Scanning the fintech landscape: 10 disruptive models

May 8, 2019The range of models is breathtaking, and, drawing from my recent experience as a fintech entrepreneur, investor, and now advisor, I wanted to try and set out examples of ten models that demonstrate the range of possibilities in the space.

1. New takes on old lending categories through fast/digital decision-making. This is perhaps the original fintech category, but it continues to expand and add new lending verticals. The now-public LendingClub with personal loans and OnDeck with business loans paved the way. Bread and Affirm are focused on point-of-sale financing, Square Capital’s focuses on merchant cash advances, Prosper and Avant offer personal loans, while SoFi has expanded from student loans to personal loans. Kabbage and Funding Circle seek to innovate in the business loan arena; Tradeshift is taking on supply-chain financing; BlueVine and Fundbox have built digital-first factoring companies; while Petal and Figure are focused on credit cards and HELOCs, respectively.
2. Mobile-only lending as an example of underwriting innovation. Tala and Branch both seek to offer microlending over mobile devices in developing countries. The US-based companies make real-time loan decisions dynamically by using every piece of information they can gather from the customer’s mobile phone; public reports note that the companies use text messages, contacts, and hundreds of other data points to make underwriting decisions.
3. Demographic-focused products. A new set of companies are developing demographically-focused products. They segment not only from a brand and marketing perspective, but from a product innovation perspective as well. For example, True Link Financial’s elder fraud protections, Finhabits’ saving focus for Latino’s, Camino Financial’s lending for Latino-owned small and medium size businesses, or Ellevest’s product design for women all go beyond branding to design products from scratch with unique use cases and features in mind. Similarly, Brex offers cards tailored individually for startups, for ecommerce companies, and (reportedly) for other small business segments.
4. Digital-first neo-banks or digital attackers. Neo-banks frequently start with a blank sheet and build a retail banking experience from there. Aspiration, Chime, and Varo all operate now in the US, and there are reports that UK- based Monzo and Revolut, and Germany’s N26, are all actively seeking to come to the US. Some are layering lending on to their platform, while others plan to continue to focus on debit accounts. The success of these models is a sign that customers are responding to elegant design and customer experiences.
5. Different fee structures built on digital infrastructure. Robinhood provides free stock-trading. To make money, they sell the retail order flow and seek thicker margins through digital first-processes (going so far as to build their own execution broker/dealer). Similarly, TransferWise offers its retail users the mid-market exchange rate—and makes money through transparent fees, made possible through lower operating margins at scale. Many of the above-mentioned neo-banks make money through debit exchange and deposit brokering—something which normally wouldn’t be particularly lucrative but which can make sense when built on greenfield digital infrastructure.
6. API platforms and ecosystems. API platforms are designed particularly for software developers as the customer. Much of the financial services innovation in this space is concentrated in payments: Stripe, Braintree, Adyen, Credorax, and WePay are on the merchant-acquiring side, Marqeta is focused on card-issuing, and others like Ingo Money offer push payments. API platforms for lending are also emerging, most notably with the Kabbage Platform. 
7. Bank-as-a-service. BaaS is a type of developer platform that is designed to empower fintech companies. To access the payments system and store money, all fintechs need some form of banking partnership. Some banks are turning this idea into a product. Several US banks are enabling digital attackers and neo-banks, gaining access to inexpensive deposits and a rich source of fee income in the process. Treasury Prime sells BaaS enablement software to multiple banks while SynapseFi (working with Evolve Bank & Trust) and Cambr (working with Lincoln Savings Bank) build API platforms for neo-banks through singular partnerships. At the same time, The Bancorp Bank, BBVA Open Platform, and Green Dot have all launched their own BaaS platforms.
8. SaaS for bank cost reduction. A new wave of fintech companies are building infrastructure for banks and selling their software-as-a-service to reduce the cost and improve the quality of certain critical functions. Fintechs include Numerated, Blend, Roostify, and Finvoice for lending, Droit and Alloy for compliance, RiskSpan for data management, among others.
9. Blockchain for infrastructure cost reduction. A new generation of blockchain firms are focusing on specific use cases to improve the cost and functioning of core infrastructure. R3, Symbiont, and Blockstream are all working on general solutions while The Interface Financial Group and ConsenSys are targeting supply chain finance, and Global Debt Registry and Securitize are focused on capital markets.
10. The Wildcards: Tech companies in financial services. Banks are data and technology companies. Record-keeping and ledgering, transaction tracking, identity, and predictive modeling are all fundamental concepts in both banking and software engineering. It makes sense that many American high-tech, digital-first companies are turning their eyes to banking, just as their East Asian counterparts have done over the last decade. Apple’s launch of a credit card may represent a new phase for branded fintech experiences. The launch of shopping on Instagram and WhatsApp testing payments in India both represent steps by Facebook into financial services. Google Pay launching in India and conducting experiments in South East Asia show an increased focus in the space as well. All these products and more point to a more serious focus on fintech for those companies, who have the resources and partnership possibilities for scaled impact not only in international markets but in the US as well.  

With these business models and more, digital-first financial services companies are starting up more frequently, earning customers’ trust faster, growing rapidly, and raising more venture funding. At the same time, the space has matured—with fintechs frequently partnering more closely with banking partners or selling software directly to banks. In the coming months, McKinsey colleagues and I will publish more articles, videos, and other pieces exploring the dynamism of fintech and its implications for financial institutions of all sizes and types.