Takeaways (and Surprises) from 1,000 Fintech Startups
By Tyler Griffin, CFSI
The Center for Financial Services Innovation (CFSI) recently released its 2017 FinLab Snapshot paper. And, if you think you know fintech, what we found may surprise you.
In this report, authored by members of the Financial Solutions Lab—a $30 million, 5-year initiative managed by CFSI with founding Lab partner JPMorgan Chase & Co.—we discuss the latest trends in fintech and provide an overview of the market segment as informed by our analysis of more than 360 startup applications in 2017; more than 1,000 applications in our first three years of challenges; and our discussions with entrepreneurs, investors and industry leaders.
Here are a few key takeaways worth thinking about:
Specialization may be for insects, but it’s also quite the trend in fintech. Gone are the days of very general personal financial management (PFM) products that seek to encompass users’ entire financial lives. In its place, we are seeing entrepreneurs increasingly target niches, solving specific problems elegantly and quickly.
One example from this year’s Lab class is Dave, which serves as a kind of “weather report for a checking account”—letting consumers know when they’re likely to overdraft before it happens, and advancing funds to help consumers avoid it. The greatest benefit from this approach tends to be the user experience: customer delight comes faster, and on-boarding friction is vastly reduced.
The key market segments remain relatively unchanged, but each is evolving differently. Credit continues to generate consistent activity, although it’s generally limited to credit analysis and credit building, as actual lending still involves overcoming substantial regulatory hurdles.
Savings is trending more toward automated tools and behavior modification (think of companies like Digit) as opposed to personal budgeting and categorization.
As for payments, while peer-to-peer payments have generated substantial interest among more established firms, most recent startups tend to approach payments as a part of their business model, rather than as an entire model.
And one area where we’d really like to see more innovation—insurance—continues to be a slow burner: Insurance startups are still very early, with most entrants focused on distribution of existing products by legacy underwriters.
Educational products are highly varied and numerous, but almost all have struggled to achieve scale.
Fintechs are becoming more adept at using business channels to achieve broad distribution. While in the past we often saw B2B2C marketing used as a “Plan B” after direct consumer marketing proved ineffective or expensive, we’ve been excited to see increasingly sophisticated implementations of this distribution approach. Furthermore, as traditional retirement and health programs become prohibitively expensive for employers, startups are working hard to position their products as alternative benefits. One company working to innovate in this space is Blueprint Income, which offers an annuity-based personal pension.
Nonprofits continue to evolve as well, although it seems to us that their approach has generally shifted from in-house development toward technology partnerships with for-profits. The Lab and CFSI more generally are highly supportive of this approach, and we’re working hard to help facilitate these types of relationships.
All-in, we’re encouraged by the ways in which innovation continues to throttle ahead, with more startups focusing on financial health impact than ever before.
Tyler Griffin is Entrepreneur in Residence at the Center for Financial Services Innovation (CFSI), where he works to enhance the FinLab program and serves as a mentor to lab companies. More broadly, Tyler helps to advance CFSI’s goals to work alongside innovative companies developing promising new financial solutions. Prior to his work with CFSI, he founded Prism Money, a consumer-focused bill payment startup, which was acquired by PayNearMe (now Handle Financial) in early 2016. Tyler may be reached at email@example.com.
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