Exploring Fintech
Understanding The Broad Spectrum of Fintech Products
Fintech products are transforming our relationship with our finances. Companies are racing to build better products to service our financial needs across numerous use cases. Some with greater success than others. While financial services are a critical part of our society, many legacy services are still in the process of transitioning to fully digital experiences. While the industry is evolving, not all parts are developing at the same pace. However, the areas where development is the slowest are often where there is the most potential.
The companies that succeed in making the most complex financial operations simple, fast, and convenient will unlock tremendous value. For professionals seeking to work in the industry and build fintech products, it’s vital to grasp the scope and complexity of the fintech landscape. Understanding the nuances of different fintech applications can help us evaluate where the right opportunities exist. The ones that align with our skills, knowledge, and aspirations.
What Is Fintech
A technology-driven, user-centric model for delivering financial services.
Fintech, short for financial technology, is a broad term used to refer to solutions that transform how we interact with financial services. Fintech products offer speed, simplicity, and convenience. They empower people to do more with their finances by changing how we engage with financial activities. They create streamlined user experiences that are significantly better than legacy financial processes. Both people and businesses are increasingly relying on them for things like banking, payments, lending, and much more.
Core Attributes of Fintech Products
All fintech products share some common features:
They give users unparalleled financial access, insight, and control.
They prioritize seamless, intuitive, and personalized user experiences.
They reduce the stress, uncertainty, or fear associated with financial activities.
They focus on simplifying and automating complex, tedious financial activities.
They reduce or eliminate the need for manual assistance, making processes faster.
Three Types of Fintech Products
P2P: Facilitating financial activities between individuals.
B2B: Facilitating financial activities between businesses/organizations.
B2C: Facilitating financial activities between businesses/organizations and individuals.
How Fintech Products Make Money
Fintech products use several business models:
Interchange/Transfer Fees: The company charges a fee (to the customer, recipient, or payment processor) when customers make payments or transfers.
Subscription Fees: The company charges a recurring monthly or yearly fee in exchange for their services.
Trading Fees: The company charges fees on trades (buying/selling of stocks, assets, etc.), depending on the transaction amount, volume, and frequency.
API Connection Fees: The company integrates with financial service providers and charges them in exchange for providing API access to their data or services.
Advisory Fees: The company charges customers for advice, insights, and services that the customers use to manage, monitor, and optimize their financial portfolio.
Fintech Product Categories
Digital Banking
Digital banking products (also called neobanks) allow individuals and businesses to access all the same services as any traditional bank but completely online, through mobile and web apps. They can serve customers at a significantly lower cost than traditional banks. They transfer these cost-savings to customers by offering them financial services at more competitive rates. They have become a popular choice, especially in emerging economies, as people are seeking affordable, convenient, and personalized banking solutions.
Financial Management
Personal finance management products allow individuals to manage their finances. They provide services such as budgeting, financial goal-setting and tracking, financial education, etc. They often consolidate users’ financial activity across multiple accounts (bank accounts, credit cards, digital wallets, etc.). They provide holistic financial insights into an individual’s financial health. They help people effectively manage how they spend, save, and invest their money.
Examples: Mint, YNAB (You Need A Budget), Actual
Financing
Financing products allow individuals and businesses to access capital using options such as credit, loans, refinancing, buy now pay later (BNPL), crowdfunding, etc. They provide alternatives to traditional loans/credit lines that require a lengthy assessment process by using technology and user data to assess creditworthiness. They make the lending process fast, easy, and consumer-friendly, often offering more flexible, personalized repayment terms.
Examples: SoFi, Affirm, Klarna
Insurance
Insurance products (also called Insurtech) allow individuals and businesses to simplify how insurance services are delivered. Insurance providers use technology and customer data to assess risk and offer more personalized insurance offerings. Meanwhile, customers benefit from simplified claims processing, premium payments, and policy management.
Examples: Lemonade, Marshmallow, Oscar Health
Payments and Transfers
Payment products allow individuals and businesses to make transfers and payments to each other (P2P, B2B, or B2C). They enable simpler, faster, and more secure transactions between parties. They offer greater flexibility in making payments, often with lower transaction fees. They also provide a means to store and digitally transfer funds originating from multiple sources (bank accounts, credit accounts, digital wallets, etc.). They enable transfers across multiple currencies as well.
