Financial Technology (FinTech) is rapidly replacing in-person financial services with software and apps that provide banking, lending, payments, and investment management. The global financial crisis of 2008 led to distrust in legacy banks and opened the door to new consumer-facing FinTechs. This shift in consumer behavior has led to industry demand for FinTech infrastructure, a group of key integrations and application programming interfaces (APIs) that allow companies to build FinTech products and services.
Building infrastructure in-house can be challenging as it may require integrations across multiple organizations that each offer a range of products and services that must be handled separately and on a case-by-case basis. For example, a single bank may offer savings accounts, lending services, mortgages, and credit cards with each product requiring its own technical infrastructure. Therefore, a growing number of FinTech companies are turning to FinTech infrastructure-as-a-service (IaaS) providers. IaaS providers build common infrastructure platforms for a dedicated purpose (such as banking, lending, payments, etc.) which can be used by multiple enterprises to build their respective FinTechs.
The financial technology (FinTech) infrastructure industry primarily consists of organizations offering banking and/or payment-related infrastructure services. Large incumbents commonly offer a mix of banking and payments infrastructure while disruptors typically specialize in a dedicated market segment of infrastructure, with only a few startups providing services across multiple segments such as Plaid, Amount, and Modulr.
Most of these disruptors are in the growth and early stages having progress beyond the seed and pre-seed stages, indicating a somewhat mature industry.
Incumbents in the financial technology (FinTech) infrastructure space are typically legacy banks, FinTechs, and payment service providers.
Large incumbent banks usually develop FinTech infrastructure in-house for their own use and as a product offering to third parties while also investing in FinTech infrastructure disruptors. Through these investments, banks gain access to modern technologies including cloud-based computing and the latest insights and analytics tools for customer banking data.
Leading global payment and card service solution providers, Visa, American Express (Amex), Mastercard, and PayPal offer payment gateways and integrations to provide full-stack and/or white-label infrastructure for enterprises. They also commonly partner with, or acquire, banking service FinTech infrastructure providers to enhance their own payment offerings as banking capabilities play a central role in enabling online payments. Through these partnerships and acquisitions, payment infrastructure users can gain financial insights on transactions and increase the speed of fund transfers and payments through banking verification tools.
Legacy FinTechs offering solutions directly to end-users typically enter the market through acquisitions and investments. However, FinTech incumbents acquiring infrastructure providers in a segment that they already operate in may lead to a conflict of interest as clients of the subsidiary may end up competing with the infrastructure provider’s parent company. For example, SoFi’s acquisition of the infrastructure provider Galileo was seen as a potential conflict as Galileo’s customers (which included SoFi) were also directly competing with SoFi in the digital lending space.