In business, good enough is often not enough. Many people are turning away from incumbent financial institutions because traditional banking can’t provide the level of services they are actively seeking. Meanwhile, FinTech startups introduce innovative service offerings almost every month. Investors keep their eyes open, they don’t want to miss a potential unicorn. Here’s a list of important FinTech investment trends to watch—maybe they’ll bring another industry star.
FinTech investment promotes customer experience
First, let’s take a look at the foundations of the industry. Phenomenons like open banking or InsurTech took both the financial sector and social media by storm. These new digital services are what people want and need in their daily activities. Being relevant is exactly what drives the growth of FinTech companies. Trends like Big Data improve customer relationships and give people personalized experience, expanding brands’ market reach.
The stakes are high. According to Market Data Forecast, the global financial technology market will reach the value of $305 billion by 2025. That’s a big pie and everyone wants their share. Tech solutions have the potential to improve the customer experience. They are also well-positioned for the application’s future growth. Companies like Klarna, a FinTech payments giant, look for customer relationships to enhance the business. Especially now, when people stay at home and buy from home. Even more than before the pandemic. The market values such an approach – Klarna is currently worth over $10.5 billion.
How does it translate into FinTech sectors? The pandemic collapse of early 2020 will not slow down macro trends. According to PitchBook, European investors are confident that long-term tendencies will “broadly favor” the sector. Which trends and companies are getting traction and why?
Top FinTech investment trends
Traditional banking has much to think about. The trends below clearly show there’s no turning back from innovation. Consumers think that security and convenience brought by new financial products have changed their lives for the better. The mobile is the wallet, the social impact of satisfied customers is big. This is how it looks in practice.
InsurTech is on the rise
Four trends are shaping the InsurTech industry:
- human agents are replaced with artificial intelligence (AI) and machine learning
- Big Data intelligence and Internet of Things (IoT) increase customer retention
- increased use of blockchain help in better risk assessment
- digital ecosystems drive revenue
Companies in this sector vary dramatically. Investors pour their money in companies like ThreatInformer, a next level InsurTech providing risk intelligence to the industry. Such data-driven solutions are especially important in a world ruled by access to information. The startup combines threat data, security assessments, and environmental factors to help clients estimate insurance risks. On the other hand, we have more “traditional” InsurTech startups, like Homelyfe. The app lets users manage their policies in one place.
Online payment processing still challenging traditional banking
There are many online payment processing platforms, yet investors still believe in them. They don’t seem to be afraid of market saturation. Many apps have unique features, targeting nations or even local problems. To the point, where traditional financial institutions can’t efficiently compete.
Companies like Stripe, Adyen, or the previously mentioned Klarna, help people manage their payments on-the-go. Investing in these companies means tapping into people’s spending potential. It also gives managers insights into customer behaviours, invaluable in doing business.
Peer-to-peer lending solutions as a future-proof FinTech investment
One of the most powerful tools used by traditional banks is lending. However, their monopoly in that domain has been broken. FinTech loans are among the most interesting financial products in the eyes of investors. Not everyone is eligible for a bank loan but there are plenty of people with even small capital who will gladly help in time of need.
Connecting individuals or entrepreneurs with potential lenders is a social, financial, and technological phenomenon. Brands like Lufax, Prosper or CommonBond grow by making their offers tailored to specific groups. The latter thrives because it has an offer addressed exclusively to students—a demographic notorious for having money problems. Peer-to-peer payment solutions engage users and support communities, making them a perfect remedy for the times of uncertainty.
FinTech investments come to the unbanked
According to The World Bank report, 1.7 billion people across the world don’t have access to any formal financial system. 60% of them simply don’t have enough money, 30% never felt like they needed a bank, 26% think of banking accounts as too expensive.
At the same time, there is a growing number of startups serving those who are considered too poor by traditional banking. FinTech investments are now made not only in the USA or London, the European FinTech capital. Latin America, Africa, Southeast Asia are full of companies that bring money to those who have very little. Companies like Lenddo or Ayannah efficiently activate people in emerging markets.
Bigger investments in cyber security solutions
Traditional financial institutions are shifting from making their own FinTech products into buying the existing ones. In fact, one in five European banks would buy a FinTech startup. Security, for some companies in the middle of the to-do list, is a must for big banks. That’s why the banking sector will look for solutions with an established security track record. Or at least those which can be easily turned into safe applications.
Web 3.0 and blockchain provide security and decentralization
Web 3.0 offers a high level of decentralization and personalization, providing financial services users with a completely new customer experience. It’s based on blockchain, artificial intelligence (A.I.), machine learning and Internet of Things (IoT). According to study by Markets&Markets the fintech blockchain market size is expected to grow to $6,228.2 million by 2023. Web 3.0 is going to be a big part of that, and investors already line up for companies with that scope in mind.
The rise of parametric insurance
This is one of the most interesting trends in InsurTech right now. This is non-traditional insurance that provides pre-specified payouts for specific events based on their magnitude. These could be environmental triggers, such as an earthquake or a flood, business triggers, and others similar occurances.
Biometric identification become increasingly popular
With 93% of users considering the protection of financial accounts the most important issue, FinTech is becoming a priority industry for biometric authentication technology. According to researchers, the global biometrics market will grow from $68.6 billion in 2025. Owners who have an app with biometric identification done right will experience increased attention from investors.
Active search for apps with potential for ecosystem building
To effectively compete and meet customers’ expectations, many business owners decide to cooperate with various industries. Creating an ecosystem of mutually beneficial applications, drives added value for users. It also attracts investors. The more companies can offer, the more users they can attract and the more value they have in the eyes of people who want to invest.
The future of FinTech investment lies in applications that are platforms, not just solutions. Think of WeChat, the Chinese behemoth. It launched in 2011, allowing to send text and voice messages to family and friends. Local email market penetration was low, forcing the app owners to innovate. By 2015, 90% of Chinese Internet users were browsing the net on mobile. Today, WeChat serves as a platform to pay for utilities, use city services, order movie tickets, and much more. You can pay for products and services, even support a favorite charity.
WeChat is for China what Facebook Messenger, Instagram, and Apple Pay are for the West. And much more. According to an AppAnnie report, the average number of installed mobile apps in 2020 is 40. At the same time, Citi reported that 83% of consumers and 94% of millennials are more likely to participate in a loyalty program if it’s accessible on mobile.
Conclusions? The future digital economy will most likely favour cooperation between the FinTech industry and 3rd party apps. A feature-rich ecosystem is valuable for users and it brings revenue.
FinTech investment trends are clear
If good enough is not enough, do more! FinTech investment trends are coming into focus, especially in the light of the COVID-19 pandemic. There are detailed guides on how to invest, written for example by Investor’s Business Daily. None of them, however, can prepare you for what really needs to be done.
Users’ trust is built on reliability. Outsourcing FinTech software development can save time and money, helping you build an app fit for the future. Financial products are valued for design, performance, and integrations. Need a boost for growth potential? Create a platform, not a solution.