Breaking Down the FinTech Industry

February 28, 2019

MONTHLY ANALYSIS

At MEDICI, we track 12,000+ FinTech startups across dozens of segments and subsegments and are able to draw the most detailed picture of the FinTech industry. Let’s look at that picture on a more granular level.

breaking-down-fintech-industry-1.jpg

Payments startups have long been the most represented in the FinTech landscape, traditionally followed by lending. But as our platform becomes more precise and data-rich, WealthTech has emerged as the most represented segment among the 18 segments that we track.

In total, there are 2,180+ WealthTech startups (compared to 1,900+ in payments and 1,750+ in lending), broken down into five subsegments:

  • PFM: 749

  • Investment platforms: 257

  • Financial research: 278

  • Robo-advisors: 108

  • Other investment platforms: 544

No wonder. With a projection of around $210 trillion in private wealth globally by 2019 – and $55 trillion in North America – wealth management may very well become one of the hottest segments in FinTech. Industry professionals suggest that banks are looking to serve those with $20 million or less with standardized, consistent advice through digital platforms; while for clients with $20 million or more, banks will strategically use digital tools, like portfolio access, to free up relationship managers to work more proactively with clients.

A number of entities have demonstrated the ability to compete with bold technology startups both in terms of adoption of advanced technologies, and costs to the business and consumer. BBVA (& FutureAdvisor), Wells Fargo (& SigFig), Barclays, Fidelity, Capital One, Deutsche Bank, Morgan Stanley, U.S. Bancorp (& FutureAdvisor), TD Bank, TIAA, UBS, Merrill Lynch, ATB, China Merchants Bank (CMB), Goldman Sachs, RBC & FutureAdvisor, BNP Paribas, Standard Chartered, E*TRADE, China Everbright Group, RBS, and ICBC are just some of the examples of institutional response to the rise of WealthTech.

As mentioned, payments startups have the most representation. There are around 1,990 payments startups operating around the world across the following subsegments:

  • Mobile/digital wallet: 611

  • Payments gateways: 335

  • Software/white label/APIs (payments): 324

  • POS/mobile POS: 316

  • Bill payments: 224

  • P2P payments: 197

  • Processors: 162

  • Proximity mobile payments: 87

Not surprisingly, mobile/digital wallets are the most saturated subsegment within payments – there are 610+ startups in this subsegment. A certain process, however, will bring the honeymoon in the digital wallets space to its inevitable end. The consolidation of resources (financial, talent, technology, and ideas) in the financial services industry will balance the market. It will also bring it to the original structure, where a very limited number of companies control the majority of the market.

In one of the most attractive FinTech markets globally – China (to be accurate, Hong Kong is given much more credit than mainland China, but nonetheless) – only two companies, Alipay and Tenpay, run a duopoly over mobile payments in the country, with 91% of the market.

More importantly, powerful companies worldwide tend to extend their reach beyond domestic markets and original segments, a move that strengthens their position and provides a competitive advantage in niche markets against smaller companies.

In the US, four major credit card networks – Visa, Mastercard, American Express, and Discover – dictate where credit cards and debit cards can be used. Visa and Mastercard have a significant advantage in terms of worldwide acceptance, while Amex and Discover supplement their payment facilitation business by issuing cards directly to consumers, according to WalletHub.

The lessons from the FinTech graveyard reveal that approximately 75% of venture-backed startups fail. Even though the number may vary in different markets, the idea remains valid: the vast majority of ventures will fail for one reason or another, perhaps due to lack of knowledgeable investors, problem/market misfit, compliance issues, unclear/absent marketing plan, misleadership, financial mismanagement, etc. All these foibles will leave the minority to tear up the market for sustainable shares.

The story of FinTech doesn’t culminate in 25% of survivors as these startups are not ending up becoming unicorns either. Although a 2017 survey revealed that 23% of consumers would give up their mobile banking app for a digital wallet with all their payments information in one place, even if there ever was any perceived or real threat to banking apps, banks are ready to reclaim full control of the payments market utilizing two international models:

  1. Modular framework, or

  2. Infrastructure + front-end competition

Following payments, lending is the third-most saturated segment in FinTech represented by approximately 1,756 startups across the following subsegments:

  • Online loans: 434

  • P2P lending: 394

  • SME finance: 353

  • Other lending: 351

  • Credit scoring: 127

  • Microfinance: 97

  • Social financing: 16

Not surprisingly, online lending companies comprise the biggest subsegment – there are about 434 online lending platforms operating around the world.

breaking-down-fintech-industry-2.jpg

Among the remaining segments, InsurTech and RegTech are worth mentioning – two FinTech segments that rapidly gained attention in the past few years. RegTech, in particular, is well-positioned to see the most significant developments due to the ever-increasing complexity of international regulatory environments and the pressure of enforcement.

As regulatory environments globally become increasingly complex, strict enforcement of new and updated guidelines leads to a highly prohibitive cost of even the simplest misstep, not mentioning misconduct. The estimates suggest that the cumulative penalties imposed since 2009 rose to $345 billion by the end of 2017, which is an increase of $22 billion from the cumu­lative total at the end of 2016. About 54% of compliance and risk practitioners are expecting personal liability to go up in the next year.

By 2021, regulatory costs are expected to rise from 4% to 10% of revenue, driven primarily by the sheer volume of regulations – each week sees an average of 45 new regulatory-related documents issued. The impact of this change on information governance in a financial institution is profound across all stages – data collection, data processing, data sharing, and data security.

There are approximately 776 RegTech startups operating around the world across seven subsegments:

  • Authentication & fraud prevention: 439

  • Compliance: 205

  • eKYC/AML/CFT: 120

  • Risk management: 112

  • Data management: 58

  • Governance: 40

  • Regulatory reporting: 31

Compliance costs for financial institutions amount to substantial parts of their total expenses, with a negative correlation between the size of the institution and the percentage of total costs. For banks with assets ranging from $1 billion to $10 billion, total compliance costs are averaging at 2.9% of their non-interest expenses; for banks with less than $100 million in assets, the costs averaging at 8.7% of their non-interest expenses. For some banks, it takes up to $4 billion a year to cover demands ranging from checks to prevent money laundering, to requirements to give more data to regulators for stress tests.

It’s not surprising that RegTech is among the most attractive areas of development; it is expected to see more entrepreneurs rushing to jump at the opportunity to alleviate a never-ending pain.

InsurTech, represented by around 1,398 startups, is also among the hottest FinTech segments, breaking down into eight subsegments:

  • Software/white label/APIs (InsurTech): 390

  • Aggregators/policy management: 278

  • HealthTech: 155

  • IoT (preventive insurance/telematics): 110

  • Online-first insurance: 110

  • Claims: 109

  • P2P insurance: 46

  • On-demand/sharing: 26

The remaining segments are far less competitive but certainly not less important:

breaking-down-fintech-industry-3.jpg

Crypto and blockchain are as relevant and controversial as ever. Numerous financial and non-financial applications of blockchain technology have finally filtered out the most relevant ones for corporations and in the next year, we are likely to hear of more initiatives moving from the PoC stage to production as businesses measure operational benefits.

Want to know more about the scale of the FinTech industry on a national level? Contact our research team at info@gomedici.com.

Read and learn about topics you are interested in.

By clicking, you agree to our Terms Data Policy and Cookie Policy. You may receive SMS notifications from us and can opt out at any time.

DON'T MISS OUT

By clicking, you agree to our Terms, Data Policy and Cookie Policy. You may receive SMS notifications from us and can opt out at any time.