Our Voice: Defining Fintech & Its Place in 2020
Over the last few years, we’ve worked at pinning down the actual meaning of “fintech” internally, at conferences, meetings, over pale ales and more. It’s a slippery definition: does fintech mean software? Does it mean consumer-facing services? Business tools? As a financial technology and services company, we at Liveoak feel like we’ve got a pretty solid handle on the meaning of fintech. Below is a look at what it means to be “fintech” from a company on the inside.
Financial Technology in Context
Fintech is one of the most exciting emerging niches to come out of the startup technology sector. It’s a perfect pairing: cutting edge technology helping to improve established financial companies.
On one hand you have the creativity, innovation, and excitement of the technology industry and on the other hand you have the opportunity, impact, and magnitude of the financial sector.
Banking, insurance, retirement, wealth management and lending have an undeniable reach to everyday Americans.
Who doesn’t have a bank account, wealth advisor, mortgage, or 401k? The companies that have been providing these services run the gamut of shapes, sizes, and reputations – some of the country’s largest and oldest companies are in the financial sector, which puts them in a unique situation to leverage the innovation of the technology boom to bring their services and customer support into the 2020s.
Defining Fintech: Pinning Down an Industry
So what exactly is “fintech”?
The word itself is an abbreviation, a shorthand combination of the words “financial” and “technology.”
Instead of saying “financial technology,” writers, tech journalists, and those in the industry itself have truncated the whole thing to simply “fintech.” It’s snappier, after all.
In some ways, the word itself is a perfect metaphor for the transformation that the fintech promises to the financial vanguard: take something established and somewhat unruly and streamline it so that it’s more accessible to all.
Ultimately, the word “fintech” can be used to refer to companies, products, or specific innovations in the technology used by financial companies and/or their customers.
Fintech in Practice: What Should Financial Technology Do?
At its core, fintech should strive to do several key things:
- Integrate emerging and established technologies with the legacy systems of the finance industry
- “Disrupt” traditional methods of doing business by removing blockers for a larger customer base, or previously underserved market
- Enhance existing financial services and customer interaction
- Give the finance industry future-proof or future-defining tools that will allow them to retain and/or grow their customers, improve security, and improve the quality of services they offer
Fintech startups and companies may offer all of these, or just one of them. There are a lot of different ways that this can work.
A great example would be the company Affirm. They offer short-term, interest-free loans to consumers directly on the retailer’s online sales platform. Instead of having to go sign up for a credit card, wait for it to arrive, then manually enter in the number, shoppers can access credit right in the check out process of the store. Affirm’s business model is to disrupt the traditional role of credit companies by embedding themselves in the shopping and checkout process.
Another example of fintech innovation is Liveoak’s remote customer engagement platform. With Liveoak, financial institutions can deliver a high quality, customer-facing, location agnostic experience all while retaining necessary documents, verifying ID, and keeping the whole process secure.
Inoculating the financial industry of the need for customers to be physically present opens up the pool of potential customers to any institution willing to meet their customers online. That’s a huge revenue opportunity.
Major Players: The Top Fintech Companies
Forbes’ Jeff Kauflin has his finger on the pulse of fintech. According to his post, the biggest fintech companies in America are:
- Stripe – Stripe is a payment processing platform that has expanded its product offerings into credit, POS, and subscription-based billing. It supports merchants of all types from SMB’s operating on ecommerce platforms to multinational brands like Microsoft.
- Coinbase – Coinbase is a flagship brand of the cryptocurrency market. The app is a cryptocurrency wallet as well as an exchange where coin holders can buy and sell right on their phone. They have risen to the top by making a user-friendly app that demystifies entry into the crypto market and makes it available to everyone.
- Robinhood – Similar to Coinbase, Robinhood is an exchange that allows anyone to buy, sell, and trade stocks right from their phone. They are a full-service brokerage app on your phone.
- Ripple – Ripple rose to prominence in 2018 as a cryptocurrency that was endorsed by banks. Currently, Ripple is working to create end to end encryption for financial institutions to replace the SWIFT code that currently allows banks to send data back and forth.
- SoFi – SoFi emerged on the scene as a way for college students with financial aid debt to refinance. Today, they offer a suite of wealth management and brokerage services directed towards the Millennial generation.
- Credit Karma – Credit Karma is a website that gives users access to free tools that help them understand and manage their credit. They make money by collecting affiliate and referral income from credit card companies their users sign up with.
- Circle – Circle is a unique player in the finance and crypto field. They are known for their exchange services where users can trade cryptocurrency. They’re also one of the companies behind the USDS stable coin along with Coinbase that gives investors a stable cryptocurrency that is tied to a stable US Dollar.
- Plaid – Plaid is a payment facilitator that connects several different payment platforms like Paypal, Venmo, retirement funds, and user bank accounts. They ease the process of sending money between accounts and speeds up the authentication process.
The list above only chronicles the most profitable fintech technology partners, but there are hundreds more companies that are working to improve the finance sector through innovation.
They can be customer-facing apps or new technology platforms that work behind the scenes to improve the banking process. Bottom line is, if there’s money involved, someone is working on a way to make it better.
Looking Forward: The Promise of Fintech
Innovation follows the money, so it makes sense that there’s ample innovation, upheaval, and “disruption” in the finance sector. Because the primary product of the finance industry is data and information, technology is perfectly positioned to have a major impact. In this industry, software innovations can have enormous potential.
As of late, the biggest trend in fintech is the blockchain. Blockchain is a technology that allows the completely secure exchange of data and an immutable ledger of the exchange, both of which appeal to the finance industry. The ability to securely move money and have a concrete record of the exchange will remove a lot of risk from financial institutions.
Customers should expect fintech to move their services into the mobile realm. Fintech envisions a day when major banks no longer need physical branches, massive secure vaults, and drive up ATMs. The entire process of setting up an account and accessing your money will be completely mobile, secure, and – most of all – convenient.