The report by KPMG Australia, AWI, and the Financial Service Council on the 50 most innovative Fintech companies worldwide provides a lot to reflect on. The first, and possibly the most important, is that digital disruption is arriving with force in the world of financial services. The main consequences of this wave will be the progressive revision of business models that have dominated sales and banking activities for decades. It will move towards a progressive fragmentation of banking and its verticalization of specific offers. It is “breaking banks”, which in the long run could lead to the disappearance of many generalist banks. This is apparent with the variety among the 50 Fintechs and with the multiple areas that they are setting upon. If we’d like to categorize them we can identify 7 fields of specialization into which banking is fragmenting.
The first three are those with the highest number of realities with Fintech references:
1.The first sector is that of payments (payment solutions and transaction services). They count 12 out of the 50 on the list. They include at least three precise currents: send money and money transfer P2P, virtual money, the new client-merchant digital payment systems that are online or in proximity (mobile POS). All have a common denominator: the immediacy and simplification of transactions, even transfrontally, when compared to current infrastructures that are decades old and loaded with costs and commissions. There is not just Square orBitcoin, two Fintechs that are managing money, but there are also other systems that are making their way, from Stripe toDwolla, from Gocarldess to M-Pesa, which from Africa, is teaching many things about what it means to be simple.
2. On the top of the podium there is also a huge boom for the investment and e-trading advisory sector with 12 Fintechs on the classification list. The Fintech world has decided to attack the rich fields of advisory investments and wealth management and even private banking. With automated models for asset allocation and portfolio management. It ranges from small investments with LearnVest to patrimonies of private banking with
Personal Capital, which even reach into real estate. It is a revolution that aims at the heart of brokering margins in retail banking. And not only this – even online trading, which already started 15-20 year ago, is being attacked with new commission-free platforms like Robinhood or very social ones like e-Toro.
3. The third group, that of financing for individuals, arrived in the spotlights at the end of the year with the stocks of Lending Club (we discussed it here), and it brings 9 to the Fintech best list. Even here the other central nerve of banking is being attacked: credit. It is divided into two sub-segments, that of P2P models (headed precisely by Lending Club and which have already spread throughout Anglo-Saxon countries and northern Europe) and those of mini financing for people through digitized scoring models and instantaneous services, with Wonga in Great Britain and Kreditech in Germany heading the pack.
These three verticalizations already aim directly at the heart of banking, but the wave also encompasses 4 clusters that are smaller numerically but also insidious:
4) Credit and other services for small and medium-sized businesses, with 6 Fintechs on the list, headed by Kabbage, a company specialized in scoring and funding of small companies in the United States.
5) Crowdfunding and venture capital funding with 5 on the list, which, apart from the famous Kickstarter, present a financing model for startups and meetings with highly innovative venture capitalists like Angel List in the U.S. and Our Crowd in Israel.
6) Services for banks, a sector that is varied and includes 4 top Fintechs, and which ranges from new software platforms for Personal financial management and account aggregation, likeYodlee, to IT network companies or new generation ATM vendors. In this case, it is aimed at banks themselves with a B2B logic.
7) The panorama ends with the data analytics sector, currently concentrated on credit scoring and assessment systems, with 2 on the top Fintech list. It is a first taste of Big Data.
But it does not end here, and, at this point, we can move on to the second reflection: there are a series of other verticals on the top 50 list that have not been mentioned. There is P2P lending, but not the assault to provide mortgages. There is banking for small businesses, but not corporate banking. There are risk scoring systems, but very little for anti-fraud systems and, in general, the wave is still missing among Fintechs specialized in services for financial institutions, Big Data, the PFM still need to find their boom, like the Fintechs of simple/mobile banking that are already operating on the market. Fintechs specialized in authentication software for digital identity, which will be fundamental in the next decade, are beginning to appear. And, last but not least, Fintechs specialized in insurance are completely missing from the list. Will it remain immune? There is still a lot to digitally rewrite and destroy in all of the financial services.
The last reflection could not be about anything but Italian Fintechs, absent on the list, just like the French and Spanish. Knowing them well, I can testify that they exist, and that they cover practically all of the 7 segments, with various fortunes and levels of maturity but, overall, with lots of talent, competency, and passion. Above all, in the worlds of credit and scoring systems, but also in that of payments and advisory there are those that have been active for some years now. There is a lot of talent and competency. There are 107 Italian Fintech companies (here is the infographic), not a few if the higher than average difficulty of hyper-regulation in this sector is taken into consideration. There are very few, however, that have taken off abroad, a true sign of sustainability and of the competitively of startups, given the dimension of our market. There is very little capital today to support our Fintechs (as we have already observed here), but also very few making concrete proposals for internationalization by the very same Fintechs. The potential exists, however, it needs a big push to get moving. With CheBanca! we are trying to give a hand to creating a system. We also consider ourselves a Fintech. And we must play the game, without compromise.