How 21st century fintech apps have changed the way we handle money

This is not your mother's way of handling finances

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I graduated from college in 2008, which doesn't seem all that long ago. Putting it in context, though, it was only a year or so after the first iPhone came out. When it came to finances, I had a checking account, a savings account and a credit card. In terms of technology, I had a PayPal account and that was all. There was nothing else for me to have at the time. 

By contrast, the generation graduating now has a whole slew of different apps and services to choose from, right on their phones. They can bank online, easily send each other money, and get access to apps that are specifically designed to help them not only understand their finances, but to maximize them. Not only is this is not your mother's way of handling finances, this is not even your older sibling's way of handing them.

Accordingly, the space is growing quickly, with nearly 9,000 fintech companies in the U.S. alone. There was a total of $34.5 billion invested globally into fintech companies in 2019, across 1,913 deals, according to the State of Fintech report from CB Insights. Both numbers were down from 2018's record high, but it still managed to be the second best year on record for the space. 

The report also identified a number of spaces that are trending within fintech right now, and which are absorbing most of the money, including insurtech, lending, digital banking, capital markets, and wealth management. Here's how each one of those subsectors is shaping up, as well as some of the companies in each of those that are using technology to the lives of consumers.

Wealth management

Wealth management apps are those that make it easier for people to manage their money by making their accounts viewable online and on mobile. They can also give people advice on how to best save money, and some will even do it for the user on their behalf.

Companies in this space raised $2.2 billion across 188 deals in 2019.

Among the best known tech companies offering wealth management services is Credit Karma, which raised $868 million before being acquired by Intuit, the company best known for its tax software, including TurboTax and QuickBooks, last month. Credit Karma offers its users access to their credit score and credit report online for free.

There's also robo-investor Wealthfront, which has raised $204.5 million. The company allows users to put their month into a Wealthfront account and then invests it on their behalf. As it gets to know the individual better, it will build them a custom portfolio based on their preferred level of risk. Wealthfront makes it money by taking a portion of the interest earned on the money in a user's cash account.

On the startup side there are companies like Oval, which has raised $13.8 million. It allows users to link their accounts and cards to the app so it can monitoring their spending, saving, and budgeting habits. Its Oval Pay service provides a Visa card that can be used to pay worldwide and allows users to deposit their cash. Users are not charged; instead the company makes money from the companies that provide its users with investment products, which it launched in 2018.

Operating more in the background are companies like Trim, which has raised $2.2 million. It's a company that automatically reviews its users financial data to determine how they can save money. It will be able to tell if, for example, there is an outdated subscription or if a user is being overcharged and fix the problem for them. It can help people get out of debt and to make sure they have enough money in their emergency savings fund and for retirement. The company makes its money by taking a percentage of the money it saves its users. 

Insurtech

Insurtech companies are those that are challenging the incumbents in, of course, the insurance industry, which means there are a ton of different sectors they can be focusing on. Everything from life insurance, health insurance, homeowners insurance, car insurance, and on and on. There are now approximately 1,500 insurtech startups operating around the world.

In 2019, there was $6.3 billion invested across 243 deals in the insurtech space, which nearly doubled the $3.2 billion raised in 2018, while deals actually dropped 5 percent from 256.

One the biggest companies using technology to disrupt this space is Lemonade, which has raised $480 million. It provides a property and casualty insurance that uses artificial intelligence to help provide coverage. Users just download the app, answer some questions, and then get a quote. Lemonade raised $300 million and became a unicorn in 2019. The company makes its money from the policies it sells. 

Another major player is German app WeFox Group, a company that has raised $268.5 million. Its apps include Wefox, which uses technology to provide things like digital insurance checks, a digital contract folder for documents and support in handling claims, including a photo upload feature. It also has the One app, which allows users to report damage immediately via the app, and to get insured without any paperwork.

On the health insurance side there's Bright Health, a consumer-focused health insurance and technology company that has raised $1.1 billion. The company offers "Care Partner Health Plans," which can include individual, family and Medicare Advantage plans. Consumers can use the Bright Health app to do things like view benefit information and claims, find a provider, and track healthcare spend.

Of course there are a lot of startups in the space as well, such as Avibra, a company that has raised $3.2 million, and which rewards people for their good habits with life insurance coverage. It uses data science and machine learning to track user's everyday habits and lets people know what they are doing well in areas such as health, finances, career, relationships and community. Their insurance coverage grows weekly with their positive habits, but never decreases for less ideal ones.

There's also Thimble, which has raised $28.9 million, which offers short-term micro-policies for purchase by the hour, day, week, month or year, whichever best fits that particular project or business requirement. It's now being used by small business owners and independent contractors across 119 professions and industries, including event planners, entertainers, construction workers, handymen, beauticians, fitness instructors, independent computer programmers and landscapers. The company was on pace to sell 100,000 policies in 48 states by the end of the year.

