In October, Grab announced a $200 million investment to expand its fintech offerings. No longer just a ride-hailing service, Grab is now one of Southeast Asia’s largest non-bank financial firms, offering payments, micro-loans, and other services. Today it handles more than one billion financial transactions each year.
Grab is not alone. Companies from fellow Southeast Asian ride-hailing service GoJek to international tech giants like Alibaba and Amazon have been moving in on fintech.
What’s the secret to fintech’s appeal? It’s not just the vast numbers of unbanked people in the world, who represent a ready-made user base for innovative financial products. Nor is it only the vulnerability of the business models of existing payments networks like Visa and Mastercard, whose cumbersome transaction fees increase prices and, possibly, slow down innovation.
The main appeal of fintech is the opportunity to collect and analyze customer data. Fintech is where the money is (literally), and how consumers spend their money also points companies to potential profit pools. By data mining through fintech, they can understand customers’ wants and needs better than ever before. They can use those insights launch new products or hone their existing ones. And they can sell their data to third parties, opening up entirely new revenue streams.
Here’s why the merging of tech into the finance world presents one of the most exciting opportunities in today’s startup landscape.
Why Tech Companies are Flocking to Fintech
At the same time as tech is becoming fintech, fintech is becoming a data industry. Alibaba’s Ant Financial is the largest fintech firm in the world—but its own vice president and chief data scientist doesn’t think the term “fintech” describes the company anymore. He has said it might be more appropriate to call Ant a “techfin” company, given its intense research focus on AI technology.
The market and investors have resoundingly approved of this approach. Ant Financial has posted more than 65 percent growth in pretax profit between recent fiscal years. It recently obtained an extraordinary $14 billion in its Series C round to drive its global expansion—and further data collection.
However, the real growth in this sector may come from the possibility of combining financial information with other types of data. For example, look at Southeast Asia. Startups have already amassed more data on Southeast Asian citizens and their habits than any census could provide because they provide convenient services for free or a nominal fee. As competition for markets and customers reaches a stalemate, Southeast Asian unicorns including Grab, GoJek, Razor, and the SEA Group have begun to expand their payment options and absorb fintech companies (and more specifically payment companies). The top-level competitors have stretched into new services, including on-demand beauty services and grocery deliveries, but payment technology has been an emphasis for these major players.
This is not only because every service ends with a transaction, but because it broadens the amount of information that can be collected by these companies. For example, GoJek and Grab can now paint a vivid picture not just of users movements and schedules, but of their financial habits.
This opens the door to developing new products and services. Grab CEO Anthony Tan has spoken openly of Grab’s plans to use that information to create alternative credit ratings that could then be tied to banking products. GoJek has recently made the leap into credit too, as its partner Findaya announced started testing a credit option so GoJek app users could repay at a later date.
Bridging into fintech also positions companies to expand their own understanding of customers and improve their non-financial products and services. For example, SEA Group cleverly leveraged their successful gaming brand, Garena, to target the fast-growing market of gamers for their e-commerce services. You can bet that they are also feeding back the data mined from their e-commerce platforms to ensure users are served relevant in-game advertising that makes them more likely to convert.
Finally, tech companies that go fintech can open up new revenue streams by selling that information to third parties. Even if startups only have a small or niche group of customers, that data will be valuable to others in those markets too.
Challenges and Opportunities
While the data mining approach to fintech is exciting, hurdles remain. Monetizing through data mining and analytics is more complex than simply charging a transaction fee like Visa and Mastercard do. Data can be worthless if it’s not analyzed effectively or if the resulting insights aren’t put to use. Companies taking a data mining approach should plan to invest in serious tech and business talent to ensure that approach reaches its full potential.
Fintech may seem to be shifting away from its roots in payments to become a data industry. However, this shift actually puts focus on the most fundamental principle of commerce: the fact that companies must understand their customers in order to better serve them. Privacy advocates, especially in Europe and the US, may push back on some data collection techniques. But in the long term, most users will accept increased data mining as long as it leads to better products and services and lower costs to them.
The takeaway for entrepreneurs is clear. If you want to build a successful fintech app today, it won’t be enough to facilitate seamless transactions. From the very beginning, you must have a vision for what kind of data your app will collect and how that data will be put to use. Likewise, mature tech startups should be thinking about whether a fintech play makes sense for them.
Fintech companies and startups that pivot toward data collection will lead tomorrow’s businesses because they service their customers the best. The record-breaking investment rounds are only the beginning: once the value of this data is more roundly understood, those who missed the boat will either buy the information, or perish from their inability to intuit customers’ needs. And the startups that can identify a way to collect and use that data will know their customers better than any predecessors possibly could and prevail among peers in the region.
The next big thing in fintech isn’t mobile payments, it's data.