The financial technology industry, or "fintech," has been "riding an entrepreneurial wave," according to Inc. magazine. Until recently, the financial services industry has been viewed as highly regulated and dominated by huge firms. But in recent years startups have been bringing fresh energy to the fintech market.
Lower interest rates have made capital easier to access, allowing entrepreneurial talent to break free from the big banks. Meanwhile, the mobile economy has helped customers engage with new firms and leveled the playing field for startups. Here are some of the top newcomers to watch in fintech this year.
This peer-to-peer lender has revolutionized the core functions of the banking industry, which once seemed closed to outsiders. Lending Club used technology to cut the middleman out of banking, creating a crowd-sourced lending network that lets investors pool their resources to make loans directly to customers.
This model gives customers better access to funding for customers who don't feel well-served by large banks, and investors earn a much higher rate of interest than they would on a CD or bond issue. Lending Club is one of the more mature players in the fintech market; keep an eye on its path to get a sense of where other companies could be headed.
Auto insurance is another financial service industry that may not have seemed ripe for innovation — until Metromile hit the scene. This company offers pay-per-mile auto insurance, a brand new way to incrementally manage risk. For urban customers who may not drive much, the idea of paying just $35 per month plus 5 cents per mile is very attractive. The company recently announced that it had raised nearly $200 million in capital and stands poised to compete nationally. Watch for others in the insurance industry to use data to micromanage risk and rates in the future.
As more companies enter the online financial services space, they demand innovations in technology, risk management, and fraud prevention. This San Juan-based firm provides that support, along with marketing and public relations consulting for financial firms. As the fintech market grows, so will the demand for support services within the industry, and firms like Sol Partners are poised to deliver those services.
This automated investment advice service has been growing by leaps and bounds, increasing its assets by 200 percent in just one recent year. Betterment is a popular investment app for millennials, but it's also drawing praise for being one of the first automated financial advisers to create a plan for doling out your savings over your retirement years. The company recently unveiled an automated 401(k) tool for businesses as well. Watch for automated investment apps to target well beyond the millennial market with these diverse product offerings.
The fintech market is young, but it's already growing rapidly. Alternative financial services are poised for even more growth over the next few years, as people become increasingly comfortable with the mobile economy. Opportunities abound for startups in the financial technology sector.