2014 marks the year that fintech finally came out from behind the woodpile after a long hiatus that started with the credit crisis in 2008. With fintech fundraising reaching a record high in October at more than one billion dollars, the sky is now the limit -- at least until a drastic market change disrupts the party. So as we look ahead to 2015, let’s ponder the factors that will drive growth and innovation in the fintech space and beyond.
We should start by making the distinction between fintech innovation and fintech exposure. The current boom in fintech innovation actually started many years ago, fueled by the scaling of the public cloud, the maturing of app development, and the increased popularity of APIs. The companies in Silicon Valley and Silicon Alley that are grabbing the headlines today have been working to disrupt financial services models and technologies for a while, but only now is their hard work coming into media focus, as they reach milestones significant enough for the industry to take notice.
For example, companies like Wealthfront and Betterment -- who each now manage more than one billion dollars in assets -- began searching for the fastest asset-gathering combinations of services and technologies much earlier than their recent media exposure suggests. The innovation is already embedded in these firms’ DNA. What they are now gaining is exposure.
Like all industries, fintech is going through its own Hype Cycle -- to borrow from Gartner Group’s famed metaphor. Market categories such as peer-to-peer lending, digital wallets, crypto-currencies, and crowd funding have gone through their Peak of Inflated Expectations and are now navigating the Trough of Disillusionment. Digital wealth management is a fintech category that is still climbing its way to the peak. With this framework in mind, which categories will be reaching their peak in 2015 and 2016?
In our day-to-day work with fintech startups, we are seeing three possible trends:
· Data and analytics
2015 is the year when fintech becomes global. Brace yourself to start hearing about the Wealthfront of China, the Personal Capital of Germany, and the Betterment of Australia. One billion dollars in assets under management (AUM) is only a first milestone, followed by five billion, ten billion, and twenty billion dollars in AUM. At the rate of growth that today’s fintech startups are experiencing, it won’t be long before they hit these markers, positioning themselves for global scale.
The second trend a shifted focus from retail (B2C) business models to institutional (B2B) business models. It is no surprise that the first wave of investment-oriented startups was focused on disintermediating traditional finance. That is what the big-time Silicon Valley VCs who fund those businesses strive for: big markets affecting a lot of people.
But following those footsteps is a new wave of companies seeking not to disintermediate but rather to help traditional financial services adapt to today’s changing landscape. For example, startups such as myDesk are building solutions that help large organizations serve the millennial generation with a user experience that aligns with their expectations. Companies are also placing greater focus on institutional-only problems, such as Algomi, which leverages social concepts to ease bond trading, or Tradier, which provides full-fledged brokerage services as APIs. In 2015 and beyond, we expect to see many institutionally-focused tech companies making headlines for their progress in this space.
The last trend is data and analytics. The problem with analytics is that it’s often a fuzzy category, but this needs to change. Fintech analytics must find a way out of their current Quagmire of Confusion in order to become the focus of market attention and to experience the level of growth that other segments are seeing.
Some companies are emerging as potential leads in this space. Money.Net is a company that’s trying to reframe the traditional analytics terminal market using a new platform built from the ground up. Reorg Research is challenging the status quo in the fixed income analytics space with its combination of content and technology. Madrone is on the verge of redefining the performance analytics space with its unique methodology and hedge fund focused data set, and MarketProphit is one of the first platforms defining and staking out the social media analytics segment. There is a great deal of activity in this segment, and 2015 will be the year when the chips start falling into place.
2014 was a banner year for fintech, but there is still is a lot to expect. Financial services and their underlying technologies were once perceived as the zombies of the post-credit-crisis era, but thanks to a little help from Silicon Valley and the unbounded enthusiasm of today’s entrepreneurs it looks as though things are on the rise.Stephane Dubois is a recognized software and market data industry executive and innovator, who founded Xignite to pioneer market data in the cloud. Today, Xignite is known for creating the industry's only pure-play market data cloud platform, used by clients around the world, ... View Full Bio