We say fintech in housing and banking like those in Hollywood say Kimye. But unlike the shorthand for power-couple Kim Kardashian and Kanye West, fintech is more than shorthand for financial technology.
Let’s make sure we understand fintech’s definition and two distinct categories so we can make better decisions for our companies and careers.
Julian Hebron, Columnist
Before Fintech Was In The Dictionary
Before we do fintech’s two definitions, here’s a quick history.
The term “fintech” landed in Merriam Webster Dictionary and Oxford English Dictionary in 2018, but it was coined in the 1980s. Back then, Peter Knight of The Sunday Times in London was editor of a business newsletter called Fintech.
But the term fintech didn’t go mainstream as a moniker until earlier in this current economic expansion cycle. Fintech started sticking as two crops of companies came up in the pre- and post-crisis years.
Propser, LendingClub and SoFi started the digital, phone-first personal and student loan wave in 2005, 2006 and 2011, respectively.
Wealthfront, Betterment, Personal Capital and Robinhood started the digital, phone-first investing and stock trading wave in 2008, 2008, 2009 and 2013, respectively.
Fintech became cemented as these companies matured into known players valued at a combined $16.5 billion.
Also cementing fintech as a phrase and concept was the rise of software companies powering banks and lenders.
Examples with meaningful mortgage market share include Ellie Mae (founded in 1997), Finicity (1999), Black Knight (2008), FormFree (2008), Total Expert (2012), Blend (2012) and Plaid (2013). It’s worth noting that Black Knight has a longer history and wasn’t called by its current name until 2017, and that Ellie Mae has been particularly active in fintech M&A throughout these post-crisis years.
This history helps us understand why fintech must be defined in two categories.
Fintech Category 1: Financial Services Providers
The first fintech category is digital native consumer-direct banks, lenders, wealth managers, insurance and other finance companies.
Today, there’s a whole new crop of these fintech companies that are also referred to as challenger banks, neobanks or simply startup banks.
In addition to the names above, the new crop of consumer-direct fintechs includes players like Varo (1 million customers), Monzo (3 million), Chime (5 million), MoneyLion (5.7 million) and Revolut (8 million).
These companies mostly start with a single budgeting, saving, borrowing or investing product, and are now expanding into other banking products since proving their customer acquisition and engagement power.
Closer to housing, Figure is another consumer-direct fintech example. It began in with home equity lending, and is now expanding into first mortgages and student loans. Figure has already raised $225 million since founding in 2018, and has a valuation of $1.2 billion.
While no company in the original or new crops of consumer-direct fintechs have attained mortgage dominance, SoFi remains active in mortgages, plus Wealthfront and Varo got more vocal about mortgage ambitions in the fourth quarter of 2019.
Fintech Category 2: Financial Services Software Providers
The second fintech category is business-to-business (B2B) software, tools and tech platforms to power banks, lenders, wealth managers, insurance and other finance companies.
Likewise, today there’s a new crop of these B2B fintechs powering consumer finance companies in addition to the list in our history section above.
For example, the entire mortgage point of sale (POS) concept was created recently with companies like SimpleNexus, Roostify, Blend, Cloudvirga and Maxwell created in 2011, 2012, 2012, 2016, and 2016, respectively.
The mortgage-specific CRMs date back to 2003 and 2004 with the founding of Top of Mind and Volly, respectively. And since its founding in 2012, Total Expert helped evolve this segment from just CRM into a full marketing operating system (MOS) that can serve all of consumer finance (beyond just mortgage) with automation and modern digital tactics.
More recently, a new crop of B2B fintechs is rising to help banks and lenders with customer incubation, conversion and engagement.
This is absolutely necessary as customers increasingly expect banking and lending to be as easy as ordering same-day Pringles from Amazon before binging on Netflix.
The consumer-direct fintechs get this, and these newer B2B fintechs are now enabling existing banks and lenders to deliver on it.
Examples here include NestReady, Home Captain, Ojo, Homebot, Sales Boomerang and ComeHome (by HouseCanary), all founded in 2012 or later.
All of these B2B fintechs discussed above will continue reshaping the lending and banking space in 2020 and beyond.
What Kind of Fintechs Are The Lead Aggregators?
But let’s not forget about the lead aggregators, which are evolving so fast that some are still B2B fintechs and some have become consumer-direct fintechs.
Zillow was founded in 2004 and caught on immediately as we all snooped on our friends’ and families’ home prices.
Until last year, they made all their money selling leads (the hundreds of millions of us on the site) to lenders and realtors. Then Zillow became the Netflix of homes by buying, selling and financing homes directly.
They went from B2B to consumer direct. Their B2B segment is still a huge contributor to its $9.4 billion market cap, but it’s now a hybrid fintech model.
Will Credit Karma go the same way? They have a valuation of around $4 billion and 100 million members monitoring credit. They refer members to banks and lenders when requested.
But Credit Karma also recently added a Credit Karma Savings account. This is the same playbook as the consumer-direct fintechs noted above.
Consumers and Fintech Pros All Win Together
Through third quarter of 2019, U.S. venture capital equity funding in both consumer-direct and B2B fintech categories was $12.9 billion over 513 deals according to CB Insights.
That’s already past the $12.5 billion in funding from all of 2018. So while the economic cycle is mature, the fintech push is still very strong. Customers win as consumer-direct fintechs push innovation ever-faster.
The B2B fintechs then bring this same innovation to existing banks and lenders. So it’s even easier for customers if their existing banks and lenders can just add the cool tech.
And as long as we keep up, the fintech race is great for our careers.
I’ll keep doing my part to help us all keep up.
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