FinTech is one of the most booming industries at the moment, with new startups and platforms becoming available every day. In order to truly understand FinTech and how it’s shaping the future of banking, you first need to learn about the different categories of FinTech services that exist within this industry, especially as many of them don’t fall into an easy-to-define bucket like software or hardware. Here are four major categories of FinTech you need to know about, along with the subcategories that fall under each one and examples of top players in each area.
1) Payments
Think PayPal, Square, Venmo, and Apple Pay. Instead of handing over your credit card or cash in exchange for a product or service, you make payments digitally. This category covers businesses such as these. It also covers payment services providers (PSPs) that enable their clients to accept digital payments. PSPs include companies like Digital River and CyberSource Corp.. Fintech company SoFi belongs in both categories; it provides student loan refinancing options as well as peer-to-peer payments through its platform.
Another major player is Stripe, which specializes in point-of-sale systems. The most popular form of these transactions is contactless payments made with your smartphone or smartwatch at retailers. Another major player is Apple Pay. And the biggest contender may be Amazon with the launch of its new Alexa Payments system which has reportedly attracted 200 million customers already! Another major area of FinTech innovation is investment management, where stocks and other securities are bought on behalf of clients. Companies such as Wealth front are leaders in this space.
In addition to financial management firms, there are startups like Betterment that help people invest by automating their investments based on goals such as retirement or college savings accounts. Finally, banking giants JPMorgan Chase & Co., Bank of America Corporation, and Citigroup Inc.
2) Lending
Through peer-to-peer and marketplace lending, startups and banks are aiming to give small businesses easier access to credit at lower rates than would otherwise be available. Big banks have more resources and contacts, which gives them an advantage over smaller peers in providing small business loans. But alternatives like OnDeck, Kabbage and Funding Circle offer a more personal touch for borrowers with less paperwork for lenders who can lend as little as $5,000—allowing startups access fintech options.
The fintech industry is becoming increasingly prominent, with digital lenders employing advanced AI and data analytics technology in order to disrupt the conventional lending market. Due to the potential negative effects on business, conventional lenders will need to quickly educate themselves on the emergence of fintech in order to keep up.
There are three main parts to the digital lending process. They are the following:
- Process of screening potential customers and evaluating their creditworthiness and eligibility for loans.
- An arrangement for making loan payments and receiving the money owed.
- A custom collection arrangement for the full recovery of debts owed.
3) Currency exchange
Currency exchange is when someone buys and sells money from different currencies. For example, an American businessman might buy Canadian dollars with U.S. dollars so he can make more trips up north for his business ventures. Another example would be a traveler who wants to buy Mexican pesos before she arrives in Mexico, so she doesn’t have to look around for an ATM once she arrives in Mexico City and instead has pesos on hand as soon as her plane lands.
Fintech has provided an easier way to change money, which has improved the currencies exchange and international payments market. Banks have long profited off of this, but transactions can now be made through special currency brokers. In other words, by eliminating brokers, brokers are able to offer their customers much better deals.
They do this by only making a small commission on the transaction, rather than charging the higher rates that banks normally charge. They also offer tools like actionable intelligence for fintech and access fintech that help investors assess risks more accurately.
4) Cryptocurrency
Investing in cryptocurrency and blockchain technology could be a new way for investors to get involved in fintech. Cryptocurrency is essentially digital money that’s not tied to any country or currency, so it allows people to do international transactions more quickly and easily than with traditional currencies.
Investors can also buy into exchanges that trade different types of cryptocurrency, allowing them access to fintech-related companies they might not otherwise have been able to invest in. For example, you can buy shares of Coinbase, a platform that facilitates buying, selling and storing cryptocurrency and other digital assets.
Another example is Circle Invest—an app that lets users buy publicly traded companies in bitcoin instead of dollars. It also offers an option for investing in private companies, including ones from the cryptocurrency world. Circle Invest plans to offer its own token, but there are no details yet on what type of investment vehicle this will be.