Lending

Lending startups are, by definition, companies that help people get loans, either from financial institutions or from other people. They raised $7.7 billion across 278 deals in 2019. 

Obviously one of the biggest incumbent players in this space is LendingClub, the peer-to-peer lending company that went public in 2014 and which now has a market cap of $898.89 million. The company acts as an online credit marketplace where investors provide loans to creditworthy borrowers in exchange for the interest income. It bills itself as an alternative to the traditional banking system, providing lower rates to borrowers. The company makes money by collecting fees from both borrowers and investors.

There's also Prosper, a company that has raised $415.5 million, which also does peer-to-peer lending. It works by allowing borrowers to apply online for a fixed-rate, fixed-term loan of between $2,000 and $40,000, which individuals and institutions can then invest in. Prosper handles all loan servicing on behalf of the matched borrowers and investors. It makes money through transaction fees. 

Another major player is Avant, which has raised $1.6 billion. It allows people to manage their loan through an app, meaning they're able to see their upcoming payments and view their payment history, receive push notifications about their account, and manage their payments, including adjusting dates and paying down the loan. It also makes money through fees, including origination and late fees. 

On the startup side there are companies like Earnin, which has raised $190.1 million. The company gives people access to their pay directly from their smartphones without any fee or interest. Instead, users are given the opportunity to pay the company what they believe is fair. 

There's also PayActiv, which has raised $33.7 million, offers a similar solution: part of its platform involves offering earned wage access, which allows users to receive a portion of their earned, but so far unpaid wages, between paychecks that users can use to pay their bills. The PayActiv membership fee is paid by employees only when they access services including their earned but unpaid income. It doesn't charge any enrollment or recurring fees.

FlexWage, which has raised $3.5 million, is an employee benefit that allows employees to access a portion of their earned wages before payday. FlexWage calculates earned wages by using payroll and time data. Requested funds are transferred to a personalized FlexWage Visa Payment Card and the amount withdrawn is automatically deducted from the person's next paycheck. FlexWage charges a fee of $3 to $5 each for early transfers.

Digital banking

The digital banking startups are taking on traditional banks, offering full service from a mobile device. Many of these companies don't even have physical locations.

Digital banking companies raised $3.7 billion across 96 deals in 2019, both setting records. 

Among the incumbent in this space are Revolut, a London-based digital banking app which has raised $873 million. It allows users to open a bank account from their phone, without a credit check. Users will receive a notification when they make make a card payment on their phone, as well as built-in budgeting to see where their money goes each month. They can also set up monthly budgets for things like groceries and restaurants. Revolut makes money from merchants every time someone spends with their Revolut Card. It also makes money on ATM withdrawal fees, card delivery fees and exchange rates. 

On the smaller side there are companies like Greenlight, which has raised $81.5 million. It's a provider of a smart debit card for kids that parents can manage from their phones. It allows parents to choose the exact stores where their children can spend, manage chores and allowances and set parent-paid interest rates on savings. Greenlight costs $4.99 per family.

B-Social, which has raised $14.2 million, is an app for keeping track of shared spending. It provides spending notifications and group updates, as well as the ability to pay and receive money from other account holders. Users create a group and then add transactions to keep track of everyone’s spending. Everyone can see the group balance and who-owes-who-how-much.

There's also Cred, which has raised $175.5 million, a members-only app that offers users rewards for paying their credit card bill. The company works with over 30 brands, including Airbnb, FreshMenu, Urban Ladder, Bodycraft and Bombay Shaving Club. 

Capital markets

Companies in the capital markets space are those that make it easier to buy and sells stocks. They raised $6.3 billion across 363 deals last year. 

Perhaps the best known app in this space is Robinhood, a stock brokerage application that has raised $912 million. Its servers stream market data from exchanges in real-time, while notifying users of scheduled events, such as earnings, dividends, or splits. The app is meant to give traders up to date information quickly. It makes money by collecting interest on the cash and securities in Robinhood accounts, and it also earns revenue from rebates it gets by directing its order flow to broker dealers. 

Alternatives to Robinhood include M1 Finance, which has raised $20.2 million. The app combines investing, borrowing, and cash management into a single platform, allowing people to build their investment portfolio for free. They can also schedule weekly, biweekly, or monthly deposits. Users can also access a portfolio line of credit when their portfolio value reaches $10,000. M1 Finance makes money from interest on cash in different forms, earning interest on lending securities, and interest on margin loans.

Another major player is Betterment, which has raised $275 million. It acts as a robo-advisor to help people make investments, helping them manage their money through cash management, guided investing, and retirement planning. Users sync their outside accounts, and Betterment uses that information to help them set financial goals and sets them up with investment portfolios for each goal. It helps with long-term financial needs, like retirement, as well as daily saving and spending with its Betterment Everyday cash management suite that includes checking and cash reserve. The company makes money from its annual fees based on account balance. 

(Image source: usnews.com)