Introduction to Fintech and its 10 major categories

This is a basic introduction for readers who are new to Fintech and want to grasp a brief understanding what it is, what it includes, before going into specific areas and find themselves swimming in the middle of the ocean, not knowing where their destinations are.

FINTECH DEFINITION

There are many definition of Fintech in the market. Obviously from its name Fintech something related to ‘Financial’ and ‘Technology’. It generally refers to the use of technology to provide financial services.

It becomes more common these days people refer it to a certain type of companies:

“Define Fintech…companies that primarily use technology to generate revenue through providing financial services to customers either directly or through partnerships with traditional financial institutions (Jay, 2017, p.5)

Then you may go on asking: what Fintech REALLY is?

There is no simple answer, because Fintech is a VERY broad term. There are different Fintech providing different financial services, to different customer segments, leveraging on different technology. That is how diverse it is.

Having said that, for ease of reference and further analysis, it would be helpful to categorize Fintech by service types and customer segments.

FINTECH CATEGORIZATION

There are numerous of solutions in the markets that fall under Fintech. In terms of the market size and number of solutions, the 10 major categories are as below.

  1. Payment
  2. International Transfer
  3. Wealth management
  4. Lending  (personal and institutional)
  5. Crowdfunding
  6. Big data and analytics
  7. Insurtech
  8. Digital Banking
  9. Crytocurrencies and Blockchain
  10. RegTech

The list is not exhaustive since there are too many solutions out in the market. I quoted below the categorization by Venture Scanner for readers’ reference as it is one of the most comprehensive category diagram so far. We will still focus on the 10 listed above – There might be slight difference in categorization but those 10 would serve a good general big picture.

fintech-logo-map-q3-2017

Venture Scanner (Jul 2017)

1.Payment

Companies that enable merchants to collect payment from its consumers or facilitate B2B payments, fast and at a low rate.

Example: Square enable merchants to accept credit card payment from consumers by using a plug-in device to company mobile.

Square-Payments-fiinnovation

2.International Transfer 

Companies that facilitate fast and cheap cross-border and cross currency remittance.

Example: WorldRemit allows consumers to send money cross-border at US$3-4 to over 140 countries, delivery within 1-3 days.

World-Remit-mobile

3.Wealth Management

Companies that help consumers managing investments using technology tool.

Example: Betterment allows consumer to do financial planning, create and transact investments online and via mobile app.

Betterment-Retirement-Goal

4.Lending

Companies that allow unbanked consumers and companies to obtain financing or banked segment via fast and simple online or mobile application.

Example: OnDeck provides loan to micro and small businesses which lack credit record. It partners with J.P. Morgan to provide financing, target at the bank’s over 4 million SME companies.

Ondeck small business loan

 

5.Crowdfunding

Companies that allow individual or companies to fund a project or venture by raising money from a large number of people.

There are 4 types of crowdfunding platforms:

  • Donation
  • Reward-based
  • Equity
  • Debt

We will not be able to go through each type here in this article. It would be done in a separate one in the future.

Example: Kickstarter is a reward-based crowdfunding platform that allow entrepreneurs to raise fund for their innovation projects.

The-Coolest-Kickstarter-Stories-You-Should-Learn-From1-640x375.jpg

6.Big Data and Analytics

Companies that clean, analyze, and unlock the value of financial services data.

This category is not solely related to financial services but it comes to form under a subset of Fintech as it gain importance in finance field.

Example: Alteryx empowers financial corporations with self-served data analytics that enable faster and deeper insights.

valprop-product-gallery_alteryx

7. Insurtech

Companies that either provide insurance services online or via mobile, or assist traditional insurance companies to provide innovative services to insurance clients.

Example: Lemonade provides low cost P2P home insurance powered by technology – consumers can get a policy within minutes.

Lemonade-App-insurance.jpg

8.Digital Banking

Companies that digitize banking process and improve banking infrastructure.

Example: Moven is a mobile-first bank that enable consumers to experience a new way of banking.

Moven-cover-picture

 

9.Cryptocurrencies and Blockchain

Companies that mine or facilitate trading of cryptocurrencies or companies which develop blockchain or applications on blockchain technology.

Example: Kraken is a digital asset trading platform for trading cryptocurrencies.

kraken bitcoin

10.RegTech

Companies that streamline the process of regulatory compliance for financial institutions.

Example: ViClarity is a compliance monitoring solution that allows financial institutions to track and manage all compliance on one system and provide powerful reports.

Viclarity

 

There are slightly different categorization published from different sources, depend on the context and the usage. There is no standard categorization so far. However, once you grab the big picture where does the relevant solution sit, you should be able to understand why a particular source put that solution in that subset, or sometimes, find that solutions are cross-subset, instead of restricted to one.

 

References

Jay, D.W. (2017). Creating Strategic Value Through Financial Technology. New Jersey: Wiley.

Venture Scanner (2017). In Financial Technology Startups Market Trends and Insights – Q3 2017 [database online]. Available from World Wide Web: https://www.venturescanner.com/blog/2017/financial-technology-startup-market-trends-and-insights-q3-2017

 

 

 

 

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