There’s a reason FinTech was included in Investopedia’s Top 10 Terms of 2015 — we are in the golden age of technology. Within the larger movement; however, each one of us is directly influenced by the take off of a more recent and rapidly developing financial technology space—an industry projected to attract approximately $20 billion in funding by 2017, estimates Statista. (To learn more, see: FinTech Outlook Positive for 2016.)
Financial technology is a democratizing force that can change our lives by making financial tools and services accessible, faster and more easily understood — most times at a lower cost. Complex algorithms now often take the place of traditional advisors, perhaps offering more efficient and personalized products for end users.
From budgeting tools to alternative lending and investment options, payments processing, and philanthropic platforms, we have a lot to gain from the advent of financial technology startups. Learn below about just a few ways in which you can leverage these hot new platforms before they inevitably become common applications for the entire public.
Payments Made Easy
The advent of payments technology has made consumer spending, and all other forms of payment easier, faster, and more secure. Payments technology startups, such as Square, help small businesses get off the ground by adopting easy to use and cheaper credit card payments processing. Instant, reliable transactions are important for day-to-day sales, along with employee payroll processing.
Venmo, a payments app, has provided a "free digital wallet" to the mobile devices of thousands, by allowing friends to connect quickly and securely via Facebook to request and send money to each other in a few taps on their phones. Furthermore, on the consumer side, platforms such as Apple Pay and Bitcoin continue to disrupt the traditional method of pay. When sending money abroad, individuals should consider using money transfer services such as TransferWise to save on international transfer fees.
Lend a Helping Hand
Peer-To-Peer (P2P) business models have fueled a new sharing economy revolution, with many products and services such as home rentals, cleaning services, and anything else under the sun being “uberized.” New FinTech startups have uberized the online lending space, allowing you to access funds through unconventional ways, without the help of big-name banks or a network of established lenders.
Platforms such as U.S.-based LendingClub and Prosper, and U.K-based Zopa have individually issued millions of dollars in loans, joining the rising number of tech unicorns in today’s entrepreneurial space. (To learn more, see: Tech World Sees Number of ‘Unicorns’ Boom.)
Crowdfunding: The New Venture Capital
Investment in crowdfunding platforms may surpass venture capital funding in 2016. Popular sites Indiegogo and Kickstarter have helped thousands of ideas get off the ground – from bizarre video games to social projects and multi-purpose jackets, small businesses and entrepreneurs can now look to the general public for support. Countless other sites such as GoFundMe, which took off by bootstrapping, allow individuals to raise money for any project they like.
A ‘Bankless’ World
The headline of loan refinancing startup, SoFi’s website reads, “Great news: we're not a bank.” Over the past few decades, we’ve seen a general distrust and loss of confidence in our traditional banking system, dominated by the big banks. After the Global Recession in the late 2000s, a new generation of startups hopes to fix the transparency issue facing big banks and provide consumers with more personalized and comprehensive services online.
Nasir Zubairi, venture partner at FinLeap in Berlin, commented on the FinTech industry, stating that “3 billion people, 50% of the world, do not have access to a banking system, and I think that FinTech can help in solving the problem around credit. There’s a huge opportunity for FinTech companies and of course for people who will benefit from their solutions.” Startups such as Kabbage, a small business lender, take into account a myriad of factors such as eBay data into account when determining risk, providing more of a data-driven service unhindered by the same regulations that restrict the traditional banking system. Countless other platforms such as CreditKarma offer credit risk services at zero or low cost.
Democratizing Investment Products and Services
Robo-advisors continue to gain traction as a provider of investment services once solely accessible to wealthier individuals who could afford their own financial advisor. An online advisor is now available through multiple platforms such as Wealthfront and Betterment. Wealthfront manages your first $10,000 free for a small fee of .25% after that, while Betterment charges .35% to .25% annually or $3 per month. A series of questions, including an individual’s age, determines a user's risk tolerance, which then determines the portfolio allocation for each specific individual. If you are unwilling or unable to invest your money yourself, or through a trusted financial advisor, an online platform is a much better way to direct your savings to their most effective use.
FinTech startups aren’t stopping at stock investment, however. For the growing number of Americans who seek involvement in alternative investing and philanthropic projects, the FinTech industry continues to deliver. Take Neighborly, a social venture helping you get involved in the municipal bond market. Neighborly’s Community Investment Marketplace allows you to make an impact directly in your community through safe and lucrative investing.(For related reading, see: How Does Neighborly Work and Make Money?)
Budgeting: A Virtual Piggy Bank
As many tech startups target millennials, there’s a significant opportunity for business to facilitate the process of a new generation beginning to save, lend, and invest their money. Millennials don’t simply want to watch the purchasing power of their money wither away in a bank account; instead, they’re using budgeting and educational platforms to help them with a financial strategy. Alongside their robo-advisors, individuals can use budgeting platforms such as LevelMoney and Acorns that automatically track spending and income to give users a daily allowance for the day. This helps people grasp exactly how they are spending their hard earned dollars. Other platforms find creative ways to save you a dime. For example, Paribus scans users emails for receipts following a purchase to get money back in the case of a price drop. (To learn more, see: 5 Best iPhone Personal Budgeting Apps for 2016.)
The Bottom Line
FinTech is on the fast track to growth, and it’s not just investors who can benefit from the success. Be sure to stay up to date on the rapidly evolving FinTech sector, which will help drive a democratization of financial tools and services, from payments to wealth management and philanthropy. Ultimately, whether FinTech will take the place of traditional banking entirely is up for debate. However, the plethora of cost efficient and accessible financial tools and services will undoubtedly force the entire financial sector to transform. (Also, see: 10 FinTech Companies to Watch in 2016.)