As an investor in many companies leading digital transformation, I specifically seek out opportunities that help people gain access to credit in this new digital world. My investments are in paperless ecosystems with a vision of a world that includes everyone financially. The Internet has become an integral part of life for billions of people around the world, as such, they should be able to access financial solutions while at the same time gain a financial identity.
FinTech is the answer. Below are some of my thoughts about the current state of the FinTech industry, where it is heading, and the role Juvo can play in establishing financial identity for billions.
The First Two Phases of FinTech
I believe there are four phases of FinTech. The first phase began with establishing FinTech as a recognizable concept with what I call a period of EAU: Education, Awareness, Understanding. As with most pioneering ideas and industries, the biggest hurdle is often “fear of the unknown.” As the industry was getting off the ground, both industry insiders and the public reacted hesitantly to the idea of borrowing and lending on the Internet, which for most sounded “like a Ponzi scheme.” Phase One sought to establish FinTech as a legitimate course forward for lending.
Phase Two of FinTech took place early last year, when large finance and technology companies, as well as banks, started taking a sincere interest in marketplace lending, moving FinTech and online lending from a novelty to an interesting new niche. Relationships formed between large financial institutions and banks who wanted to better understand the benefits that new online marketplaces could offer Alternative data and lending companies were no longer seen as competition, but rather as potential partners for financial companies and institutions.
Phases 3 and 4: FinTech Today and the Optimistic Future
Phase 3 is now.
Digital transformation means different things to different industries, but at its core it is the same – a new way of conducting business, transactions, even life. Digital financial technology, or FinTech, is doing three things now: enabling new products, providing new services and meeting new segments in hard-to-reach populations, where they are and at a low cost.
New products are now possible, where they weren’t before. The combustion of cloud computing and data science, along with the proliferation of smartphones has opened up opportunities to establish financial identities for the billions who are underbanked. The use of cloud computing and data science have made complex functionalities accessible across diverse locations and markets.
Juvo is partnering with mobile operators to help provide a financial identity to these subscribers using big data to create ‘Identity Scoring’ – a concept more robust than a credit score because it takes into account behaviors, preferences and lifestyle. Using machine learning to analyze digital footprints from smartphone interactions, Juvo builds a financial identity and provides access to mobile financial services. Financial services companies open the door to a previously untapped market in the billions, and individual subscribers are exposed to a host of opportunities they wouldn’t otherwise have as Juvo walks them up a pathway to financial inclusion.
With three billion new smartphone subscribers expected in emerging markets by 2020, it is clear that the potential to deliver advanced financial services is vast and is spurring a digital revolution.
Morgan Stanley reported in June 2015 that marketplace lendering companies could command $150 billion to $490 billion globally by 2020. In Phase 4, we will see rapid mergers, acquisitions, and full adoption into the main stream. Just like Uber and AirBnB have changed the way the world sees transportation and lodging, and FinTech innovators have the ability to do the same for lending. There will be true ubiquity. Where people can’t believe “it” was ever done the old way.
Ron Suber, an investor in Juvo, currently serves as the president of Prosper Marketplace, “America’s first online lending platform,” and brings more than 20 years of experience within the industry to the table.