While finance firms have been demonized as being a major part of several problems in the United States, there’s a significant difference in the field of financial technology.
To that end, Forbes recently compiled a list of the five best such firms of 2012, and at the same time, managed to illustrate major changes in the financial world as a whole.
First on the list, not surprisingly, was Kickstarter, which took a prominent slot as a leader in crowdfunding, a practice allowing multiple users to contribute small amounts of money to a project in exchange for special gifts, like advance copies of a product.
A company establishes a target and then, should it reach that funding goal, receives the money. Should it fail to reach that target, the money is returned to investors.
Second is Lending Club, which got its start in 2007. In the intervening five years since its start, Lending Club has provided over a billion dollars in personal loans. This opportunity – a way to lend smaller amounts of money at decent rates – led to surprising gains for investors in a time when most other investment sources had stalled in terms of returns.
Motif Investing came in third, with an unusual slant on investing. Rather than buying individual shares, or into established mutual funds, Motif Investing allowed users to buy into what they called "motifs," or portfolios based on specific trends, at $9.95 per motif. Users might choose, for example, to buy the "Rebuilding After Sandy" motif, and get access to stocks that look to gain from the rebuilding efforts following Hurricane Sandy.
It allows users to focus on a specific issue and invest their money accordingly, rather than having an idea and having to chase it down themselves.
Wealthfront was next, with its ability to look at a user's tolerance for risk and then recommend stocks accordingly, complete with a variety of other services. It's specifically geared toward those users who can't afford a personal wealth manager, while providing those services at lower costs than most investment firms can handle.
Finally is WePay, a company that looks to take on PayPal (News - Alert) as a way for small businesses to handle online payments. While many users were put off by the overall interface at PayPal – not to mention some of PayPal's broader policies that left a lot of small business users out in the cold – WePay (News - Alert)looks to be simpler and more accommodating of the small business' needs.
A common theme has likely made itself known throughout these results – one of financial services offered on smaller scales to smaller investors. Sure, there will always be a place for the big bank or the major service moving billions of dollars around, but there is also a lot of room in the field for the smaller market. Consider that most of the businesses in the United States are of the small variety and it makes all the more sense.
Uniting lots of investors willing to put down a little money, or investors with a little more money willing to lend it out for a return, all clearly shows how the financial services market has changed in 2012. While most every other form of investing isn't doing so hot – U.S. Treasuries pull just under 2 percent, and even many publicly traded equity firms aren't doing much better – the idea of a lot of smaller investments aggregating into some significant returns is gaining a lot of ground.
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Edited by Braden Becker