Banking on FinTechs
The financial technology sector, better known as FinTech, is transforming how banks and other financial institutions do business. While there is no universal definition of FinTechs, they generally are businesses that develop financial products and services that are more user-friendly, efficient, transparent and automated than in the past.
David Ness, vice president of innovation research and development at Minneapolis-based U.S. Bank, says FinTechs offer products related to lending, payments, personal finance, blockchain, wealth management, insurance, money transfers, mortgages and real estate, and capital markets.
Ness says it’s a growing industry that attracted $43 billion in investments globally in the past year, including $23 billion in the United States. Statista, an online statistics, market research and business intelligence portal, says FinTechs racked up nearly $3.5 trillion in global transactions last year, and it estimates that figure will grow to $8 trillion by 2022.
With that kind of money fueling the industry, U.S. cities are competing to lure FinTech startups and the promise they offer for economic growth. New York, Boston and the San Francisco area are leaders in the sector, while Atlanta has set a goal of becoming the FinTech capital of the world.
Charlie Youakim, founder of Minneapolis-based FinTech startup Sezzle Inc., says Minnesota is a relatively small player in the FinTech space, with a handful of promising new businesses. Still, he says, interest is strong and Minnesota has complementary pieces that could help the sector grow here. The state has 19 Fortune 500 companies and a large number of businesses in technology and finance that could utilize applications and programs created by FinTechs.
Financial firms U.S. Bancorp, Ameriprise Financial, Thrivent Financial and Securian Financial are among the Fortune 500 companies headquartered in the state. The financial and insurance sector employed 146,380 people in Minnesota in 2017 – a concentration that is 20 percent higher than the country as a whole. Wells Fargo Bank Minnesota, TCF Financial, Bremer Financial and BMO Harris Bank are among other financial institutions with major operations in Minnesota.
Technology and entrepreneurship are other hallmarks of the state that fit well in the FinTech space. CNBC rated Minnesota fifth nationally this year for technology and innovation, while Business.org ranked the Twin Cities third on its list of best U.S. cities for startups. The state is ninth in the country for patent registrations. Meanwhile, a study by the U.S. Bureau of Labor Statistics found that Minnesota had the highest five-year survival rate for new businesses in the country.
Minnesota startups attracted nearly $500 million in venture capital last year – up 40 percent from just one year earlier. Nearly half of the venture funding went to information technology businesses. The TECHdotMN technology website lists 126 FinTech companies in Minnesota. They include Youakim’s Sezzle, which developed a product that allows customers to buy items online without needing a credit card.
Other up-and-comers in Minnesota include Upsie, Apruve, ClickSWITCH, and Live Give Save.
Upsie focuses on making it easy and affordable for consumers to buy, find and use their product warranties. Apruve sells a business-to-business platform that eliminates the need for invoices, requisition forms, purchase orders and paper checks. ClickSWITCH created an application that makes it easier for people to move bank accounts from one financial institution to another. Live Give Save offers an app that enables people to make pre-defined contributions to favorites causes every time they use a credit or debit card.
FinTech was prominently featured during Twin Cities Startup Week. The annual event – designed to showcase the strong startup culture in the metro area – included speakers, panel discussions, financing seminars, site visits and more.
One strategy for growing startups is tapping private and public resources. Youakim says his business might not have survived without support from DEED’s Angel Tax Credit Program, which enabled Sezzle to raise more than $1 million from investors in 2016.
DEED also has Small Business Development Centers statewide that offer free, confidential consulting to entrepreneurs, and the agency launched a new program this year called Minnesota Innovation Loans for Entrepreneurs, or MILE. The program provides interest-free loans ranging from $20,000 to $50,000 to early-stage businesses that are developing high-tech products or services in Minnesota.
Other startup support is available from the Minnesota High Tech Association – a 350-member group with a goal of making Minnesota one of the top five technology states. MN Cup, the largest startup business competition in the country, offers $500,000 in prize money each year to entrepreneurs with promising business ideas in a variety of categories, including technology. Mayo Clinic, the University of Minnesota, Techstars and Target offer accelerators and incubators to help businesses get off the ground.
While the FinTech sector is still in the embryonic stage, it has the potential to transform the financial world with cutting-edge applications that reduce costs, upgrade services, increase efficiencies and improve risk assessment. Minnesota, with its synergies in the financial and technology sectors, is a good fit for this emerging industry.