The Future Stars of Fintech

In search for a comprehensive framework to classify the Fintech Universe, which does not simply show a grouping of nice logos, I ended up with the classic 2×2 diagram. First let me explain the two dimensions for clustering:

Added Efficiency and Automation

The x-axis ‎is specified as the added efficiency and automation with which a Fintech has implemented its offering. By this I do not mean mainly the state of the art front end the client is facing (this is a must for any Fintech), but the whole process in a straight through processing (STP) view. This means in consequence the higher a Fintech offering is in this dimension, the easier it is scalable.

Added Product/Service Novelty

The y-axis is defined as added the product/service novelty a Fintech is offering. A completely new financial product would score here, but also innovative ways of bringing together parties in the financial sector. Therefore internet trends like collaboration and social media come here also into play.

The Resulting 4 clusters are shown in the diagram

Convenience Providers

In the lower left we find the providers which neither add significant efficiency nor novelty to the old-established financial products or services, but add a convenience factor and/or user experience. A prominent example would be Apple Pay which uses the classical credit card processing, but only the phone (which you anyhow have almost always with you) is needed to make a payment. In other words you can leave your plastic card at home. Arguably this is only a small step for mankind, but definitely quite handy for your day to day payments.

If a payment service is not built on top of an existing infrastructure like credit cards, it will be placed obviously in the next quadrant to the right.

Scalable Margin Fighters

The next to the right is the area where existing financial products or services are becoming more automated through the usage of the latest technology, often in combination with a green field approach. Personal communication is mostly replaced with online applications.

A typical business model here is digital wealth management or robo-advising to use Fintech jargon (e.g. or To allocate the clients funds into an efficient and risk adjusted asset allocation is certainly nothing new, neither is the cheap and efficient implementation with exchange traded funds (ETFs). But to do it solely online with an intuitive user interface and a full automation of the entire process, including smart rebalancing of the portfolio, is definitely quite an innovation in terms of efficiency.

Due to the high grade of automation, the offerings in this cluster are quite easy to copy and consequently pricing is the main differentiator in this cluster. A company which is a stark example for this trend is which offers trading in US stocks and ETFs for free.

Furthermore companies which are using the blockchain technology to make e.g. payments and settlement processes faster and cheaper belong also to this cluster.

In consequence this will be in the future a playing field for cutting edge tech companies with an according big client base.

Trend Setters

The top left cluster is less about process automation and more about new products and services. The companies here do not cover the whole value chain, but use latest technology for product development and/or new ways of interaction and communication in the financial world.

A first example is where the user is given an online investment algorithm coding environment. The developed and submitted algorithms take part in a competition and the best ones will be included in a hedge fund, whereas the coder gets a performance fee. This crowd based algorithmic hedge fund is quite a financial product novelty.

Social trading to use Fintech jargon again is one of the fields to discuss here (social stands here for the communication approach and not that the investments are funnelled into socially responsible companies or the like).

The idea of social trading in general is, that everybody (they are called traders) can publish their investment ideas e.g. as a virtual portfolio. The portfolio/trades will be measured performance and sometimes also risk wise, and anyone can participate. Obviously a performance fee is a motivation for the trader/asset manager. The participation is done in several ways like issuance of an investment certificate which replicates the trader’s portfolio (e.g., or mirroring the trades of the trader in a brokerage account (e.g. But they all have in common that it is not done on the social trading platform itself, therefore they are only the first link of the chain. There are also platforms which focus on social networking only, without any replication or mirroring of the trades. The novelty in social trading is the way investors and traders/asset managers interact and not the investing itself.

All kinds of peer to peer lending (e.g. are in my point of view also allocated here, despite the fact that lending from one person to another is presumably as old as money itself. Why I include them here is, that bringing together lenders and borrowers directly, without middleman and via the internet and without personal contact, is quite a novelty. If the process of determining credit risks and bundling of credits is also highly automated, the offering will gain also on the x-axis towards the fourth quadrant. I personally see here quite some potential for severe risks and it has to be proved to what extent credit risk management can be fully automated. Only the future (or the next downturn) will tell…

Fintech Stars

Finally the quadrant aimed for (as in any of those diagrams) is the one which combines the efficiency with the novelty.

To find adequate examples is not so easy here. Nevertheless there can be found cooperation between the companies of the Trend Setters and the Scalable Margin Fighters cluster. Social investing platforms channel their stock trades to robinhood and try therefore to optimize the whole value chain. This can be seen as a first taste of the Fintech future.

The Bitcoin virtual currency with its underlying blockchain technology could also be seen an example for the fourth cluster as it is certainly quite an innovation on the product and on the technical side and the automation is full scale.

As a summary in my point of view the products, services and business models which will be able to combine automation and novelty will be the bright stars of the Fintech future.