Examples: Stripe, PayPal, Revolut
Regulatory
Regulatory products (also called Regtech) allow businesses to comply with regulatory requirements (finance, legal, security, etc.). They help businesses simplify and ensure compliance in areas such as Anti-money laundering (AML), Know Your Customer (KYC), fraud detection, etc. In highly-regulator sectors, they can be essential in reducing risk by improving the scope, speed, and cost-effectiveness of compliance activities.
Examples: ComplyAdvantage, Trulioo, Vanta
Wealth Management
Wealth management products allow individuals and businesses to invest their money and manage their investments. They provide a platform to buy/sell different financial assets (stocks, bonds, ETFs, etc.). They can also automate the buy/sell process using algorithms and user-determined parameters. They can also offer tailored advice, financial insights, market projections, etc. to help users make investment decisions and manage their investment portfolios.
Examples: Robinhood, Betterment, Wealthfront
Other Categories
Fintech products also tackle several specific financial use cases as well:
Accounting: Products that assist businesses with recording, tracking, and managing their finances and financial activities. Examples: QuickBooks, Xero
Blockchain: Products that use blockchain technology for applications, such as cryptocurrency trading, smart contracts, and decentralized finance (DeFi). Examples: Coinbase, Ripple
Embedded Finance: Products that provide the technology infrastructure or systems used by other providers to deliver financial services. Examples: Plaid, Marqueta
Operational: Products that provide tools for specific financial processes, such as payroll, invoicing, spending management, etc. Examples: Gusto, Ramp
Real Estate: Products that focus specifically on enhancing the process of acquiring, pricing, and selling real estate assets. Examples: Zillow, Opendoor
Tax: Products that offer tax preparation and tax filing services for individuals and businesses, at regional, national, and international levels. Examples: Taxfix, Turbotax
How Fintech Product Development Is Different
Fintech products present unique challenges for product teams.
Compliance And Security
Product teams have to ensure their solutions meet the compliance and security requirements associated with providing financial services. Fintech innovations often outpace the existing regulatory frameworks. As legal systems race to define requirements, fintech companies may face new and unexpected challenges. For fintech companies with global aspirations, meeting the evolving regulations across multiple regions can quickly become a major challenge. Additionally, they are responsible for securing the customer’s financial assets and personal data against cybersecurity attacks, data breaches, etc. Each security failure has the potential to trigger massive financial and reputational losses. Therefore, compliance and security need to be considered at every stage of the development process.
Subject-Matter Expertise
Product teams must have a deep understanding of the intricacies of financial services they provide. They have to build solutions that align with how certain financial processes need to work. It’s critical to work closely with subject matter experts (SMEs) to ensure the product meets user needs and the technical, regulatory, and operational requirements. SMEs should be involved throughout the solution development process. Their feedback and insight should also inform new iterations. This ensures that the product delivers the right capability for both the customer and the financial service provider.
Technology
Product teams have to ensure that their solutions can deliver financial services seamlessly. Customers expect these services to be accessible and functional 24/7. Any issues, downtime, or outages can be incredibly disruptive, causing loss of customer trust, or worse money. Therefore, product teams need to ensure the underlying technology (algorithms, cloud infrastructure, third-party APIs, etc.) powering their solutions is robust. For example, a payment system that handles thousands of transactions should be able to handle a sudden jump to millions without issue. There will always be some growing pains, unexpected issues, or black swan events. However, it’s important to ensure that systems are tested and evaluated thoroughly to flag potential issues and design countermeasures in cases things go wrong.
User Experience
Product teams have to be especially mindful when designing fintech products. The demand for fast, simple, and easy experiences can often be at odds with the complex nature of financial activities. For example, if a financial process requires extensive customer information (for identity verification, risk assessment, compliance, etc.), the provider will have to get this from customers somehow. Oversimplifying the experience may cause more issues later on. Therefore, when simplifying workflows, teams have to consider why certain steps exist in the current legacy process. Some tedious aspects may be necessary. The goal is to solve customer problems while managing the constraints (legal, operational, etc.). Delivering a great experience without sacrificing vital requirements can be incredibly valuable for both customers and financial service providers alike.
Conclusion
Fintech products offer the incredible potential to harness technology across a wide range of financial applications. They will continue to become even more integrated into our lives. Digitization and AI will unlock new possibilities and opportunities for customers and financial service providers. The next wave of fintech products might be able to anticipate user needs, optimize financial decisions, and personalize solutions with unprecedented ease and efficiency. Product teams will have to inevitably overcome a new set of complex risks, requirements, and challenges. However, the products that succeed in truly evolving our financial processes will fundamentally change how we access, engage, and manage our finances.
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