4 local companies explain what's in store for Chicago's fintech scene

Sam Dewey

Chicago’s tech scene is proving sturdy, but few industries have cemented themselves as close to the center of the ecosystem quite like fintech.

You’ve got startups like online loan provide AvantAvantVisit their siteView company profile+ Create Job Alert touting the moniker of the state of Illinois’ most well-funded startup. You’ve got renowned business leaders (think CME Group CEO Phupinder Gill, DRWDRWVisit their siteView company profile+ Create Job Alert founder Don Wilson, and MorningstarMorningstarVisit their siteView company profile+ Create Job Alert CEO Joe Mansueto) contemplating an official hub for fintech startups in collaboration with World Business Chicago. And you’ve got companies like payments processor BraintreeBraintreeVisit their siteView company profile+ Create Job Alert (notably acquired for $800 million by PayPal back in 2013) blazing a trail and setting a standard for what success in Chicago tech can look like.

Fintech — in all its regulatory complexity and glory — is poised for an enormous 2016. But the brick road to success isn’t necessarily paved with gold. We caught up with four representatives from Chicago’s fintech community to hear about some struggles they’re facing and what they think is in store for the industry in the coming years.
 

It’s hard to talk fintech in Chicago without mentioning Enova, one of Chicago’s leading online financial service providers. Since its launch in 2004, the company has leaned heavily on technology and real-time analytics to provide online loans to consumers and businesses more easily and effectively.

"From a capabilities perspective, we're known for our advanced analytics," said Joe DeCosmo, Enova's Chief Analytics Officer. "Banks and other traditional credit providers aren't serving a segment of the population whose credit scores do not accurately reflect their financial picture today. We analyze thousands of variables instantly to make better decisions about who to lend to and how much to lend. In this way, we're able to expand access to credit while providing a faster and easier customer experience, and so far we have originated over $17.2 billion in loans." 

Today, it’s the fifth largest tech company in the entire city in terms of employee count. From a tech/product perspective, they also show few signs of slowing down. This year, they launched Enova Decisions, an analytics-as-a-service offering the company said has applications that extend to other verticals beyond fintech.

“Analytics infrastructure takes time to build, so we're helping companies capture immediate ROI by providing access to our real-time analytics platform and modeling capabilities,” he said. “We're also focused on growing and improving our small business portfolio with The Business Backer and Headway Capital; we're building innovative underwriting and customer service capabilities to serve that market.”

Where is the fintech vertical headed over the next few years?

“Real-time analytics will continue to grow in importance as customers demand instant answers and fintech companies fight to capture market share. With more data available than ever before, companies will realize the potential of consumers they previously would not have considered due to inaccurate or lack of information,” DeCosmo said.

What are the biggest challenges to working in that sector?

“Fintech is an exciting sector right now,” he added. “Startups are popping up all over the world. However, that also makes it a crowded space. One main challenge for any fintech company —and the key to long-term success — will be to continue to make faster and more accurate decisions. In addition, the growing fintech space makes talent, particularly analytics talent, harder to come by. Companies may start to look at partnering with existing firms to access their analytics talent and platforms. That way they don't need to spend significant time and capital building their own.”


2015 was a huge year for Argon, a Chicago-based online lending solution that uses tech to provide cash to consumers at affordable rates when they need it most. In May, the then year-old-company raised a $75 million debt facility from a credit hedge fund — marking the third largest intake of capital for any tech company in 2015.

“Our roots in the mortgage industry is what distinguishes us from others in the space,” said Argon CEO, Raviv Wolfe (pictured far right in a panel discussion at the Money 20/20 Conference). “The Argon co-founders cut their teeth in the mortgage space — understanding risk, regulation, customer service and a commitment to data are extremely important elements. The other companies do a fantastic job at these things as well, but our company DNA has us approaching these concepts from a slightly different perspective. Given our low default rates and customer satisfaction, [I] would say we are experiencing success.”

Wolfe said that there are some exciting announcements on the horizon for both the company and the consumer products it offers, but he declined to comment on specifics. It’s safe to say, however, that Argon is a tech company you’d do well to keep central on your radar in the upcoming months.

