This past week I reviewed the finance industry. I looked at 3,000+ fintech startups and analyzed patterns across the top 1,000+ companies. Investors that attended our breakfast include HSBC Strategic Innovation Investments, Propel Venture Partners, Santander InnoVentures, Deutsche Bank, Wells Fargo Strategic Capital, KDDI Open Innovation Fund, Cisco Global Infrastructure Funds, Singtel Innov8, Global Brain Corporation, Parade Ventures, WestSummit Capital, CentreGold Capital and more.
Summary Of The Future Of Fintech
I wanted to understand how all fintech startups build a competitive advantage. I attempted to map the entire fintech startup industry - see the chart below. I then filtered these startups into 9 main categories and labeled the top startups per category. I then looked through the top startups to understand how they innovate by function, feature and use case, which is the content of this report. This report is part one of a two part fintech report. In this document, I breakdown the lending, investment, insurance, banking and accounting industries. Part two will cover payments, platforms and blockchain.
We can better predict disruption within the fintech industry by having both a macro and micro view of the ecosystem. Below, I try to highlight the important takeaways of product differentiation from each category in the order of the table of contents.
Accounting Category Takeaway
The accounting category in the chart above represents startups building accounting software and personal financial management tools. How this category splits in funding can be seen below.
Accounting Category
Function Takeaway: This section focuses on how these startups collect data.
How accounting solutions import data is the key feature to its usability. Most platforms try to make the process seamless, from submitting receipts to aggregating siloed data across the enterprise. The goal for most startups is to make the import and standardizing data as seamless as possible. This process isn't easy, as many transactions are not made using one bank account or the company’s bank account.
Feature Takeaway: This section highlights software and service features of accounting startups.
After accounting software startups are able to import and structure data within their platform, the next step is initiating or automating workflows. This is where each accounting startup stands out. This automation can be as simple as alerts/notifications guiding accounting teams, to completing AR/expense reports automatically. To make this process more efficient, many of these startups integrate with various enterprise software tools to push/pull data from their workflows. In addition, many startups allow companies to customize these workflows to fit their business needs. After a workflow is complete, many of the service features offer action outside of the business. This can be filing taxes, initiating loan approvals, generating audits and more.
Use Case Takeaway: This section highlights target customers of accounting software and their cost structure.
The accounting category has a lot of noise. There is such a wide variety of startups targeting different workflows, for different sizes of companies, for various project managers, following laws from different geographic locations. The cost structure of each tool varies drastically. Many of the general SME accounting tools and personal tax services are starting to provide free accounting software but drive revenue through premium services, tax filings, payment transaction fees and more. Startups mostly seem to target SMEs and accountants.
Personal Finance Category
Function Takeaway: This section focuses on how these startups collect data.
The primary goal for startups in this category is to help manage consumers existing expenses. Therefore, all startups are focused on pulling transaction data directly from the source - bank accounts. There is not a lot of variety beyond that.
Feature Takeaway: This section highlights software and service features of personal finance startups.
The features of personal accounting startups are the core of how these startups differentiate. The standard for all personal accounting tools is to have expense tracking and budgeting tools. However, many startups have evolved past the basics and almost every company is pushing some type of financial product or service. This can be investments, insurance, loans, bill payments and more. This category is the most aggressive among all other fintech categories in providing support to consumers. This section showcases how personal accounting tools are starting to blend with banking, payments and investment products, and vice versa.
Use Case Takeaway: This section highlights target customers of personal finance software and their cost structure.
Almost all personal financial products are free, which means consumers are unwilling to pay for budgeting tools. Initially, these startups seem to be making money on commissions by taking a cut of savings or pushing financial products. Seeing that this may not be a sustainable business model, startups in this category have aggressively push outwards into different directions. Some startups are trying to distribute their tools through partners who would pay for this solution to offer it to their customers. Others seems to be evolving into lending or banking service providers. This category will have to evolve to offer their own financial products or services in order to find sustainable growth.
Banking Category Takeaway
The banking category, in which the fundraising breakdown is on the chart at the beginning of this article, represents startups that are providing banking services. They must provide their own checking or savings accounts. There is a lot of overlap with Payments Wallet category.
Function Takeaway: This section highlights the type of bank accounts offered by banking startups.
