Financial technology startups are launching solutions for mobile payments, lending, bitcoin and more in South Florida
MIAMI – April 17, 2016 – Wall Street may be the center of U.S. finance, but when it comes to the technology that makes the money flow, South Florida quickly is becoming a player.
PsychSignal provides real-time social data for quantitative hedge funds seeking an edge. The Miami Beach startup, founded by James Crane-Baker, created a natural language processing engine that scans social media posts related to stock prices. Its technology parses millions of online conversations every day — including emotions — and then translates its findings into a numerical value designed to reflect traders’ bullish or bearish moods about specific stocks and other securities.
NovoPayment’s founder and CEO Anabel Pérez launched NovoPayment in 2004 and has built it into a sizable venture that helps banks, retailers and the travel industry address payment bottlenecks common to Latin America, such as converting cash payments to digital, creating alternatives to credit-based payments, and interconnecting disparate systems and networks. Headquartered on Brickell with 280 full-time employees throughout the region, NovoPayment now works in five countries, with plans to expand into Chile.
ClassWallet offers a digital wallet and e-commerce platform for school systems to disburse and track funds. Through ClassWallet, administrations, parents and vendors connect with teachers to fund supplies, technology and even field trips in a cashless, trackable process. Founder Jamie Rosenberg said ClassWallet’s user base grew over 400 percent last year and the platform is used by the Chicago, Newark and Broward school districts, among others. Rosenberg is no stranger to tackling school-funding issues. His first venture, AdoptAClassroom.org, launched in 1998, is considered the internet’s first crowdfunding site.
These young South Florida companies are in the red-hot fintech, or financial technology, sector. Mobile payments, Bitcoin technology, personal finance management, lending and crowdfunding are just a few of the flavors of South Florida fintech. While growth in the number of startups is difficult to quantify because startups launch, pivot and fail rapidly, South Florida programs to help fintech entrepreneurs have reported strong and growing interest.
As the homegrown technology conference eMerge Americas launches its third annual event Monday, fintech startups and early stage companies will vie for investor attention along with hundreds of others from various industries.
In South Florida and around the world, the fintech sector is gaining favor among investors as technology innovation ignites opportunities to expand financial access to those without bank accounts, ease mobile commerce, reduce fraud, save money for consumers and help them manage their finances.
South Florida’s bustling banking sector, both domestic and international, and its gateway connection with the Americas make it a natural place for fintech to flourish, say entrepreneurs and experts.
“Miami is the ideal place to converge and build out ideas that can export out into the region and still have the option of keeping [the firms] in the U.S.,” said Ray Ruga, founder of Fintech Americas, which runs a conference and programs connecting banks with fintech innovators. “Miami, as a financial center for the Americas, is an ideal location for developing fintech.”
Wayniloans, which is part of the Venture Hive accelerator in downtown Miami, is a peer-to-peer lending platform based on blockchain technology, the technology that underpins the digital currency Bitcoin for the Latin American and U.S. Hispanic market. To bring access to credit for the unbanked and underbanked, Wayniloans makes financial solutions more efficient and transparent for borrowers and lenders, said Matias Wohlgemuth, Wayniloans’ CEO for the U.S.
Datil provides e-billing, accounting and payment tools for the more than 13 million micro and small merchants in Latin America. “We partner with banks such as Banco Pacífico in Ecuador to offer customized financial services, including loans and merchant accounts, based on their Datil profile,” said Eduardo Raad, Datil’s CEO, which is also part of Venture Hive’s accelerator.
Then there’s YellowPepper, a Miami-based mobile payment and mobile banking company focused on the Latin America market. Last year, YellowPepper raised $19 million in venture capital for a total of $34 million; recently it launched a number of mobile payment applications based on its proprietary Yepex platform in Mexico, Colombia and Ecuador.
