The year is 2026.
I just received a mortgage approval without speaking to a single banker. I waited one day for everything to go through.
My retirement savings has been invested securely and efficiently for the past 5 years with real-time data to help me make better decisions without the use of a broker or typical broker fees.
I do not remember what a physical credit card looks like since they have long been decommissioned.
I have not missed a bill payment in years because it’s all managed from my phone. One app. Bill payment reminders. Automated suggestions on what payment source to use to maximize cash flow and minimize debt. Automated payments.
Our children are financially responsible. They know and appreciate the power of savings. They get rewarded for the tasks they accomplish and know the value of real, hard work.
I have saved tens of thousands of dollars over the last ten years without thinking about it through small contributions to smart financial digital programs. Effortless. Responsible. Automated.
You may feel inclined to shrug me off and say that I'm not rooted in the real world. But these are fintech innovations that have already been created. And sometime very soon, we will all be using technology in a way we never imagined.
So let's break it down into 3 categories:
Part 2 - Innovations in the B2B world
The last 2-3 years have been incredibly kind to significant advancements in financial technology, increasingly known as the emerging field of fintech.
For every financial sector you can think of there are literally dozens if not hundreds of companies all over the world actively creating new cloud-based solutions meant to assist users in making the smartest, most financially responsible choices with their money.
No matter how little or how much you make, there is something that will help you manage your resources and optimize your spending. That's an amazing achievement, one primarily driven by technological advancements in the financial sector.
Part 1. Current fintech innovations that are being widely adopted by consumers
1. Bye-bye bulky wallets, welcome digital wallets
Probably the most well-known innovation in the financial sector is tied to how we pay for various products and services. In an online space, storing and using previously saved credit cards has been a common practice for over a decade now.
But when you were leaving your house, you always had to make sure you had your keys and wallet with you. And in that wallet you had the various payment methods that you might use on any given day (credit, debit, gift cards, etc). As we all know, this old-fashioned way of dealing with payments is starting to fade away.
There are now a variety of mobile wallets catering to different use cases. Many and varied companies are helping this trend toward a wallet-less world.
2. My phone is my credit card, now and forever
Apple Pay / Android Pay / Samsung Pay (and more to come)
Whether you’re an iPhone or Android user, you’re in good shape. You can use their respective mobile payment applications at many stores that are currently accepting mobile payments. In addition, Samsung has launched its own version of the program called "Samsung Pay."
The biggest downside to all of these virtual payment methods is that not all banks currently support these payment options. For example, if your card is issued by JP Morgan & Chase bank, you won't be able to link your card to a mobile wallet, primarily because they're working on their own Chase pay app.
However, you can still use a Chase card in some stores that accept PayPal as a form of payment. As an example, I've been paying with my Chase card at Home Depot using the 2-factor authentication (PayPal phone number + PIN) for over a year now.
There are many other options allowing users to store credit cards digitally and use them as payment options. Square Wallet is a great alternative for paying at small merchants using the Square technology.
3. Need to split the bill? Why don't I text you the money?
"Split the bill." Lunch, dinner, cab ride, bowling, you name it – they all cost money. As we all know, we find ourselves splitting costs with friends and family every day. PayPal was one of the first pioneers to make it easy and convenient to share money with those close to you. But recently a large number of apps and websites have emerged in the same space.
Venmo is arguably the peer-to-peer payment method that Millennials have adopted (and has since been bought by PayPal). Google Wallet does the same. There are even talks about Apple Pay offering the same option one day in the near future.
But the point is simple: whereas in the past we all had to go and pull money from the ATM or throw multiple credit cards on the table, fintech companies have now made it easy, intuitive, and almost second nature for us to pay small debts to our friends and family with our phones.
4. My family abroad is less than 15 minutes away if they ever need some financial assistance
"15 Minutes Away" is a song by Somali-born Canadian rapper K'Naan. In it, the singer raps about the joy he used to get when one of his family members sent him money by Western Union or MoneyGram and he could pick it up in just 15 minutes. Today, this is still the prevalent way of sending money, especially abroad.
Think of all your friends. I'm fairly sure you can think of at least one person that has relatives abroad. And those relatives oftentimes live in less-than-desirable locations. It's fairly likely that either your friend or someone in his or her family sends money to these less fortunate relatives. It could be once or twice a year, or it could be more frequently. This is what's known in the financial world as remittances. Last year alone, there were almost 500 billion dollars in remittances going back and forth across the world.
There are at least three fintech startups competing in this category of helping your family abroad. TransferWise, WorldRemit and Azimo (restricted to transfers within the EU) are already growing in popularity as online alternatives to the big giants: Western Union, MoneyGram or bank transfer.
The big giants aren't necessarily oblivious of a demand for online servicing. They are also offering online / mobile payment transfer options, albeit at fees higher than those coming from the fintech new kids on the block.
5. Rest in peace, dear plastic credit card
In a world where cash transactions are still the only way to pay for goods and services at various small businesses, it may seem counter-intuitive to speak of the death of the credit card. And just to be clear, we do mean the death of the physical credit card (the plastic in your wallet), not actual credit lines.