Where is the fintech vertical headed over the next few years?

“We predict huge growth in the fintech sector overall. Since the financial crisis, neither consumers nor small businesses have had their financial service needs met by big banks, yet the demand continues to exist. I believe that mobile will push most of the demands at least in the short term,” said Wolfe.

“Then what?" he asked. "We went from brick and mortar, to online, and now to mobile … perhaps wearables is next? We are excited about the future and all the possibilities.”

What are the biggest challenges to working in that sector?

“Regulation. If a company does not have a firm handle on the direction of the regulatory agencies and the impact on their tech and state and federal requirements, that is a huge mountain to climb. All too often, the 'do it fast' culture is rampant when a company starts out, but at Argon we believe in the 'do it right and fast' approach to business,” Wolfe said.

 

Enfusion’s cloud-based portfolio management solutions arm asset managers with the capacities they need to thrive, including real-time performance monitoring, risk calculations, trading capabilities, and accounting.

“Depth of functionality and an integrated user experience are two key distinctions for Enfusion. Whereas several competitors have sought to meet the increasing demands of asset managers by stitching together a number of independently designed systems, which often leads to a disjointed, expensive and overly complicated solution, Enfusion provides a cohesive, integrated experience from trading through accounting through a single, hosted application,” said Dan Jacobs, Enfusion’s head of global business development.

Enfusion is headquartered in Chicago but has presence across the globe. Besides an office in New York City, the company also has wholly-owned subsidiaries in both London and Hong Kong.

What are the biggest challenges to working in that sector?

“Frequently evolving regulatory obligations present one significant challenge in the industry. Increasingly complex reporting is demanded of asset managers and as such portfolio management vendors have to evolve at a similar pace,” Jacobs said. “To address this challenge Enfusion works closely with our clients to get out in front of new requirements. Weekly release cycles allow for an unparalleled time to market for new features and enhancements."


By 2020, companies offering enterprise digital advice will be able to capture more than $2 trillion in U.S. financial assets, according to AT Kearney research group. The opportunity for growth in that industry is prodigious, and sitting at the forefront is Chicago-based NextCapital.

“NextCapital is the leader in enterprise digital advice,” said Rob Foregger, co-founder & EVP of NextCapital. “NextCapital partners with world class institutions to deliver personalized planning and managed accounts to individual investors across multiple channels including 401(k), IRA, and taxable brokerage accounts. Our open-architecture digital advice solution provides integrated account aggregation, analytics, planning and portfolio management, and allows partners to customize advice methodology and fiduciary roles. NextCapital powers digital advice strategies for leading world-class brands such as Russell Investments and Transamerica.”

Foregger said the company distinguishes itself by offering a packaged deal of integrated planning, advice and managed account services to give investors a more holistic understanding of their financial goals. In addition, he said the company is the only digital financial advice platform that allows financial institutions to work with their own investment methodology within the platform — and the only financial advice platform to give advice “across both the defined contribution (401k) and retail (IRA, brokerage) investment market.”

NextCapital started the year off strong, riding the waves of an impressive $16 million Series B raised in the last month of 2015.

Where is the fintech vertical headed over the next few years?

“Currently, the finance industry accounts for 7.2 percent ($1.26 trillion) of the U.S. GDP,” he said. “Technology and financial services, as concepts, continue to converge. The fintech industry will continue to grow and help power the future of financial services. The fintech industry is directly responsible for creating new products to help power the finance industry, reconfigure our relatively antiquated financial services infrastructure, and more efficiently deliver financial services to the end consumer.”

What are the biggest challenges to working in that sector?

“Currently, one of our biggest challenges is identifying and hiring great engineering talent. We’ve got a great core team, but given our recent Series B funding and partnership interest from financial institutions, we are actively seeking to grow the business. We are challenged with bringing people on board quickly enough to help us meet the demands of our new partners, but still ensuring we are finding top-quality software developers,” said Foregger.

Have a tip for us or know of a company that deserves coverage? Shoot us an email or follow us on Twitter @BuiltInChicago.

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