Majority of startups in this category are offering all forms of banking accounts, mostly checking, savings and business accounts, and the primary interface for all users is through mobile phones. What is unique is how users are able to transact with their bank accounts. Most startups offer debit cards, wallets or allow you to use the wallet from other services. It is interesting to see startups provide virtual cards that produce a separate card number for unique or recurring transactions. Overall, the banking ecosystem is opening up to interact with other services.
Feature Takeaway: This section highlights software and service features of banking startups.
The banking category features are very similar to that of personal accounting startups. It is standard to offer budgeting tools for individuals. Many of the startups offering business bank accounts, are offering accounting tools as well. What’s unique is the variety of financial services banking startups are offering. This includes lending, insurance, credit checks, negative balance protection and more. This category also seems to be heavily focused on individuals who actively travel. The future of banking is mobile, with integrated budgeting, automated accounting and easy access to any financial products/services with a touch of a button.
Use Case Takeaway: This section highlights target customers of banking startups and their cost structure.
Many of the new banking startups are actually catering to businesses or individuals. There are a handful of startups that are building platforms for smaller banks to offer digital services. In the united states, there are almost 7000 banks across the nation. This report only finds ~50 startups that are offering digital banking services in the US. There seems to be a large opportunity to fill the gap. The only challenge banking startups will face is trust and convenience.
Credit Category Takeaway
The Credit category focuses on startups that use unique methods to collect customer data to build credit risk scores. I actually did not include this category into the nine primary categories on the chart at the beginning of this article. Here is the funding breakdown of this category.
Function Takeaway: This section focuses on the methods used to collect data on individuals of credit startups.
One of the unique functions of credit startups is their ability to collect and analyze data using non-financial data. This is more common in international markets for the unbanked. For the majority of startups in this category, they simply request users to submit information about themselves to build credit ratings.
Feature Takeaway: This section highlights software and service features of credit startups.
From the feature section, it seems that most credit startups are building applications for lenders. A handful for credit startups are building underwriting/lending platforms, white-labeling their credit tools or providing lead generation/marketing solutions. This category will have a hard time catering to the end consumer unless they are able to issue their own lending products, as they face competition from banking, personal finance and consumer lending categories.
Use Case Takeaway: This section highlights target customers of credit startups and their cost structure.
Majority of credit startups are working with lenders, telecoms or other financial service providers. Going direct to consumers seems challenging as individuals don’t seem to be willing to pay for credit checks.
Insurance Category Takeaway
The insurance category in the chart at the beginning of this article represents startups building insurance software and services. How this category splits in funding can be seen below.
Insurance Automotive Category
Function Takeaway: This section focuses on what's covered under the automotive insurance, how automotive insurance is distributed/priced and how these startups collect data to underwrite their insurance.
Automotive insurance startups are experimenting with their pricing models to determine ways they can make insurance cheaper or properly priced for various individuals. This requires startups to be innovative in the way they collect data to underwrite insurance. For now it seems, mobile and OBD devices are the methods used to collect data and pricing models seem to be shifting to mileage based or shorter time periods.
Feature Takeaway: This section highlights software and service features of automotive insurance startups.
Insurance is boring, therefore many of the automotive insurance companies are trying to build applications that differentiates themselves from competitors. This means they’re simplifying the claims process, providing automotive tools to better manage car health or they are going out of their way to provide support if things are going wrong.
Use Case Takeaway: This section highlights target customers of insurance startups.
Many of the automotive insurance startups are expanding to other forms of transportation. The rise of ride-sharing ecosystem has driven unique opportunities for insurance providers. Otherwise, the majority of insurance companies are looking to work directly with consumers or partner with distributors.
Insurance Business Category
Function Takeaway: This section focuses on what's covered under the business insurance, how business insurance is distributed/priced and how these startups collect data to underwrite their insurance.
Majority of business insurance startups offer general liability and workers compensation. However, a category that tends to be rising is cyber insurance. How these companies collect data depends on the type of insurance offered but it varies. For specific insurance offerings like agriculture, cyber or flood insurance, startups are using unique methods like imagery, IoT devices and security software to collect data. How these insurance offerings are distributed varies. For the most part, it seems companies apply directly to these insurance startups.
Feature Takeaway: This section highlights software and service features of business insurance startups.
