As Market Matures, Fintech Startup Winners Will Emerge in 2015

Capital Markets Outlook 2015: Financial technology startups have boomed in recent years, and the time is ripe for some market leaders to emerge, while others will get acquired or simply disappear.

Challenge: Big institutions are embracing technology startups as never before. After wild growth, and likely much more expansion to come, it's time for some reorganization. Startups in Europe mirror the goals and technology of startups in the US, Australia, and in China. As they grow outside their borders, they will begin to battle for global leadership. But in many niches that have boomed in the past year, including data science tools and social trend analysis, there are still no clear industry leaders.

Wall Street & Technology's Capital Markets Outlook 2015
Here are 10 topics that will be a focus for financial institutions in 2015 and beyond:

Why it's important: Financial technology startups had a stellar year in 2014, with global investments in fintech ventures more than tripling over the last five years to nearly $3 billion, and, according to a 2014 Accenture and The Partnership for New York City report, global investment in fintech companies has grown four times faster than venture investing overall. New York's fintech sector alone received $472.1 million of venture and private equity investment in the first three quarters of the year -- more than was invested during all of 2013. In London, another major financial technology hub, financing has been growing at twice the rate of Silicon Valley since 2008.

Where the industry is now: The current state of the fintech startup market is comparable to the years when online brokerages came into vogue, says Stephane Dubois, founder of the market data cloud solution firm Xignite. During the dotcom boom, there was E*Trade, Ameritrade, and other big names we know today, but there were lots more players in the space that have since been acquired or disappeared. In 2015, we may see the same begin to happen to fintech startups.

The problem is categorization. "If you can put a box around digital wealth management (roboadvisors) everyone gets it, you know who the main players are and top vendors, but in other categories it's not clear who the carriers are," says Dubois. "There needs to be some definition so firms can position themselves. We see people trying to come up with back-office investment management platforms all the time. New players coming in, along with existing players who are just trying to push ahead and reengineer their technology."

Focus of 2015: Startups must learn to definite the market or even redefine the market and position themselves as a leader. But how do you get startups to be clear about where they fit in the picture? "If you want one lesson learned by wealth manager guys, it's that they were able to define the market, and once that happened the money flew in," Dubois adds. "Same thing with Bitcoin: Once people got it, it took off."

Some fuzzy and hard-to-define areas where financial institutions are hoping to gain some clarity in 2015 include firms specializing in data science tools, social trend analysis, and developing natural language around query of data for analysis. "In 2014, it never quite gelled out who the big players are," Dubois says. "These are markets that are not so well defined -- it's hard to tell who is the leader."

Industry leaders: The past year was undoubtedly a coming-of-age year for the next generation of financial technology. There were many examples of new and successfully defined markets, including new lending and wealth management platforms for retail investors. In the coming years, we might even expect to hear about IPOs of those industry leaders, including Prosper and Lending Club, Betterment and Wealthfront. And with their success will follow more players focused on the web-based infrastructure to support them.

Becca Lipman is Senior Editor for Wall Street & Technology. She writes in-depth news articles with a focus on big data and compliance in the capital markets. She regularly meets with information technology leaders and innovators and writes about cloud computing, datacenters, ... View Full Bio