It’s been a long time coming: The financial industry is being torn down and built back up from scratch, and this evolution is mostly being led by upstarts. You know, the ones that fancy themselves technology firms — not financial companies.
Take LendingClub, for example. Probably the highest-profile success story in the fintech space, its founders built a smooth and intuitive platform that connects borrowers with lenders. But instead of gaining access to loan programs, the funds come from investors looking for solid returns — at much lower interest rates than a corporate bank could offer.
LendingClub cuts out the middleman and uses data science to assess risk, credit ratings and interest rates to create a lending marketplace like none other. It has redefined the inner functions of lending and forever altered how people think about the industry.
This change in thought brings a huge opportunity for entrepreneurs: You have a chance to provide a fresh experience to customers on the fringe, and if enough of those customers respond, demand can snowball and upend the status quo of legacy companies in this industry — or any other industry, for that matter.
Carve out a fintech niche
For any entrepreneur looking to enter the fintech space, I recommend first focusing on data. Data is king, and you need to leverage all the information you can get your hands on. It’s essential for predicting behavior when traversing new financial terrain.
You can marry big data with artificial intelligence and machine learning algorithms to perform all types of tasks. This is especially helpful in driving credit decisions, particularly for subprime consumers and credit invisibles.
These are probably the most underserved demographics in the lending space. In fact, 56 percent of consumers carry a subprime credit score, and more than 50 million people have a thin or nonexistent credit file. The majority of large financial institutions are unwilling to explore relationships with either of these groups.
In other words, the marketplace is wide open for tech-savvy firms to develop new methods for evaluating potential customers.
If lending isn’t your style, another opportunity resides in investment and asset management. For the most part, getting good financial advice is either expensive or requires a large net worth. Nowadays, however, even the smallest investors can gain access to the best strategies for diversification. If you’re able to use big data to automate the process, you again have the potential to carve out a niche.
Go further with the user experience
Startups have an advantage over larger companies when it comes to the customer experience. You can create a beautiful, easy-to-use and enjoyable platform, while established firms are forced to go through layers of processes and approvals to accomplish something new. As others lag behind, you can increase engagement with consumers right out of the gate.
Tech companies see a different world from the financial establishment. They’re hypersensitive to product design, functionality, intuitiveness and the user experience, and legacy companies simply can’t compete.
Redefine the game, and you can quickly enter — or perhaps even dominate — the fintech space.