Thanks @jasonboud @mc1 These very valid critique got us working harder on this hard task.
We have two parts to our research platform and we have let the categorization diverge and we now need to fix this. In the co-creation spirit of Fintech Genome it is great to get so much community help on this. Thank you.
On Daily Fintech (https://dailyfintech.com) the highly curated part of our research platform (which has been going since July 2014 and has over 14,700 daily subscribers and 600 archived research notes) we took a lot of care with categorization and I want to share with you our thinking on this and see how much of this we can apply to Fintech Genome.
This is hard because “bits don’t stop at historical category boundaries”. Digitization changes practices & models and that blurs previously distinct categories. That is why we visualize Fintech as an ocean; the fish (customers) move from one part of the ocean to another, even if we can expect more of a certain type of fish in a certain part of the ocean. If you take a customer centric approach (essential to reaching Product Market Fit), you ignore artificially defined categories to focus on the needs of real people.
That is why our primary key on Daily Fintech is by type of customer. Alternate keys are
Technology such as Blockchain or AI. We don’t use this as a primary key because these technologies cut across all customer types. Our Theme Weeks on Daily Fintech cover these “cross-cutting concerns” (for example: https://dailyfintech.com/2016/11/07/introducing-open-api-week-on-daily-fintech/)
Function such as Payments. We view payments within customer context. For example, consumer payments (P2P) is utterly different from big ticket payments in Capital Markets.
Business model such as Crowdfunding or Marketplace Lending. The problem here is that names evolve as markets evolve; for example P2P Lending to Marketplace Lending and AltFi and Digital Lending.
By region. Our platform is totally global and our community pretty much tracks global GDP, with a bias to English speaking countries (until we get our translation and multi-language act together). “Bits don’t stop at borders, but money has to show its passport”. Although we see convergence over time, as of today there are huge differences between countries due to differences in regulation, business practice and culture. There are some great conversations on Fintech Genome on this subject.
For Alternate Keys we use tags. As the old saying goes, “everything is miscellaneous” ie fixed taxonomies don’t work well in a fast changing world. People have different mental models - vive la difference. Search helps us get past this issue.
Customer Centric Categories
On Daily Fintech we have 4 Customer Centric Categories:
In each case we have a fundamental thesis about how the market is evolving and that leads to some sub categories.
Consumer Banking & Finance
This is what has historically been seen as Fintech ie the unbundling of Banks by new entrants (Neo or Digital or Challenger Banks or Full Stack Fintech are some of the names being applied to this) as well as new models (such as MarketPlace Lending).
Our thesis is that change is coming from two ends of the spectrum:
Underbanked. This illustrates the adage that innovation comes from those who have been excluded from the old way of doing things. We see lots of innovation coming from the Rest of the World (formerly known as Emerging or Developing). In these countries, consumers go straight to digital without ever using a traditional bank branch. This is what we call “First the Rest then the West”.
HyperEfficient economies. These are economies replacing branches and cash with mobile services because the people need productivity and the banks cannot afford the old labor intensive ways of doing things.
Wealth Management & Capital Markets
We define Wealth broadly as being any amount of capital, small or large, that is allocated to financial assets (private equity, public stocks, bonds, currencies, real estate, precious metals, art etc). We include both short-term trading as well as long-term investment. Customers wanting their capital to grow can be passive (leaving it to professionals) or active (sending time to find assets to trade/invest).
Exchanges, brokers & dealers, investment banks, asset managers, private banks, retail and commercial banks, and the entire world within and behind all these front end scenes (such as research, custody & compliance); are all serving wealth creation needs of all sorts and at all levels, ranging from millennials to corporates.
Digital Wealth Management is so intrusive that in a few years we wont be able to distinguish it from all other basic lifestyle needs. The digitization of Wealth Management affects developed societies and underserved ones.
Small Business Finance
This is a massive opportunity because banks have ignored small business for so long. Small Business is like a middle child – neither the oldest (big business) nor the youngest (consumer). This also illustrates innovation coming from those who have been excluded from the old way of doing things. Small business needs the same Corporate Finance products that big business needs (such as debt, equity, payments, foreign exchange) but to serve these efficiently to millions of small businesses requires a far higher degree of automation and different business models. The models for a small business service are just as likely to come from Consumer Finance as they are from Corporate Finance.
This an example of change blurring old lines. Banks historically lumped Small Business in Consumer and Medium Business in with Corporate & Investment Banking. In neither case did they get the attention they deserved, leaving the market wide open for startups.
We see InsurTech as a category within Fintech rather than separate. It is certainly viewed that way within traditional financial services where universal banks such as Citi grew out of a merger between an Insurance company and a Bank. Insurance has two sides. One side takes in Premiums and pays Claims. It is a customer service business with a focus on sales and marketing, business process management and statistical risk management. The other side of Insurance invests that cash flow to make sure they have the capital to pay Claims as needed. This part of Insurance intersects with the Wealth Management & Capital Markets category.
The one thing nobody debates is that this is a very big ocean.
Fintech is big because Financial Services has been a big % of GDP (e.g. 7% in USA, 10% in UK and Switzerland) and most of it can be delivered digitally (or dramatically enhanced digitally).
Do those 4 Customer Categories make sense? Is everything else a tag and we can let search help us? Tell us what you think