For all insurance products, the majority are trying to make the process of managing their insurance and filing claims as simple as possible. The type of support insurance providers offer when a claim is filed varies. The direction insurance companies are heading are being actively engaged in the support process. Cyber insurance startups are very active in mitigating problems.
Use Case Takeaway: This section highlights target customers of insurance startups.
Obviously, most business insurance startups target SMEs, some broad while others focus on niche companies. A handful are partnering with retailers or brokers for distribution. What’s the right method of targeting consumers as new startups will vary by geography. How they will stand out is through their convenience and added features.
Insurance Consumer Category
Function Takeaway: This section focuses on what's covered under the consumer insurance, how consumer insurance is distributed/priced and how these startups collect data to underwrite their insurance.
There is a wide variety of insurance products for consumers. Most focus on the major events, activities or purchases of individuals. This includes technology products, home/rental, personal items, travel, events/activities and more. These startups don’t discuss unique methods of how they collect data and distribution seems to be primarily through mobile devices or marketplaces.
Feature Takeaway: This section highlights software and service features of consumer insurance startups.
Similar to that of business insurance startups, the majority of consumer insurance startups are trying to make the process of managing their insurance and filing claims as simple as possible. The type of support insurance providers offer when a claim is filed varies but they are not as active as business insurance startups. Some startups are starting to offer hardware or mechanical services. Others are providing platforms that help brokers issue insurance or software applications that helps manage a workflow in a given industry like HR or events.
Insurance Healthcare Category
Function Takeaway: This section focuses on what's covered under the healthcare insurance, how healthcare insurance is distributed/priced and how these startups collect data to underwrite their insurance.
Health insurance is very complicated category. What’s covered varies drastically by geographic location and the individual. This report is fairly general in showcasing the type of insurance offered. How these startups differentiate is by distribution. Many healthcare insurance startups provide advisors that guide users towards the right healthcare plan or these startups try to work directly with employers to distribute insurance.
Feature Takeaway: This section highlights software and service features of healthcare insurance startups.
Many healthcare insurance startups are offering platforms to help brokers or partners distribute health insurance products. In addition, many health insurance startups that work directly with employers provide platforms that make it easy for them to distribute and manage employees insurance. Naturally, these startups also built a lot of integrations into other software solutions like HR, EMR, consumer health products and more. Health insurance startups are also active in providing healthcare support, this can be as simple as searching for doctors/hospitals to providing telemedicine services.
Use Case Takeaway: This section highlights target customers of insurance startups.
Distributing health insurance to individuals is difficult, which is why it seems many health insurance startups are working with partners or businesses to distribute health insurance products to their clients or employees.
Insurance Platform Category
Function Takeaway: This section focuses on the type of platforms built.
The type of insurance platforms are quite broad. There is a tool for every segment of the insurance workflow and others that manage the entire workflow. The goal for most companies seems to be digitizing, automating and optimizing these insurance workflows.
Feature Takeaway: This section highlights software and service features of insurance startups.
It seems that the biggest features of insurance platforms tend to be aggregating/cleansing data, automating/customizable workflows and simple integration features. This seems standard for a category that is digitizing workflows for the insurance industry.
Insurance Real Estate Category
Function Takeaway: This section focuses on the type of insurance offered and how insurance is distributed.
The real estate insurance startups seem to be primarily focused on home, personal items and renters insurance. How they distribute insurance tends to be through advisors, marketplaces or landlords.
Feature Takeaway: This section highlights software and service features of real estate insurance startups.
There doesn’t seem to be very exciting software or service features for real estate insurance startups. The only thing that stood out to me are some startups are providing smart home products. Also, startups offering rental insurance are also covering the security deposit on behalf of renters.
Lending Category Takeaway
The lending category in the chart at the beginning of this article represents startups building lending software and services. How this category splits in funding can be seen below.
Lending Automotive Category
Function Takeaway: This section highlights the type of loans, lender source, loan distribution and how data is collected for automotive lending startups.
Majority of automotive lenders seem to be brokering loans. They mostly collect information directly from consumer and distribution is direct, through partners or marketplaces.
Feature Takeaway: This section highlights software and service features of lending startups.
The biggest features that stood out in the automotive category are startups that provide platforms to help dealerships underwrite, distribute and manage loans.
Use Case Takeaway: This section highlights target customers of lending startups.
