The Lines That Divide FinTech Segments Are Blurring

The financial services industry is in a flux right now; nobody has a clear-cut five-year strategy. I love this state of constant chaos and disruption as it will make us stronger as an industry in the long run. It will test the companies to the core and will jettison the waste. The winners will come out stronger; there will be consolidation. A starting point I see right now is that companies are crossing the lines that used to divide segments. They are beginning to offer more than one or two financial services. Some of it is by design (blame the strategy/consultants suggesting product line expansion) and some of it is by default. Entrepreneurial instinct plays a role as well.

We do a lot of things with money. We earn money, we invest/save money, we transfer money to others, we pay for goods with money (commerce transactions) and we borrow money. Because of their focus (and limited resources), startups have traditionally worked on bringing fresh new ideas/approaches to one niche/specific segment that they think they can disrupt. Of course, collectively, startups are disrupting the whole financial services stack, but individually, they have focused on one or two things so far. But not anymore; things are changing. Money works best when there is an overlap between the source of funds and use of funds. Transactions happen much more smoothly and you need to have lesser accounts and lesser passwords to remember. That is probably how a cashless society will work in the future. We are seeing a trend where the lines between two segments—such as P2P money transfers and online/offline payments—are blurring.

In this article, we will try to look at the different FinTech and non-FinTech players who are getting into different services apart from their core services.

1. P2P money transfers and online/offline payments:

PayPal is trying to grow both—have more people transfer money within their network (no fees for individuals) and also more merchants where you can pay (discounts/offers). We see players from payments getting into P2P (Apple, Google wallet, Oink) and players in P2P getting into payments as well (Venmo/PayPal). This will continue to happen in the future.

2. PFM and peer-to-peer lending:

Prosper Marketplace acquired BillGuard, the personal finance tracking application that enables users to protect & control credit and identity in real time from their mobile devices.

By acquiring BillGuard, Prosper has allowed itself to provide recommended financial decision-making tools to its customers. By combining historic data from both platforms and applying big data technologies, Prosper could deliver impressive financial recommendation and provide valuable insight to investors.

3. Auth/security and banking technology:

Early Warning, a leading player in fraud prevention and risk management, has acquired ClearXchange, a company that provides bank technology to offer P2P. Early Warning has also announced its partnership with Fiserv, a leading global provider of financial services technology solutions. These partnerships will expand the availability of real-time capabilities in the US by facilitating real-time bill payment and deposit capabilities for users of the NOW Network from Fiserv or the Good Funds Network from Early Warning.

4. Card networks/rails and P2P payments:

MasterCard launched MasterCard Send —a first-of-its-kind personal payments service that enables funds to be sent quickly and securely to consumers domestically and internationally.

With MasterCard Send, consumers can seamlessly send and receive funds from friends and family typically within seconds through providers, including issuers, money transfer operators, merchants and more. The service also provides the capability for cross-border P2P payments reaching consumers anywhere.

Visa Personal Payments is a person-to-person payments service that enables anyone with a Visa credit, debit or reloadable prepaid card to accept payments from another Visa card without needing to share any account details.

5. Payments and remittance:

PayPal, Inc. and Xoom Corporation announced a definitive agreement under which PayPal will acquire Xoom for $25-per-share in cash or an approximate $890-million enterprise value.

Dan Schulman, President of PayPal, said, Expanding into international money transfer and remittances aligns with our strategic vision to democratize the movement and management of money. Acquiring Xoom allows PayPal to offer a broader range of services to our global customer base, increase customer engagement and enter an important and growing adjacent marketplace. Xoom’s presence in 37 countries—in particular, Mexico, India, the Philippines, China and Brazil—will help us accelerate our expansion in these important markets.

6. Wealth management and PFM:

Envestnet, Inc., a leading provider of unified wealth management technology and services to financial advisors, acquired Yodlee, Inc., a leading cloud-based platform driving digital financial innovation.

We warmly welcome the Yodlee team to the Envestnet family. Yodlee’s pioneering data aggregation solutions greatly strengthen Envestnet’s broadly integrated wealth management platform and solve a mission-critical problem that advisors and their clients are facing today—efficient client onboarding and comprehensive planning over all of the client’s assets, said Jud Bergman, Chairman and Chief Executive Officer of Envestnet. Advisors seeking solutions that will enable them to serve and add value to their clients for their lifetime will find the combined Envestnet-Yodlee offerings to be compelling.

7. Banks and PFM:

A delightful experience with your financial institution should be the ideal scenario. Banks should be walking alongside their customers, clearing a path, so that their customers can feel empowered without worrying about money. Capital One is one such bank that is portraying the same ideology for its future banking services.

Capital One acquired the San Francisco-based startup which developed the money management app Level Money. Level Money's acquisition reinforces Capital One’s commitment to digital banking technologies, capabilities and talent.

8. Payment processing and payment analytics:

Cloud-based analytics and big data company Applied Predictive Technologies (APT) was acquired by MasterCard for $600 million. In February 2015, MasterCard announced $20 million in funds, specifically allocated for boosting its cybersecurity technology. Plans to launch a biometric authentication and verification service are already in the works. This move can be seen as part of MasterCard’s plan to expand its technological reach. The recent acquisition will benefit both MasterCard and APT. MasterCard plans to utilize APT’s Test & Learn platform and other services in combination with its own analytics expertise to provide customers with enhanced decision-making capabilities.

9. Non-FinTech and FinTech:

As Facebook Product Manager Steve Davis said, Payments in Messenger is focused on providing utility. People talk about money all the time in Messenger but end up going somewhere else to do the transaction. With this, people can finish the conversation the same place started it.

WeChat, China’s biggest messaging app with more than 600 million active users, announced an agreement which enables WeChat users in the US to send money to 200 countries and territories via Western Union’s Connect platform.