“We’re adding new banks and merchants all the time. In Colombia, we have [enabled] about 145,000 merchants — about half of the country,” CEO Serge Elkiner said. “In Ecuador, we already have about 10,000 merchants enabled. And we have 150,000 users in both countries.”
YellowPepper, with about 65 employees globally, is just getting started in Mexico but has already enabled 30,000 merchants with a plan to have 150,000 on the platform by September, he said. The company is planning to enter Peru this year.
“If you work with Latin America, Miami is definitely a key geographical location. … All of the headquarters for the region for every large bank, VISA, Mastercard, AmEx, everything is in Miami,” said Elkiner. “If I was developing a fintech company in the U.S., I’m not sure I would be in Miami.”
Nationally and globally, however, fintech has been hot. Venture funding in the U.S. fintech industry reached $21.6 billion last year, the highest level since 2000, according to the Wall Street Journal and its Dow Jones VentureSource research.
CB Insights, a data analytics research firm focused on private companies, said 894 ventures capitalists were active in the fintech sector last year, up from 223 in 2010. CB Insights also analyzed where top venture capitalists in fintech are placing their bets: payments, personal finance management and lending.
But recently, there are signals the fintech explosion may be slowing. The Wall Street Journal reported recently that in the fourth quarter of last year, venture funding into fintech startups fell by 20 percent in dollars and 11 percent in the number of deals. Of course, investment in the broader sector is swooning, too. Stock prices for LendingClub and On Deck Capital are down in 2016; LoanDepot and Elevate Credit postponed IPOs in the last six months.
But that slowdown could be shortlived. For example, a January report by Autonomous Research, an independent financial services research firm, estimated that digital lenders would together triple to about $100 billion in loans globally by 2020 — amounting to 10 percent of the total market for small business and consumer loans. More than 2,000 firms globally now compete in digital lending. The authors said they expect some fallout — some will fail and others will be acquired by traditional financial services firms.
To be sure, fintech brings its own set of challenges. Fintech companies generally work in regulated industries; in Latin America for instance, each country has its own regulatory system, Ruga said.
“The Americas continues to be an under-appreciated opportunity in fintech. It’s a difficult region and it is viewed as forbidding — you almost have to redo your plan for each market — and that makes it challenging. But the fact that 50 percent-plus of the population is unbanked, there’s $1.6 trillion in GDP, more than 550 million people, 60-70 percent smartphone adoption — all of the elements are in place,” he said. “It’s where the opportunity lies.”
Payments, lending and electronic wealth management — known as robo-advisory — offer big opportunities in the region, Ruga said. “Most of these fintech companies are coming at this to disrupt and take business away from the banks. But the big thing that these young companies need is money and scale.”
Some are partnering with banks, which get the agility of the innovation, while the innovator gets the clients of the bank, Ruga said. “If they can split revenue, it is a win-win.”
There are challenges domestically, too. Crane-Baker said his PsychSignal team worked more than three years developing the technology and platform before rolling it out in 2014. The chief challenge, Crane-Baker said, is the need to move slowly to establish credibility.
“Fintech is a special fickle beast. You are not going to get overnight successes. We do the opposite of what most startups do,” said Crane-Baker, referring to the oft-quoted “fake it till you make it” advice to move fast and try things before investing a great deal in the technology.
“We’ve moved very slowly and deliberately to establish a reputation. We don’t monkey around. If you do that … you will get caught with your pants down.”
PsychSignal’s first client was a large hedge fund that used PsychSignal’s data for about nine months and then became an investor in the company. “That’s the greatest endorsement,” Crane-Baker said.
Miami makes sense as a base, he said, because of the presence of wealth. In fact, PsychSignal’s competitor, iSentium, has an office here, as does BattleFin, which run events and competitions for quantitative traders and big data.
Miami seems to be shaping up to be a hotbed of financial data startups,” said Crane-Baker, who was a successful Wall Street trader in the ’90s before he got the itch to start a tech company. “New York’s expensive. You can build your technology down here, the weather’s awesome and there are a lot of people who are involved in finance. Our chief quantitative scientist is down here.”