Many people feel that we can't get rid of credit cards fast enough. Most of us have an average of 4 in our wallet. Dead weight, right? A number of companies have begun to build, test and release are "all in one" credit cards. In other words, digital solutions that can allow you to add any number of payment methods (credit cards and debit cards), all accessible from one central credit card.
6. Forget payday loans. The army of peer-to-peer loans is rising.
People need funds on short notice. It can be for an emergency or scheduled trip for which you didn't save enough. Whatever the reason, the old way of doing it was to go to a bank, wait for a couple of weeks, and then get your funds (or worse, be denied).
Prosper, Lending Club, and Upstart are just a handful of alternatives to big banks. They are lean, simple to use, and you get your answer (approval / denial + approved rate) in minutes. When a friend of mine used Lending Club, he got a $12,000 loan deposited directly into his account within 72 hours of his application, with an 8% APR. Not the best APR on the market, but certainly not the worst, and definitely less than a decent credit card (10.00% or more in annual interest rate).
Another company that many analysts are starting to pay close attention to is SoFi. They started with student loan refinancing, but have since expanded into the mortgage, personal loan and wealth management businesses. All online or on the app. All instant. All awesome.
The democratization of the lending process is amazing because you're no longer borrowing from a bank (which tend to act more conservatively), but you're also cutting through the red tape. You get to know your options instantly. You see what you can borrow. And fortunately (at least for the three companies above), they do not pull a hard inquiry on your credit score, thus giving you a financial option without the credit score hit.
7. Bye-bye financial advisers and steep wealth management fees
When I tell some of my well-off friends in their sixties about the various online investment options and the costs associated with them, they look at me like I have lost my mind. Even something as simple as Fidelity and their $7.95 fee per stock is something that did not exist 20 years ago. Now picture how their expressions change when I tell them about some of these fintech companies:
- Acorns. This is excellent for people who simply cannot get around to putting a constant amount of money into their savings account. Here's how it works. You sign up with them and link your credit and debit cards. Then you spend like you normally would. Acorns then rounds up your payments to the nearest dollar and invests the change. So for example, when I spend 2.04 for my tall blonde coffee at Starbucks every day (EVERY single day), Acorns takes 96 cents from my account and deposits it into my savings account. When I signed up I selected my threshold for risk and then Acorns automatically invested my change in it.
- Motif Investing. Motif is an interesting concept of investing your money online without having to ever interact with another human being – unless you choose to do so on purpose. Basically, the company allows you to purchase stocks in a specific motif. A motif is nothing more than a curated collection of securities around a specific topic, which you can invest in for a $9.95 fee. The power of Motif lies in its customization abilities. You choose a motif, but before you make a purchase you can add or subtract securities from the final package.
- Betterment Investment. This service represents what Uber is to the taxis, but in the context of financial planners. It is an easy-to-understand managing option for investors who do not want to get into the nitty-gritty of their portfolio. It's an automated solution that minimizes risks to your portfolio by investing in a wide variety of stocks based on your financial goals. This is really a full-size financial adviser that is automated and at your disposal for half the cost of an actual adviser. Who needs to talk (and pay) an actual adviser when the automated alternative accomplishes the same goal for half the price?
Part 2. The democratization of B2B services is also upon us
Going into 2016, more and more specific use cases are being digitized, sped up and made available to the public. And they don't only relate to financial improvements that impact us as end users and consumers. We're also seeing how the B2B world is getting democratized. Take these new fintech initiatives, for example.
- Kabbage is a company offering usually short-term loans to businesses that are in need of short-term liquidity to help finance their operations and growth plans.
- Epiphyte is a software solution catered towards the traders community, allowing online trades to be settled instantaneously so that money can be reinvested right away. Compare that to the typical 72 hours Fidelity takes for the same task.
- Pleo is a Danish company building smart company cards, tracking employees' spending on corporate cards and automatically filing expense reports. They just recently got additional funding to increase their operations. The solution keeps track of email order confirmations for corporate spending, which are automatically linked to an expense report and sent via push notifications to a user as soon as the card is swiped, asking for an image receipt for verification.
Part 3. The future of fintech is all about smart data sharing
I'm not the only one optimistic about the future of fintech. There's been a 150% increase in year-over-year Venture Capitalist investment in fintech in 2016. More than 5 billion dollars has been invested in the first quarter alone so far, with Europe and Asia-Pacific regions dominating the growth for fintech-related initiatives. In northern European countries, 1 in 10 investments is in fintech.
And that's a lot.
It also says a lot about an industry that has been very resistant to change for the last century.
Overall, the trend that we're seeing is that fintech is becoming synonymous with "robot-advisers": automated scripts, software and machines that will give us critical information required to make informed decisions. Which brings us to some of the obvious trends we need to watch out for...
