Financial services have long been considered the centerpiece of global commerce. With increasing globalization, shifts in demographics and the emergence of disruptive technologies, it is time for traditional financial institutions to retool and reboot. This digital transformation will be driven by both internal pressures from customers and vendors, and external pressures from challengers including tech-savvy competitors and fintech startups.
Financial sector executives are aware of the need to act fast, as a PwC report that surveyed 1,308 financial services and fintech executives found. In the report, 75% of those polled saw fintech startups as both the greatest threat to established financial business models as well as the greatest opportunity to enter new markets and unlock new opportunities through B2B partnerships.
The rapid rise of fintech startups in Silicon Valley underscores these findings. According to a KPMG report on fintech investments, US fintech startups received a record $15.2 billion in 2017. Investment focus on seeking value-driven opportunities indicates the advanced maturity of the industry, as investors increasingly discovered mature startups and technologies with immediate commercial applications. In addition to traditional venture capital, the KPMG report also found that corporate participation in VC deals reached a record high of 19% of all deals, signaling that traditional financial corporations are increasingly looking for direct partnerships with fintech startups.
At Silicon Valley Innovation Center (SVIC), we understand the importance of fintech startups and how they are transforming the financial services sector. With a finger on the pulse of what is the epicenter of the unfolding fintech revolution, Silicon Valley, SVIC has unparalleled access to disruptive technologies and Silicon Valley fintech startups. Leveraging this access, SVIC helps financial institutions discover, experience and partner with fintech startups aligned with their unique digital transformation needs. In this report, we provide a brief list of disruptive Silicon Valley fintech startups and highlight what each startup is doing to disrupt an aspect of the financial services value chain.
The Fintech Landscape
Blockchain and cryptocurrency fintech companies have the potential to reimagine the infrastructure of conventional financial markets and to reinvent the concept of money for the digital era.
Fintechs are driving the transformation of capital markets by leveraging technologies such as AI and blockchain to innovate across the value chain.
Disruption extends beyond banking into insurance. Insurtechs are driving innovation not only in developing new products and service models but also in addressing some of the traditional cost and operating challenges in the industry.
One of the first segments to be disrupted as fintechs rushed to leverage technology and address markets ignored by a wary post-crisis financial services industry.
Fintech companies are disrupting the global $600 billion remittances market by using technology to slash cost, time and complexity of cross-border money transfers.
Research indicates that mortgage fintechs process loans faster, handle fluctuations better, have fewer defaults and are rapidly increasing their market share.
Payments will become a $2 trillion industry by 2020 as fintechs manage changing customer expectations, emerging technologies, and evolving regulations.
Personal Finance fintechs are the investment category of choice, above blockchain and cryptocurrency, for top U.S. Banks with a focus on innovative new products, advisories, and automated financial management.
Regtech, the new fintech to some, will be essential to ensure that companies can stay ahead of the increasing volume, complexity, rigor and data orientation of modern compliance regulations.
Wealth management fintechs are revolutionizing the industry and “assets under automated management” could be as much as 10 percent of all global assets by 2020.
Why these categories?
The initial phase of the fintech boom predominantly focused on consumer-facing applications that leveraged emerging technologies to deliver an innovative digital experience in segments like payments, lending, personal finance and wealth management. But B2B fintech startups, innovating around capital market infrastructure, corporate finance and SMBs, are now attracting a significant share of funding from both traditional venture capital and corporate investors. The ten categories featured here represent the segments and technologies that are driving funding, growth, and innovation in the broader fintech marketplace.
Why these companies?
All companies in this list are based in and around Silicon Valley. More importantly, these are companies that are disruption leaders in their categories. These companies include some of the largest and most entrenched players in relative mature B2C categories like lending and payments as well as emerging powerhouses in relatively nascent categories like Regulatory Technology (RegTech) and Capital Markets. By analyzing these startups and what they offer, financial institutions can discover gaps in their value chains, a crucial first step to digital transformation.
Why seek out partnerships?
Since 2012, the top 10 U.S. Banks have invested over $4 billion across 81 fintech deals. Collaboration, not competition, with fintech startups seems to be the dominant theme as banks proactively redefine their business and technology models in the face of disruption. Traditional banks need fintech startups for their natural technological aptitude, their organic innovation culture and their resourcefulness in combining both in the service of an increasingly demanding customer. Fintech companies too need banks, more specifically their legions customers and troves of valuable data.
Blockchain and Cryptocurrencies
Earn.com, a token-based social network acquired earlier this year by prominent cryptocurrency exchange Coinbase, enables users to earn bitcoin by replying to emails and completing microtasks. Earn.com is regarded as one of the first practical and scalable applications of digital currency for both mainstream users and businesses. Its user base comprises preeminent personalities from the venture capital, blockchain, and technology communities.
Coinbase, the largest U.S.-based cryptocurrency platform, enables consumers and merchants to transact a range of digital currencies. The company is now targeting the cryptocurrency trading and investment needs of institutional investors with the launch of four new products earlier this year. The company had over 20 million users and recorded a turnover of $1 billion last year.
Chain is a technology company that partners with organizations like Visa, NASDAQ, and Citigroup as well as Fintech start-ups to build, deploy and operate blockchain networks. The Chain platform allows banks and financial institutions to use blockchain technology to issue, store and transfer digital assets on a private network. The company’s proprietary cryptographic ledger systems underpin breakthrough financial products and services.
Ripple is an enterprise blockchain solution that facilitates businesses, financial institutions, payment providers and digital asset exchanges to process global payments. The company’s global payments network, RippleNet, offers a suite of solutions tailored to the specific needs of its customer base of corporates, banks and remittance providers. Earlier this year, Santander UK, one of the UK’s leading personal financial services companies, launched the first Ripple-enabled mobile app for cross-border payments.
TrustToken is a platform that provides the legal and technical framework to tokenize and trade fiat currencies and real-world assets such as real estate, art, and IP. TrueUSD, the company’s fully collateralized asset token product, hit a market capitalization of almost $80 million in just a few months after its launch. The company has since announced an additional $61 million token sale.
Top Fintech Companies in Silicon Valley
View all of the players making waves in financial services in our “Top FinTech Companies in Silicon Valley” report. See who is on the rise and how they’re disrupting the finance industry. Gain insights on what financial institutions are doing to stay ahead of the curve.