A fintech market map. An industry overview by use case | by Medha Agarwal | August 2022
An overview of the industry by use case
In the last articles I talked about how at Redpoint we define fintech, why the ecosystem mattersas defined by universe of fintech infrastructures. In this article, I dive into a topic I’ve wanted to explore for a long time – a deeper look at the components of the fintech ecosystem and its sub-sectors (plus a market map, of course!).
As a reminder, we define fintech as any technological or business model innovation that improves the delivery of financial services.
Given this broad definition, I debated a dozen different ways to segment the market before landing on the simplest and most intuitive. I see the landscape in 3 main categories: consumer, B2B and infrastructure.
There are many ways to further segment the market. I chose to do it by use case because that’s how end users view the market: by need. Hopefully this will help operators and consumers navigate the landscape of businesses they can tap into for any specific need. Whether you want to know who the players are or see where there is white space, this market map can help you understand the many areas of fintech, how they fit together, and where the opportunities exist.
Consumer fintechs offer products and services to consumers. As a result, their GTM and user experience is geared towards individuals rather than businesses or developers. Within the consumer segment, there are 6 categories of businesses.
Bank and savings
This category includes consumer neobanks and savings products. The thesis here is that consumer segments have been completely ignored or underserved by traditional institutions, so providing products more suited to their needs will engender loyalty and unlock cross-selling opportunities, and therefore meaningful revenue per customer. Carillonfor example, notoriously eliminated overdrafts and account fees for its users, which can make up to 4% of profits in traditional banks. These fees, while lucrative, were most punitive for low-income consumers, which is the segment that Chime initially focused on serving.
58% of Americans – about 150 million adults – live paycheck to paycheck, according to a recent Loan club report. By helping consumers make ends meet and potentially save, businesses can build strong relationships with these users and monetize this emerging wealth over time while helping to improve the lives of millions.
Credit and loan
Americans love lines of credit. 77% of Americans have some form of debt. Companies in this category offer consumers a specific form of debt – mortgage, credit card, student loan, cash, etc. Similar to the category above, the thesis is often about focusing on a specific segment and expanding products and segments from there. SoFifor example, started by offering lower cost student loan refinance options to students at top universities and expanded into mortgage, banking and other products over time.
Wealth negotiation and planning
This category includes many products that I consider under the “financial management” umbrella. I believe there is a significant trend towards consumers wanting a more active role in their finances. The rise in Robin Hood, M1, crypto, etc exemplify this interest in platforms and tools that allow users to have finer control over where and how their money is invested compared to more traditional wealth management advisors. In conversation after conversation with Millennials and Gen Z, they express skepticism about the added value of organizations that charge 1% on AUM and a distaste for models that require regular face-to-face interaction.
Companies in this category empower and empower consumers to more actively manage their finances, whether it’s stocks, taxes, alternatives, and more. Some companies are trying to put on autopilot more targeted investment strategies at lower cost (e.g. wealth front, Titan, Improvement), others provide access to asset classes previously unavailable to retail investors (e.g. Rally, yield street), and still others attempt to optimize taxes (e.g. Agent, Margin).
Similar to bank account unbundling, insurtech has in recent years seen new entrants providing an improved digital offering of insurance products, marked by better UX, UI and transparency. Many of these companies offer easier access to insurance products like life, auto, and homeowner/tenant. Many are also innovating on the distribution model and some on subscription as well.
This business segment enables the transfer of money between consumers. The use case and experience vary, but the structure is similar – a consumer most often transfers money from one digital wallet to another. Venmo, cash app and Zelle are among the best known examples.
This one is vast. Companies in this category innovate the home ownership experience, whether it’s buying, selling or owning. For instance, open door made selling a home more turnkey and arguably guaranteed while Divvy allows consumers to work towards the ability to purchase a home through their lease-to-own financing structure.
Companies in this sector create products and services for businesses. Unlike fintech infrastructure, these are applications that are most likely usable as standalone products rather than building blocks for others. These products are used directly by the buyer for their own workflows, rather than to create a new product or service for their end customers. Within B2B, there are 6 categories of companies.
Business-to-business payments continue to be an area of great friction and opportunity. It is very difficult and expensive for businesses to accept, send and manage payments today. Given the scale and complexity of payments, companies in this space start with a specific corner, working to simplify and streamline a specific aspect of this process. Ramp and Brexitfor example, started by making it easier for start-ups to get their first credit card to pay faster and easier for their products and services while Melio focuses on improving invoices and cardless payments (ACH, wire transfer, etc.).
Companies in this category, similar to mainstream companies, offer products such as cyber and P&C to their customers. Often they innovate in distribution or underwriting by focusing on underserved segments of the market.
Financial management and workflows
This category is arguably the most important in B2B, as it encompasses the suite of products that enable businesses to manage their finances – to track, plan and account for revenues and costs. This covers ERP and accounting, AP/AR reconciliation, expense management, accounting as well as equity management. off-planfor example, develops modern FP&A software for finance teams to make scenario planning and collaboration faster and easier while appzen streamlines the compliance process.
These companies lend capital to companies. Like insurance, they often create unique distribution or underwriting capabilities. Adjust offers invoice financing for e-commerce, while Pipe focuses on SaaS businesses.
These companies provide business banking services. Like their mainstream counterparts, companies in this category typically target underserved users and provide a more personalized experience with better UX, integrations, and products. NordOnefor example, targets small businesses and provides them with value-added features such as integrations to more easily sync data, mobile payments, and budgeting.
I have already shared my point of view on opportunity to empower infrastructure and one fintech infrastructure market map and its subcategories. These companies provide the building blocks for pickaxes and shovels that power fintech use cases. It is important to underline that they can propel traditional fintechs but also non-fintechs who wish to include financial services in their offer. This is a growing trend that I continue to be optimistic about. I grouped the landscape into nine use cases:
- Identity, fraud and risk
- Enabling Cryptography
- Data aggregation and normalization
- Income verification and payroll
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