FinTech investment reached $8.4 billion in Q2 of 2017 alone, more than doubling from the previous quarter.
The industry has seen dramatic growth since 2010 with the main reason consumers choosing FinTech solutions being that they provide a more frictionless experience than that of traditional financial services.
The top 5 most important FinTech sectors account for close to 60% of total FinTech investment.
The percentage of investment a specific sector attracts can, therefore, give us an indication of how important the category is to consumers and what level of disruption are needed to modernize the sector.
1) Peer-to-peer lending
Peer-to-peer lending is one of the sectors that take the big financial institutions head-on by targeting their most profitable products, i.e. loans.
It’s no surprise that it attracts the most investors.
It’s an alternative form of financing that puts individuals and young startups in contact with potential investors.
The chances of getting approved for credit is much higher than through banks and provided at a much lower cost.
In doing so, it further fuels growth and innovation by giving small businesses much-needed funding to get projects off the ground.
The global remittance market is worth $530 billion annually.
With today’s ever-increasing globalization, more and more people process gross border transfers on a regular basis. This is more prominent in developing countries where global remittance increased by 51% between 2007 and 2016.
The problem is that traditionally, it’s incredibly expensive to make an international transfer. In Southern Africa, it costs on average close to 15% of the total transfer amount.
This means that disruption in the remittance sector is especially important, making it viable for people to send large or small amounts of money around the world at a fraction of the cost.
One of the biggest FinTech remittance companies is TransferWise. $500 million is moved through the platform every month and the company recently raised a further $280 million in funding, pushing the company value to $1.6 billion.
3) Online Payment Processing
In America alone, more than 50% of people actually prefer to do online shopping than traditional brick and mortar retail. By 2020 it is expected that e-commerce sales will reach $4 trillion (with a ‘T’).
There is, therefore, a multitude of startups looking to stake a piece of the industry, making it easier, safer and cheaper for consumers to pay for products and services online.
As the internet’s impact on every aspect of our lives continues to expand, this sector is set to become one of the biggest in the world, not just in FinTech, but amongst all industries.
4) Mobile wallet applications
Mobile wallets could be seen as a sub-section of the payments sector as it not only provides a safe place to store your money but also offer seamless payment solutions.
Between 50% and 70% of people in developing countries do not have access to traditional financial services, like a bank, while around 80% of individuals do own a mobile phone.
Due to the huge opportunities for FinTech startups to make a real difference in the lives of the unbanked individuals around the globe, the sector attracts around 10% of total FinTech investments.
The sector is so lucrative that big tech companies have developed their own wallets, such as Apple (Apple Pay), Google (Google Wallet) and Samsung (Samsung Pay).
It is also seen as the birthplace of FinTech, with PayPal one of the first ever platforms to leverage technology in order to disrupt traditional financial services.
5) Fraud and security analysis
In 2016, consumers lost more than $16 billion to online fraud and it is estimated that around $10 billion will be spent in the next 5 years focussing solely on online fraud detection and prevention.
FinTech startups focussing on anti-fraud and security use technologies such as Artificial Intelligence and Machine Learning in order to find patterns in financial transactions that could indicate a high risk of fraud.
Brighterion has recently won the Morgan Stanley FinTech Award for its innovation in the field.
Featurespace is a world leader in adaptive behavioural analytics software and deep machine learning. Its services are used in 180 countries around the world, including by companies such as Betfair and William Hill.
Knowing that our money and identity is safe when we transact is very important and also the reason we see so much activity in this sector.
FinTech as a whole is a revolutionary industry that’s making every aspect of our financial lives easier, more accessible and faster. The amount of investment each individual sector is attracting shows us where the opportunity for disruption is the greatest and a good indication of how the industry will evolve in the future.