1. Mo' data, mo' value: fintech will reshape the collection of data and turn it into actionable insights
Companies and consumers alike are craving actionable information, whether they know it or not. Many financial institutions, especially established banks, collect massive amounts of data, but there is no integration between data sets. Think of a consumer who uses multiple credit cards.
Each of the credit card issuers would love to know what works and what doesn't, but they can only do it in a vacuum today – only with regard to their own data set. In the future, we believe metadata and big data will reach a point of convergence where both customers and financial institutions can gather data points for various sources to better assist their client base.
On the consumer side, this will lead to better understanding on where their money is spent, how often, and how effectively.
2. Smart Finance (my bank app) is very chatty – and I love it
We're only scraping the surface of this today. Sure, banks send notifications to their users when account-specific changes occur, requiring users' attention. But soon the overall paradigm of what information needs to be shared with the user will change. The simplest use case is the wide variety of credit cards a user has in their wallet and the constantly rotating categories that many rewards cards put in place. Every time I make a purchase I wonder which credit card I should use.
Soon enough, with centralized payment options in place – either through digital wallets or one physical credit card replacing all others – a user purchasing online or offline will get the notification on what bank issuer to use from their portfolio to maximize their own returns/rewards.
This applies to any number of financial decisions: personal loans, investments, even mortgages. Financial lives will become based more on proactive communications that are relevant to the end user as they're making a financial decision.
Automating the process of knowing which payment to use where would be a great win both for customers looking for the best value, and also companies competing for the user's (financial) attention.
3. R.I.P. consumer fraud, hello accurate identity and risk assessments
On the one hand, every consumer is worried (and rightfully so) about privacy and personal data. On the other hand, one of the biggest challenges with instant financial decisions is the fear of money laundering, stolen identities and unauthorized access of personal information. As companies move toward a shared pool of resources and data points, minimizing these risks becomes crucial.
As fintech companies individually tackle various aspects of our financial lives and data validations that may cause fraud to occur, companies will be able to consume live data feeds that will more accurately validate customers' identities and financial portfolios, which in turn will result in instant decisions for the end user.
Today, much of the financial landscape depends on assessments of credit worthiness of a potential customer. Many of these assessments are fraught with contradictions. Users may have a bad credit score because of high debt ceiling, but that doesn't necessarily mean they will default on their payments or that they should necessarily be slapped with a huge interest rates.
As data points about consumers are shared across companies, what we hope will happen is that fintech solutions will be able to more accurately predict users' future behavior based on previous or current financial decisions. That will not only result in more financial flexibility to the end user and more transactions for the lending businesses, it will also minimize risk in the long term. What is needed overall is better automated individual profiles that can help lenders make the right decision, without human intervention.
4. Place your finger on the scanner to pay
As banks and financial institutions look at ways to prevent fraud and revenue loss, we predict they will start adopting biometric authentication procedures. It makes sense. After all, the fingerprint is almost impossible to replicate or forge and, as a result, it is one of the most secure authentication protocols.
Soon enough, we will be able to withdraw cash from the ATM, make in-store purchases and attend concerts and events without ever carrying our debit or credit cards around. In addition to being convenient, it will also be a more secure payment method than anything currently available (card swipe, in-store chip and pin credit card purchases, etc).
Other options that are slowly being explored, which could potentially co-exist with fingerprint authentication, are retina authentication or even face recognition authentication. Password/PIN input could also become mainstream as it did with PayPal's option for in-store payment methods. Our bet is on the biometric authentication due to its near impossible fraud potential.
5. The rise and shine of blockchain technology
Blockchain technology is nothing new, but its adoption to mainstream banking and retail payments is. Despite its prior negative connotation (the world is still hesitant to utilize bitcoin as a currency), blockchain technology is on the rise. With established companies like Microsoft, PayPal, Overstock.com, Dell and others already accepting bitcoin, we are seeing an increase in interest and legitimization of blockchain technology.
But blockchain is a lot more than bitcoin. Of course, the technology can save billions in settling and money transfer costs, but it can also help with user authentication and other bank internal processes. We believe banks will start adopting blockchain technology in 2016 and grow even more aggressively in the years to come as this new emerging financial platform proves its value to both customers and financial institutions.
6. Forget Amazon, buy directly from Facebook
Social media's role in everyday life is incontestable, but it has not yet reached its full potential. With Twitter already offering a "buy" option and Facebook's "pay to friends" option, we have just begun the monetization of social media.
Facebook has already converted its content structure to ensure that their users do not move away from their app while reading articles. Soon enough we will not have to leave Facebook even as we're completing purchases from various retailers directly on the Facebook app.
Fintech is a truly exciting new field
None of us know exactly how much it will grow in the next decade and how profoundly it will change all our lives. But what we do know is that we are moving towards a democratization of data, artificial intelligence related to financial portfolios, and automated, diversified solutions for both companies and consumers alike.
The next ten years will be a game changer. Not just for how we do business, but how we think and act on our finances as well. What we are currently experiencing with regard to our financial life options is as much of a technological revolution as it is a cultural one.
Wait and see – we guarantee that the future is bright for fintech and, indeed, for all of us.