider the most promising areas.
Competition with Traditional Banks
FinTech startups compete with the traditional banking system by establishing their own banks and submitting applications for their own banking licenses.
Financial regulators around the world are simplifying the requirements so that FinTech companies can enter the market faster.
For example, the Financial Conduct Authority in the UK issues limited ‘pilot’ licenses, in particular, the license to work with electronic money. It allowed the British ‘unicorn’ Revolut to launch money transfers in partnership with a licensed bank, which then helped the company to enter the market faster. In 2018, Revolut received a license in the UK and plans to use the same strategy for development in other countries.
The German company Solaris Bank provides projects that want to create own bank, with the service Banking-as-a-Platform. This is an opportunity to create a quasi-bank based on the project infrastructure.
Development of Open Banking
Some banks provide open API interfaces that ensure the secure transfer of personal data. Third-party developers can create apps based on these interfaces. Both the banks and end-users of the financial services can become users of these apps. For example, the Indian Unified Payment Interface (UPI) allows managing accounts across partner banks by using one mobile app.
In 2016, a directive was passed in the UK which obliged nine leading banks to develop Open Banking. The initiative started in 2017 and the first solutions appeared in 2018. In the near future, they will spread to other countries.
Another important document that has affected the industry — the second payment services directive (PSD2) that has been adopted by the European Union. It came into force in January 2018, and there are another two years that allowed for the introduction of the new rules at the national level. This document regulates the relations between market players, opens up new opportunities for FinTech companies, and makes the whole system more transparent.
FinTech and Real Estate
FinTech startups change the landscape of the real estate market and mortgage lending by digitizing all the processes.
Source: 2019 Fintech Trends To Watch / CB Insights
For example, the American company Better Mortgage grants mortgages online. The client uploads their documents on the webpage and the company reviews the candidate, checks the credit rating, and confirms their income within a couple of minutes. In January 2019, this project attracted $70M in C series investment. According to the project founders, its goal is to simplify and make the process of obtaining the mortgage more transparent. This service provides refinancing and mortgage lending services.
The Fundrise project, on the contrary, is a crowdfunding platform that allows people to invest small amounts (from $500) in urban real estate in the private market and receive income from their investments. It is assumed that investors are people who are interested in buying real estate in the future.
The Changing Impact of FinTech
Social responsibility and care about the environment are global trends that relate to all spheres. The impact of investment and the concept of ESG (environmental, social, and governance) are often discussed in the Western media.
Source: 2019 Fintech Trends To Watch / CB Insights
According to Morgan Stanley, millennials are twice as likely to make environmentally responsible investments than the average investor. FinTech projects in this area are specifically aimed at millennials. For example, the digital bank Newday produces cards for customers without plastic, but instead from its eco-friendly substitute. The bank directs the client’s funds to social initiatives and also gives the opportunity to invest in them. This will improve the ecological environment, fight for gender equality and take care of animals.
The company OpenInvest has also developed an ethical investment by offering people and money to fund social projects.
Managing of Personal Finances
According to statistics from the Federal Reserve Bank in New York, household debt increased to be in excess of $13 trillion in the USA.
Source: 2019 Fintech Trends To Watch / CB Insights
People seeking to reduce debt will ask for debt-service assistance. On offer is peer-to-peer lending (LendingClub) or personalized interest rates for loans (SoFi).
Now FinTech is one of the most promising areas for investments. GR Capital portfolio already has FinTech companies, but we are still ready to review projects in this industry.