It seems that the majority of automotive lending startups are looking to partner with dealership to distribute or broker loans.
Lending Business Category
Function Takeaway: This section highlights the type of loans, lender source, loan distribution and how data is collected for automotive lending startups.
Most business loan startups provide lines of credit, business loans, trade financing and invoice factoring. The common means of collecting data to underwrite and distribute loans tend to be direct to businesses or through integrations with a business’s accounting systems. There is a rising group of startups that collect data using non-traditional means to provide loans, these companies operate in media, B2B marketplaces and app development. The structure of loans startups offer vary but the trends among most companies push for flexible loan amounts, repayment options, various interest options, little to no collateral requirements and more.
Feature Takeaway: This section highlights software and service features of lending startups.
Many startups are offering lending platforms to help partners, businesses, retailers or other financial services distribute loans to their clients. Naturally, these companies and more are building integration features into their lending platform to quickly collect and push data to legacy systems. To differentiate, some business lending startups are providing a variety of software solutions for workflows that supplement their products. Other startups, especially those offering trade financing, are starting to build B2B marketplaces and offering to validate suppliers. You’re also seeing this category start to blend with banking services. Many lending startups are allowing investors to participate in their loans.
Use Case Takeaway: This section highlights target customers of lending startups.
There are a lot of business lending startups and naturally many are starting to target niche industries to appeal to a specific set of customers. Others are trying to work directly with partners, ecommerce or retailers.
Lending Consumer Category
Function Takeaway: This section highlights the type of loans, lender source, loan distribution and how data is collected for consumer lending startups.
The most common loans among consumer lending startups are personal loans and merchant loans. There is a growing trend of product specific loans. How startups collect data to underwrite loans is quite broad, but most collect credit and financial information. In international markets or for younger adults, startups are collecting alternative forms of data to underwrite loans. The distribution of consumer loans are very unique and how most startup differentiate in this space. There are so many varieties and they tend to appeal to specific use cases. Consumer startups loan structure follows the trends of business lending startups - flexible loan amounts, repayment options, various interest rates, little to no collateral requirements, little to no fees and more.
Feature Takeaway: This section highlights software and service features of lending startups.
Most consumer lending startups provide a management tool that helps individuals to track their loan balance. A handful of startups are offering lending platforms to partners or merchants to distribute and manage loans to their customers. Many of the consumer lending startups are merging with banking services, offering budgeting tools, bank accounts, wallets and more. Some are expanding into insurance products as well. Just like the business lending category, a handful of startups are allowing investors to back their loans. Consumer lending startups are also starting to offer a lot of rewards and merge with marketplaces.
Use Case Takeaway: This section highlights target customers of lending startups.
Consumer lending startups are looking for a variety of ways they can distribute their products. We can see that startups are taking every angle including working with employers, through marketplaces or merchant POS, others are working with telecoms and more.
Lending Education Category
Function Takeaway: This section highlights the type of loans, lender source, loan distribution and how data is collected for education lending startups.
The focus of many startups providing education loans tend to be discovering ways they can lower interest rates for students. You’ll also notice that many education loans collect alternative data to underwrite loans. The primary method of distribution seems to be direct to students. The loan structure is very flexible when it comes to payments.
Feature Takeaway: This section highlights software and service features of lending startups.
The thing that stands out the most in education loans is how active they are in helping students. Many offer services like tutoring, housing support, job search, budgeting, visa support, scholarships and more
Use Case Takeaway: This section highlights target customers of lending startups.
It’s interesting to see a lot of education startups working with employers to distribute or refinance loans for employees.
Lending Real Estate Category
Function Takeaway: This section highlights the type of loans, lender source, loan distribution and how data is collected for real estate lending startups.
Many of the lending startups in this category are trying to help individuals find the best interest rates and understand the different types of mortgages. Others are making it easier to apply for home improvement loans or receive loans to cover their downpayment. Its interesting to see startups in this category changing the structure of loans. A handful are purchasing equity of individuals home and in return receive rental payments or they share home appreciation profits during the sale of the home.
Feature Takeaway: This section highlights software and service features of lending startups.
A handful of startups are building tools for individuals/investors/originators to manage their mortgages. It’s interesting to see a number of lending startups offering a variety of home services including searching for contractors, real estate agents, or simplifying the process of buying and selling their home. These startups also allow investors to invest in loans on their platform, especially for commercial real estate projects.
