Forbes recently published a list of the top 5 financial technology products of 2012. Lon Gorman, financial technology executive and investor, reviews the list for clues about what innovations 2013 might hold.
According to Forbes, 2012 was a watershed year for financial innovation. Companies in the financial technology sector made several exciting developments. This growth has facilitated earning investment returns, connecting with startups, and managing wealth more effectively. Forbes created a list of the five most impressive financial technology companies of 2012.
The first on the list was Kickstarter. It has helped entrepreneurs raise a total of $376 million since its inception. They place great importance on projects hitting their funding goals—if you seek $10,000 but only raise a fraction of that, your project gets nothing. They do not punish investors by allowing companies to accept money and perform poorly because they were unable to raise the entire amount needed.
Lon Gorman, a veteran of the finance industry, recognizes that Kickstarter was the breakout financial technology company of 2012. He notes that their respect for investors accounts for a large part of their success. This success informs the success of the entrepreneurs who use Kickstarter to raise money for their business ventures.
Second on the list is Lending Club. They have issued over $1 billion in personal loans, and are the leader in the peer-to-peer lending space. Compare this to their underdog status in the industry in 2007, and their success is all the more apparent.
Motif Investing only launched earlier this year. It allows investors to invest in various equity portfolios built on specific investment themes or trends.These portfolios are called “motifs”—you can choose, for example, to invest in the “Rebuilding After Sandy” motif, which contains 19 stocks whose fortunes will benefit from the rebuilding efforts after Superstorm Sandy. Motifs cost $9.95 each.
Wealthfront was created in an effort to democratize the investment business—an honorable endeavor, according to Lon Gorman. It’s also been quite lucrative for them. Wealthfront quickly surveys your investment risk profile, then recommends a portfolio of low-cost Vanguard ETFS to meet your needs. This eliminates the need for a private wealth manager, helping educate young and inexperienced investors.
The fifth most impressive financial innovation of 2012 is WePay. It is currently taking on PayPal as a more cost efficient way for small businesses to process online payments. It was originally launched in 2008 as a way for friends to make collective purchases, but quickly latched on to small business’s frustration with PayPal. It remains to be seen whether they can overcome the latter’s brand advantage, however.
The common theme between these five companies is that they all focus on applying technology at lower costs. They also create a more efficient way for consumers to perform financial activities. They are trendsetters in the financial industry going into 2013—the year to come will surely yield innovations similar to the five that Forbes listed.
Lon Gorman has worked in the financial trading industry for over forty years. He currently serves on the Board of Directors at Lightspeed Financial, a company that provides direct access and brokerage services for the professional retail and institutional traders.