Technology is disrupting the market and breaking the rules around who can access money, where they can access it from and what they can do with it.Ron Suber, the “Mayor of Fintech”
We are entering an exciting and definitive time for financial technology.
Innovation is accelerating, and so is funding: in Q1 2017, VC-backed fintech startups raised $2.7 billion. It’s the golden age of fintech, and it’s a once-in-a-lifetime opportunity for startups and for the incumbents that currently dominate the financial sector.
Why am I, Ron Suber, so sure that this is the golden age of fintech?
Because I’ve spent a career in the financial industry and the past five years as an advisor and investor in fintech startups, including DocuSign, eOriginal, Juvo and Prosper. Because I recently spent the first 120 days of my “ReWirement” traveling to new places and learning lessons about people, cultures and of course fintech around the world. And, because fintech is following the same pattern as every other innovation cycle in modern history. Whether you look at radio, TV, automobiles, hand-held devices or any other leap forward in technology, they all follow the same path — a bell curve that spans 50 years and crests at the halfway mark.
The innovation cycle for fintech is no different, and it kicked off in 1998, when PayPal legitimized the Internet as a means of moving money and transformed the way people paid for products and services.
Twenty years later, right on schedule, we are entering a period of dizzying innovation and creativity.
Blockchain, crowdfunding, social lending, bioidentification, microlending, ecommerce, mobile tech, AI — technology is disrupting the market and breaking the rules around who can access money, where they can access it from and what they can do with it.
For example, Ant Financial (originally launched as Alipay in 2004) began life as a company providing small and micro financial services to people in China who are unable to access or qualify for service through traditional banks. Today, it is valued at $60 billion, making it the most valuable fintech company in the world—yet most people in North America have never even heard of it.
These companies are everywhere, many of them hiding in plain sight, and in the coming years, they will transform the face of finance and displace some of the incumbents that reign supreme today. I’m as excited as I’ve ever been about fintech, and about online lending in particular. (More on that in my discussion about 2018 with Crowdfund Insider.)
While this golden age is the product of many forces, these are the six trends exerting the biggest influence today and into the future:
Yesterday’s business development hinged on big investments in mainframes, physical office space and all the supporting utilities and equipment. Today, a business can scale rapidly with little more than an iPad and Amazon Web Services. That’s bringing incredible agility and opportunity to a new generation of fintech companies.
Individual companies are doing some incredible things, but by forging creative partnerships, they’re capable of even more. We’re starting to see some early examples of this — Microsoft partnering with Docusign to enable a signature attainment feature in all their products, for example — and we’re only at the beginning of the trend.
The availability of new types of data is changing the possibilities for fintech. We can now combine more conventional data, such as FICO scores, with alternative sources such as social media, and we can feed it into powerful machine learning and AI to make new discoveries, provide new services and reach new markets.
We are looking at the rise of the iGeneration, a wave of consumers who have always had an iPhone or other smart device. They’re not buying music or going to the movies: they’re streaming entertainment on their phones. And they’re not accessing financial services at traditional banks: they’re using Venmo to transact, and Acorns and Robinhood to invest. They expect a different experience, and their preferences are reshaping the industry.
We have shifted from a sharing economy to an access economy, which is changing the access to capital in exciting ways. Companies can now raise tens of millions of dollars through crowdfunding, thereby delaying or eliminating the need to go public. This has given them new freedoms and enabled them to make choices that reflect their own unique vision or answer the needs of their constituent markets rather than answering to the fluctuations of the stock market.
Governments have a powerful role to play in the advancement of fintech. Areas with supportive and involved governments—those in Hong Kong, Singapore and the UK, for example—are measurably accelerating innovation and entrepreneurship in those regions. This will raise the bar for the entire industry, and we can expect to see those regions with strong government support surge ahead in the coming years.
Here’s the bottom line.
These six driving forces have been instrumental in shaping fintech’s golden age, and they will continue to do so in the future. Every fintech entrepreneur should be aware of their impact and positioned to benefit from it. As the golden age draws to a close in the next few years, the landscape will change dramatically as the next phase in the innovation cycle begins, triggering a wave of consolidations that will replace today’s crowded and fragmented marketplace.
Which fintech companies will survive this process? Read my next GrowthBit, “It’s the Golden Age of Fintech – Here’s What Happens Next,” for insights into the key capabilities for entrepreneurs that will define success in the second half of the fintech innovation cycle.
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