Lending Platform Category
Function Takeaway: This section focuses on the type of platforms built.
Many of the lending platforms are building an end-to-end loan servicing tools that underwrite, distribute and manage loans. There are a handful of startups building tools for specific workflows of lenders.
Feature Takeaway: This section highlights software and service features of lending platforms.
One of the biggest features of lending platforms is their ability to integrate with existing legacy systems or workflows of lenders. Another big feature is their flexibility handling different loan products, configuring origination requirements, loan pricing and more.
Marketplace Category Takeaway
The marketplace category focuses on marketplaces that offer all types of financial products. I actually did not include this category into the nine primary categories in the chart at the beginning of this article. Here is the funding breakdown of this category.
Function Takeaway: This section focuses on the type of financial products offered.
Most marketplaces seem to be offering as many financial products as possible.
Feature Takeaway: This section highlights software and service features of marketplaces.
It's seems these marketplaces are becoming media companies as they are investing most of their resources in producing content that helps individuals find the best products.
Investment Category Takeaway
The investment category in the chart at the beginning of this article represents startups building investment software and services. How this category splits in funding can be seen below.
Investment Analytics Category
Function Takeaway: This section focuses on the source and type of data collected and analyzed among investment analytic startups.
The vast majority of investment analytics startups are attempting to pull information from any resource possible to build predictive insights. Many startups I’ve looked at seem to focus on analyzing public data and investor sentiment. However, there are a lot of other types of data and methods of analyzing data.
Feature Takeaway: This section highlights software and service features of investment analytics startups.
Naturally, investment analytic tools are differentiating themselves with features like scalability, flexibility, quality of data and more. Startups are building simulation tools, while others are just providing a business intelligence platforms. The biggest feature among all investment analytic startups are the unique predictions their platform generates based on the data they collect.
Investment Data Category
Function Takeaway: This section focuses on the source and type of data collected among investment data startups.
Most investment data startups feed public information or have their own proprietary data set. The data sets provided are unique insights on products, investors sentiment or market behaviors.
Feature Takeaway: This section highlights software and service features of investment data startups.
The most common features among investment data startups include predictions, research services and project management tools.
Investment Management Category
Function Takeaway: This section focuses on the type of investment management software.
There is a wide variety of investment platforms that cover almost any workflow. There is a big concentration in fund, portfolio and wealth management platforms. All of them are attempting to streamline or automate different workflows of investors.
Feature Takeaway: This section highlights software and service features of investment management startups.
Common features among investment platforms include the ability to integrate any data/legacy systems/external applications and to create customizable workflows
Investment Crowdfunding Category
Function Takeaway: This section focuses on the type of investment products offered, the structure of the investment and the costs associated with it.
Crowdfunding startups have the most unique forms of investment products. They have such a wide variety of offerings including products, people, content, events or things to fund. They way they structure the investment is also very unique and varies by type of product funded.
Feature Takeaway: This section highlights software and service features of crowdfunding startups.
Crowdfunding startups go above and beyond in providing support to products on their platform. This can be from everything to manufacturing, design/PR, sales/marketing, legal, financial support and more.
Investment Product Category
Function Takeaway: This section focuses on the type of investment products offered, how are these investment products source/structured, how they are distributed and the costs associated with them.
Most startups in this category help investors access public securities. This section does highlight that there are a wide variety of investment products available to investors. How these startups source these investment products varies, some leverage laws to help investors convert their portfolio, others actually purchase the securities first and then offer it to their investor base. The cost making investments also varies but the trend seems to be free to make direct investments and various fees for premium services.
Feature Takeaway: This section highlights software and service features of investment products.
There are a number of software and services features. From a software perspective, most startups provide tools that make it easier for investors to manage their portfolio, unique data insights to help them make better decisions, and some startups are providing platforms/wealth management tools to allow advisers to distribute financial investment products. There are a handful of unique ways investment products distribute their services. This category also incorporates blockchain solutions more than any other fintech category in this report. Majority of blockchain solutions are for tracking identity and transactions. From a service perspective, most investment products offer advisory services, content and communities to help investors make better decisions. You’re also starting to see some startups offer banking accounts and rewards, showcasing how this category is starting to blend with the banking category.