NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

Friday, July 24, 2015

Investments into FinTech startups recently quadrupled, growing from just over $3 billion in 2013 to over $12 billion in 2014. And consider alongside that another trend showing that crowdfunding will surpass VC in 2016 as a funding source–given that crowdfunding itself is a segment of the FinTech market.

The growth of capital being invested in FinTech startups underlies how technology and the Internet are radically changing the nature of money and financial services. From the ways that people save, to how they spend, to the tools they use to invest their money – all of these are changing more rapidly today than ever before.

The entrepreneurs of FinTech are giving money a major face-lift, one larger than the departure of Alexander Hamilton from the $10 bill. And over the next few years we’ll continue to see our money go from paper and plastic to zeros and ones of computer code. It’s not just possible, but likely that in one generation from now, most consumers and investors won’t handle physical money, checks or cards at all.

Some may find this hard to believe, but remember that even Thomas Watson of IBM said at one time that the world would never need more than five computers, at most.

As money becomes increasingly stored as digital data and moves with us on our mobile devices, it will flow fluidly, and at a far lower cost from person to person; from consumer to vendor; and from investor to business.

As this happens, the traditional revenue streams big banks and brokers have enjoyed monopolistic control over will be challenged — money transfer fees, account management fees, trading fees and more — as the banking technology they have charged us to use is rebuilt and improved by FinTech entrepreneurs and simply downloaded to our phones.

To better understand where your financial life is headed, and what that means for you and the startups and investors driving innovation in these new markets, let’s first look at the recent events that brought us here.