When I tell someone that I work in fintech they assume I am helping move money more efficiently: borrowing it, sending it, or keeping it safe. The industry is awash in consumer plays that are universally recognizable like the innovations at Affirm or Apple and the Apple Card. Typically, we categorize fintech in just four verticals: lending, payments, insurance and investing. This is what the press covers, and this is where venture capital flows.
Having grown my own fintech company and worked closely with the venture community, I've learned the above approach overlooks some of the most undervalued corners of the industry. I'm going to take you on a tour of the unsexy, unusual and unfamiliar side of fintech.
Under The Hood
The average consumer doesn't typically see or interact directly with the underbelly of the financial system, leaving it relatively misunderstood and exceptionally undervalued. The challenges there are systematic and offer major pathways for innovation to take root.
• Data. Data is the lifeblood of finance and banking. It’s required to help move money, secure banks and generate alpha for investments. It's often an afterthought as it lies beneath the surface and within the pipes until we're suddenly drowning in it. Web scraping, machine learning, drone technologies and satellite imagery contribute to the accelerating race for more data. Companies like Thinknum are scouring the web to deliver unique insights to investors.
• Infrastructure. Financial infrastructure is often ignored (which means it's working) just as we tend to enjoy a hot shower until the pipe bursts. However, the proliferation of fintech apps attached to institutional platforms eventually devolves into an atomistic pile of matchsticks. It opens up a complex but massive opportunity for those brave enough to reinvent the foundation of the industry. For example, OpenFin has developed a new operating system for institutions, and other teams are tackling cloud migration, APIs and core banking functionality.
Parallel Industries
Matt Harris, Partner at Bain Capital Ventures believes that eventually, we won't talk about "fintech companies," in the same way we don't talk about "internet companies" today. Fintech will be part of every industry, and many have already linked up.
• Environmental Activism. Wresting with a past full of Madoffs and mortgage-backed securities, large financial institutions are beginning to flaunt deeper purpose. In early August, the Business Roundtable issued a new purpose for corporations — but instead of profit and shareholders, it included words like inclusion, ethics, community and environment. Fintechs are capitalizing on this shift by connecting banks to activities that support this new philosophy. For example, the rise of ESG investing has led companies like TruValue Labs to build applications that bring that insight straight to the fingertips of investors.
• Healthcare. Fintech goes where the money flows, and in 2018 $3.5 trillion dollars flowed through the U.S. health care system. With that much capital at play inside of a complex and politically charged industry, extraordinary problems arise. Health care's intersection with payments, insurance and data opens a collaborative gateway for financial technology. Companies like Simplee are streamlining medical billing and collection, while others tackle insurance rates and data management.
Overlooked End Users
In its nascent stages, fintech brought us solutions for small businesses, the under-banked and traditional investors. As the industry has evolved and begun to expand its solutions across new platforms and industries, new end users have surfaced and with them, new needs to be met.
• Shareholder Voices. We have the East India Company to thank for becoming the first company in history to make their shares publicly available nearly 400 years ago. Centuries later, shareholder involvement in the markets has evolved with the launch of new exchanges, the onset of regulations and increased flow of information. As new technologies enable broader participation in public markets, new challenges have arisen. One company, in particular, Say.com, has developed a platform that bridges the gap between shareholders and companies, giving a voice to those who have chosen to invest in public companies.
• Regulators. Riding the waves of a financial collapse and complete eradication of trust, a familiar and vexing character has surfaced: the regulator. Demand for compliance has skyrocketed among financial institutions, shining a spotlight on risk, reporting and identity concerns. This crescendo prompted entrepreneurs to bridge the gap between the "regulators" and the "regulated." Companies like Ascent are using artificial intelligence to give financial institutions a complete picture of applicable regulations and compliance requirements. This new wave of software serves existing financial institutions but also provides value to regulators, increasing transparency and the flow of information.
Conclusion
There are still countless problems to be solved and opportunities to get involved in across traditional and trendy fintech verticals. But as we tackle those problems, the technical transformation of this industry will evolve. The next fintech frontier lies under the surface and in shrouded corners that take a bit of digging and won't win the beauty pageant. Look under your feet at the foundation, the walls and infrastructure, the data flowing through the pipes and the customers on the periphery. They will undoubtedly be the key to opening the floodgates to the next chapter for this burgeoning industry, which has already begun.
