Fintech startups to watch out for

fintech startups that you probably haven’t heard of, but got great potentials.

Intro:

As a fintech nerd and product strategist (self-proclaimed!), I recently started to look at fintech startups that are not well known yet, but I believe has great potentials.

After looking over near 100 fintech startups, I get a sense that there are lots of fintech startups (some more established) on payments, BaaS, AI, fraud detection, and data aggregation and analysis. Within AI, there are different usage: from NLP on document processing, customer service, marketing, and to customer engagement. AI has become such an important buzz word that makes me wonder how much is AI v.s. just data analysis. But that’s topic for another day. I will divide my analysis into the following category: Digital bank, payment, Application of AI, Embedded banking, Data aggregation, Fraud / Identify

Digital bank:

The original wave of digital bank started on the premise of serving the unbanked / underbanked who were initially ignored by the incumbent banks as there is less profit to be made from this segment. As Clayton Christensen pointed out in Innovator’s Dilemma, start out by focusing on an ignored segment of the market, and as the offering improve, can then expand to more segments. Since these original digital banks have already started to expanding to the bigger segments, any new start-up digital bank with the same strategy is just way too late.

Typically, for startups to gain any footing, they need to focus on a particular segment that’s either over / under served. Then customize the offering to the targeted segment. The easiest entry point are the 2 ends of the spectrum, because it’s easier to identify specific traits, and create customized solution. . As the lower end of the segment has been over-crowded by existing digital banks, new startups focused on how to serve the higher-end of the market better can still have a market entry edge.

For example HMBradley, pays for you to save by offering 3% interest. The bank targets the more affluent millennial to save more. This segment has certainly been ignored by the incumbent banks. Imagine you are trying to save either for a buying a house or other purpose, the current banks do not offer any incentives for you to save more.

What’s more beautiful is that this is a profitable model as the money stays in the account without fluctuation, means the bank can lend out the money and get higher interest. Although, with current interest rate cut, I am not sure 3% can still hold, but it’s fine as long as it still offers the highest interest rates in the market.

Payment:

Payment is dear and close to my heart. Because it’s one of the most important function in our daily live, and currently US is very behind compared to other countries. This means it’s ripe for disruption and gets fintech nerd like me excited. If done right, can create the largest privately held company in the world, which is known as Alipay.

In my opinion, the minimum of a payment company requires the following features: availability, simple, instantaneous, and free. A better solution is to embed payment to improve service and provide real value. For example, skip the check-out line at Amazon go, or use tap-pay in subway or train to reduce waiting in line to buy a ticket.

Currently, there are a number of company in the payment space focused on real time payments. Honestly, it’s hard to pick one from another as it’s a commoditized function. Within real time payments, there are companies focused on applying to specific use cases. One of the biggest use case is B2B payments. It’s probably the biggest area for digitization as currently 50% of the B2B payments are still done by checks. Despite competition, I believe those companies will do well. However, I think the real winner in payments would need the following (in addition to the minimum mentioned above):

1. Embed payments into offering to create useful use cases
2. Integrate with Rewards

2 different companies that align with the theme I outlined above are eBankIT and Finix.

eBankIT is a BaaS company, and makes sense. This type of company has the advantage of combining different middeware services. Though there are lots of BaaS companies in the market, eBankIT stood out to me in that it has applied its middleware connections into different use case scenarios that are easy to see the value eBankIT provides. It also help eBankIT stood out from the plentiful BaaS providers in the market.

Finix helps business bring payments in-house by enabling software providers to become a payment facilitator. Basically, Finix embeds payment capabilities within vertical software solution providers. These software providers are typically software used for a particular industry such as private clubs, restaurants,…,etc. I like the company because

1. It has a very specific target.
2. Gives the power and flexibility to the customers, the merchants
3. Merchants can easily integrate payments with rewards to create real values.

Data

This is a big topic as anything from data analytics to AI are all dependent on data. Most of the companies that I found in my research provide the following:

1. integrate existing data sources into a single view, no more siloed data.
2. easy to integrate with other data source
3. able to create useful analytics

Since this is a big area, the company that I like most, MX, is unfortunately already well known. A similar, but less well known company that I also like is called Cinchy. Though MX is marketed as digital transformation enabler, and it does provide BaaS functionalities, its core capabilities is on transforming data. Specifically, its ability to consolidate data sources, make data easy to manage, and provide useful analytics for the FIs. There are also a lot of similar companies in the space. Taking network effect into perspective, that’s why I picked MX.

Personalization:

Personalized experience is going to be one of the key driver to provide value to customers especially in highly commoditized digital offerings. There are 2 companies that I like in the space: BlueRush and MoEngage. Note, though they may not be fintech companies, their offerings can certainly applied to finance.

BlueRush enables its business customers to create personalized videos that can help banks or FI better target its customers. One of the best communication medium is video, and BlueRush’s technology allows from customized content to links. With the abundant data available, if applied well can be very powerful tool to not only drive conversion, but also provide better user experience.

MoEngage enables banks or FI to create meaningful and intelligent customer engagement. Too often, I get emails, alerts, notification from my bank that I don’t really care about or seem redundant. Though probably not the biggest area for improvement, but combining BlueRush and MoEngage can help banks provide user experience that are better than its peers without such tools.

Conclusion

Above are some of the companies that I came across in my research. I am sure I missed a lot of good companies. Would love to hear any other ones. Thank you.