“What will the next breakout fintech company be?”
In my view, the next big fintech company will engage many consumers but may never be recognized as a household name, because it will exist behind the scenes creating seamless, reliable experiences.
B2C innovations like “one-touch” buy buttons are abundant in today’s fintech landscape. Consumer-friendly offerings such as marketplace lending, consumer financing and roboadvisors that make financial advice accessible and affordable, have delivered significant value to the marketplace and continue to evolve. Many of the early fintech startups were launched by entrepreneurs to address pain points that they personally experienced as consumers. As these services have grown, they have helped propel an expansion in the offerings of traditional financial services firms as well as newly emerging startups.
As we look ahead, the B2C market will continue to flourish, yet fintech will also grow in new directions. We’re about to see a wave of B2B startups and an expansion of B2B offerings that address the more complex aspects of financial services and require a deep knowledge of core banking systems to launch and scale.
An expansion into “back-end” technology is already evident, with an influx of new entrants in regulation (regtech), security and authentication, insurance (insurtech), and even in the underlying technology that drives the financial services ecosystem. There are two important drivers of this new trend.
First, new opportunities have arisen to apply tech creatively in financial centers like New York and London. Over the past five years, entrepreneurial ecosystem growth has accelerated outside of Silicon Valley in cities with large financial sectors, including London, New York and Boston, fueled by significant increases in venture investment. These growing hubs have brought together the fresh, innovative mindsets of entrepreneurs with the capital and expertise of the established financial services industry, including a deep knowledge of regulation, compliance and back-end processes. This confluence of factors is enabling the application of next-generation technologies in entirely new ways.
For example, Feedzai, a Citi Ventures portfolio company with roots in financial services, uses machine learning to identify and prevent fraudulent transactions before they are completed. Some B2B startups are bringing intelligent technology to market to support anti-money laundering efforts and know-your-customer programs. We are also starting to see the development of pragmatic tech-driven solutions to satisfy regulatory requirements, which could help reduce the high costs banks incur to manage compliance. These solutions would not be possible without a backbone of understanding of both existing processes and regulations, as well as new technologies that could make the global financial system more safe and secure.
Second, we’re seeing a move from disruption to partnerships between rising fintech players and banking incumbents. The number of startups seeking to collaborate with established banks and financial institutions has increased significantly, rising from 40 percent to 60 percent in the past five years. Startups are entering into long-term vendor relationships with institutional customers and scaling solutions across those enterprises. In 2015, for example, 83 percent of investment in New York-based fintech companies flowed to collaborative startups (up from 37 percent in 2010), versus startups competing with traditional offerings, such as marketplace lending.
Increasingly, new startups are developing B2B offerings and existing startups are developing new solutions for institutions. For example, Betterment recently launched Betterment For Business, a product designed for small businesses. By utilizing their automated investing platform, Betterment has brought low cost 401(k) plans to employees whose employers previously didn’t have the scale or resources to set them up. Similarly, companies like Sigfig that started by offering B2C robo-advisory services are now partnering with banks and other financial institutions to provide their technology on a white-label basis.
Much of the discussion at Money20/20 showed the growing excitement around new types of B2B offerings that could uncover new efficiencies, ensure compliance, and unlock the potential of next-generation technologies in surprising ways. We have seen a great deal of ingenuity driving the successful merger of consumer fintech offerings with our core banking systems – and we expect to see important new players emerge and continued evolution of banking experiences across the board.
About Vanessa Colella
Vanessa Colella has over 22 years of experience and has worked with organizations like Citi, Citibank, USVP, Yahoo!, McKinsey, Dwight School & JHS 265/ Teach for America. Vanessa holds a PhD, Media Arts and Sciencess from Massachusetts Institute of Technology..