Finding the talent base locally is harder here than in California or New York, said Marcos Cordero, CEO of Gradvisor, a college-savings platform offered to employers as an employee benefit. “But I also think Miami has developed a very supportive technology community where here you can gain access to a lot of individuals that provide mentorship, guidance and connections,” he said. “My love for Miami and everything that it has to offer outweighs the challenges of starting a domestically focused fintech company here.”
Meanwhile, local entrepreneurship programs aim to accelerate promising South Florida fintech companies as part of broader regional efforts to support and nurture entrepreneurship and technology innovation.
Recently launched is Miami Fintech Forum, an initiative led by Citi and entrepreneurship support and funding organization Village Capital and Florida International University. Eleven financial technology startups were selected to participate in a yearlong program, which will include education, mentorship from the Small Business Development Center at FIU and experts from Citi and Village Capital and access to capital.
The program kicked off in February with a full-day pitch event that included coaching. Winners were VestMunity, a newly launched real estate crowdfunding platform founded by local entrepreneur Yemani Mason, and DocuVital, which focuses on end-of-life planning; each received a $10,000 grant. Other fintech companies participating in the program are FlyScan, Gradvisor, MedXoom, Mosaic Money, OneCloud, Qbit Solutions, RNKR.io, Tip N’ Go and Settleitsoft, a Miami Herald Business Plan Challenge finalist this year.
At the Forum’s inaugural event, Natalie Abatemarco, managing director of Citi Community Development and Inclusive Finance division, said Citi’s partnership with Village Capital will open other doors for these companies. The program aims to level the playing field for entrepreneurs in underserved communities, she said. “We want to help businesses to scale and help get communities the resources they need in order to survive, to thrive and really revitalize,” she said.
Citi has also been holding regular fintech meetups in Miami and has held past Citi Mobile Challenge contests here.
Another local initiative is designed to link fintech innovators and the local banking industry. Called Fintech Americas, the organization holds an annual conference, scheduled for September, and a series of events, said Ruga, whose company produces the conference.
“We’ve evolved the program … to helping smaller banks transition into fintech-like companies that can compete moving forward,” he said. That includes helping them learn how to partner with fintech disruptors. “We’re in the midst of a massive industry transformation and all the players are going to need to adapt to a new and different reality.”
Fintech is a key focus of Venture Hive. The downtown Miami-based entrepreneurship education company runs a technology startup accelerator that focuses on industries tied most closely with South Florida’s economy. Fintech was added in 2014 by popular demand, said Venture Hive founder Susan Amat.
Fintech companies Wayniloans, DocuVital and Datil as well as Quotanda, Waleteros and Moocho call Venture Hive home, Amat said. Some of Venture Hive’s fintech companies are focused on the unbanked, remittances and other financial solutions. Miami’s diverse population, financial services industry and geography offer access to LatAm and U.S. opportunities, she said.
“Part of the challenge for South Florida is if you are doing a [business-to-consumer] play, you need a lot of marketing money to roll out. That’s an issue,” Amat said. “But we have companies that are able to do that. … For companies that want to partner with banks and do the B2B route, Miami is the obvious place for them.”
For South Florida to become the hub for fintech for the Americas, financial institutions need to change their internal cultures to be agile so they can integrate new solutions, Amat said. “Then they need to come to the table and try new things and offer pilots to startups, creating trust. It’s not about hackathons or competitions — just give startups the opportunity to have a happy client.”
Pérez of NovoPayment, who was chosen as an Endeavor entrepreneur in 2014, thinks the emerging fintech industry here needs to be promoted by community leaders and that there needs to be more collaboration with the universities and closer ties with Silicon Valley. But more importantly, companies here need to continue to work hard and produce success stories.
“There’s no magic solution, there’s no shortcut to succeed,” Pérez said. “We need to work hard and deliver.”