Do you know the 2 categories of fintech?

We say fintech in housing and banking like those in Hollywood say Kimye. But unlike the shortcut for power couple Kim Kardashian and Kanye West, fintech is more than a shortcut for fintech.

Let’s make sure we understand the definition of fintech and its two distinct categories so that we can make better decisions for our businesses and careers.

Julian Hebron, columnist

Before fintech was in the dictionary

Before making the two definitions of fintech, here is a brief history.

The term “fintech” landed in the Merriam Webster Dictionary and the Oxford English Dictionary in 2018, but was coined in the 1980s. At the time, Peter Knight of the Sunday Times in London was editor of a newsletter of information called Fintech.

But the term fintech only became a nickname earlier in the current economic expansion cycle. Fintech began to take root as two generations of companies emerged in the pre- and post-crisis years.

Prose, loan club and SoFi launched the wave of digital personal and student loans in 2005, 2006, and 2011, respectively.

wealth front, Improvement, Personal capital and Robin Hood launched the wave of digital investing and stock trading over the phone in 2008, 2008, 2009, and 2013, respectively.

Fintech has cemented itself as these companies grew into known players valued at $16.5 billion.

The rise of software companies powering banks and lenders has also cemented fintech as a phrase and a concept.

Examples with significant mortgage market share include Ellie Mae (founded in 1997), finicity (1999), Black Knight (2008), FormFree (2008), Full expert (2012), Mixed (2012) and Plaid (2013). It should be noted that Black Knight has a longer history and was only called by its current name in 2017, and that Ellie Mae has been particularly active in fintech mergers and acquisitions throughout those years. post-crisis.

This history helps us understand why fintech should be defined in two categories.

Fintech Category 1: Financial service providers

The first category of fintech includes digital-native consumer-facing banks, lenders, wealth managers, insurance and other finance companies.

Today, there is a whole new generation of these fintech companies which are also called challenger banks, neobanks or simply start-up banks.

In addition to the names above, the new generation of direct-to-consumer fintechs includes players such as Varo (1 million customers), Monzo (3 million), Carillon (5000000), SilverLion (5.7 million) and Revolution (8000000).

These companies mostly start with a single budgeting, savings, borrowing or investing product, and are now expanding into other banking products since they have proven their effectiveness. customer acquisition and engagement power.

Closer to home, Figure is another example of direct-to-consumer fintech. It started with home equity loans and now extends to first mortgages and student loans. Figure has already raised $225 million since its inception in 2018 and has a $1.2 billion valuation.

While no company in the original or new consumer-focused fintech cultures has achieved mortgage dominance, SoFi remains active in mortgage lending, and Wealthfront and Varo were more vocal about their mortgage ambitions in the fourth quarter of 2019.

Fintech Category 2: Financial services software providers

The second category of fintech includes business-to-business (B2B) software, tools, and technology platforms to power banks, lenders, wealth managers, insurance companies, and other financial companies.

Likewise, there is now a new generation of these B2B fintechs powering consumer finance companies in addition to the list in our history section above.

For example, the whole concept of Mortgage Point of Sale (POS) was created recently with companies like SimpleNexus, Roostify, Mixed, Cloudvirga and Maxwell created respectively in 2011, 2012, 2012, 2016 and 2016.

CRMs specific to real estate loans date back to 2003 and 2004 with the creation of On your mind and Volley, respectively. And since its inception in 2012, Total Expert has helped evolve this segment from a simple CRM to a complete marketing operating system (MOS) that can serve all of consumer finance (beyond just mortgage loan) with automation and modern digital tactics.

More recently, a new breed of B2B fintechs are emerging to help banks and lenders with customer incubation, conversion and engagement.

This is badly needed as customers increasingly expect banking and lending to be as simple as ordering Pringles the same day from Amazon before gorging on Netflix.

Consumer-focused fintechs are getting it, and these new B2B fintechs are now enabling existing banks and lenders to do so.

Examples here include NestReady, house captain, Ojo, Homebot, Sales Boomerang and Come to the house (by HouseCanary), all founded in 2012 or later.

All of these B2B fintechs discussed above will continue to reshape the lending and banking space in 2020 and beyond.

What kind of Fintechs are lead aggregators?

But let’s not forget lead aggregators, which are evolving so fast that some are still B2B fintechs and others have become mainstream fintechs.

Zillow was founded in 2004 and immediately caught on as we all snooped on home prices from friends and family.

Until last year, they made all their money selling leads (the hundreds of millions of us on the site) to lenders and realtors. Then Zillow became the Netflix of homes by directly buying, selling and financing homes.

They have gone from B2B to direct consumer. Their B2B segment is still a huge contributor to its $9.4 billion market cap, but it’s now a hybrid fintech model.

Will be credit karma go in the same direction? They have a valuation of around $4 billion and 100 million members watching credit. They refer members to banks and lenders upon request.

But Credit Karma also recently added a Credit Karma savings account. This is the same playbook as the direct-to-consumer fintechs mentioned above.

Consumers and fintech professionals all win together

During the third quarter of 2019, venture capital funding in the United States in the consumer and B2B fintech categories totaled $12.9 billion across 513 deals according to CB Insights.

This has already surpassed $12.5 billion in funding for all of 2018. So while the business cycle is mature, the push for fintech is still very strong. Customers win as consumer-focused fintechs push innovation ever faster.

B2B fintechs then bring that same innovation to existing banks and lenders. So it’s even easier for customers if their existing banks and lenders can just add the cool technology.

And as long as we keep up, the fintech race is great for our careers.

I will continue to do my part to help us keep pace.