Financial Technology (FinTech) Is Driven by Mobile Payments, Lending, Insurance and Simplified Online Investment Management

Financial technology, often referred to as FinTech, is one of the fastest-growing sectors in the world of business. Earliest applications of FinTech were basic, pretty much limited to the convenience and market-wide acceptance of managing bank and other financial accounts online. Today, however, FinTech is about revolutionizing the management and processing of money, from banking to credit cards, from online payments to investments.

A vast amount of effort and money is being invested in creating compelling digital payment systems—that is paying for goods and services without cash, often remotely via smartphone or desktop PC. This includes payments made at retail counters using smartphones, or in web-based shopping carts via mobile devices. The entire “mobile commerce” sector is booming, as more and more shopping is done via smartphones, and consumers are eager to adopt the most convenient ways to pay for their mobile purchases, whether they are buying from Amazon, Etsy or a neighborhood restaurant.

In addition to mobile payment apps aimed at general shopping, there are many successful proprietary apps for use in making payments at specific companies. Starbucks has been a great pioneer in this regard. In Starbucks’s case, the key is not simply offering an alternative payment process, but instead speeding up and making more convenient the entire ordering and checkout process, including the ability to order that latte in advance from your smartphone, or paying at the counter using your Starbucks loyalty card that is linked to prepaid money in your own Starbucks account. Another example is the seamless ordering and payment of a ride conducted via the Uber app or ordering a meal to be delivered via Grubhub. Mobile payment is of constantly growing importance as an integral component in the entire customer experience.

Sophisticated FinTech apps are aimed at sending funds to friends and family as “peer-to-peer” payments. Leading products in this area include Zelle, Venmo (offered by PayPal), Apple Pay and Samsung Pay. This practice has soared in popularity on a global basis.

Arranging personal loans and business loans via FinTech apps and online platforms is soaring. Leaders include LendingClub, OnDeck, Prosper and SoFi. Artificial intelligence is utilized to examine the records and lifestyles of potential borrowers, and then approve or reject loans based on machine learning.

Seeking and managing insurance coverage via FinTech apps and enhanced online tools is also on the rise. (This field is sometimes referred to as “insuretech.”) FinTech developed for the insurance field ranges from improving consumers’ ability to select and apply for coverage; eliminating the broker/middlemen traditionally dominant in many types of insurance; and giving consumers alternative types of coverage, such as pay-per-mile auto insurance. Pioneers in this field include Lemonade (renters’ insurance) Clover Health (Medicare Advantage policies), Metromile (pay-per-mile auto insurance), Oscar (health insurance) and PolicyBazaar (all types of policies within India).

Creating simplified investment management tools for mobile users is another hot trend. Companies leading in this area include the wildly popular Robinhood. Many of these firms offer “Robo-Investing,” whereby the account owner sets investment goals and computer programs then allocate and manage investments into various types of funds. The goal is to simplify management and reduce the fees that would otherwise be paid to traditional managers.

Several companies now offer automated investment management services at modest cost—even free-of-charge. These robo-advisors guide investors through a series of questions about their ages, risk tolerance and investment goals, and respond to the answers with any of several model portfolios. Fund shares are automatically bought and sold to keep assets in balance, with adjustments to lower risk as clients age. Vanguard offers such a service, called Digital Advisor. A similar system is available at Charles Schwab called Schwab Intelligent Portfolios.

One of the most-watched robo-advisors is a firm called Betterment. This service was designed largely with tech-savvy millennials in mind. Customers set up an online profile by completing details about their investment, savings and retirement attitudes and goals. Betterment then builds and manages an automated investment portfolio, rebalancing it on an as-needed basis so that the portfolio continues to meet the client’s profile. Fees are quite low. Services include IRAs, personal savings plans, investment plans, trusts and savings and checking accounts. The fee includes unlimited “messaging access” to licensed financial advisors.

SPOTLIGHT: Lemonade Insurance Company

Lemonade Insurance Company is a property and casualty insurance company based in New York City, offering renters’ and insurance policies for homes, apartments, co-operatives and condos, with a focus on serving the Millennial market. Lemonade uses its Lemonade App and Maya, an artificial intelligence (AI) bot, to collect information from customers and to craft a personalized insurance product in less than two minutes’ time. Answering questions such as where one lives, and the type of coverage desired produces a quote. Additional add-on coverages are then recommended. Premium payments and the filing of claims are handled through the app. A portion of a consumer’s premiums paid-in are donated to charities, if insurance losses on the account are not high. Users can choose the charities that they prefer. Monthly premiums for renters’ insurance begin at $5, and homeowner’s insurance premiums start at $25 per month. For those already insured, Lemonade takes care of the process of switching. Lemonade is fully licensed and reinsured by trusted insurance companies. Investors in the firm include Aleph, General Catalyst, GV, Sequoia Capital, Thrive Capital, XL and SoftBank.

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