Digital technologies have intrinsically changed how we do things in every area of our lives. Just as FinTech - new technologies that have automated and improved the delivery of financial services - have changed the way that we pay for things, we bank, we save and so much more; PropTech - the bespoke technologies and the change in mentality that these technologies bring to the property industry - is about to revolutionise how things get done in the real estate sector.
In this article, we go through the parallels and how the FinTech revolution is shaping the PropTech one. But most important: What can the real estate sector learn from the finance industry?
About ten years ago when FinTechwas born, what started out as mere technological innovations lead to an epochal shift in the finance industry. Startups and individuals saw the potential of the new tools and went out to disrupt the very traditional finance industry. They used their inventions not just to work for the big players and old institutions, but to develop new and revolutionary ideas and ways of doing things. Today the results are completely integrated into our lives: in three clicks you send, exchange or request money via your smartphone, and that is only the tip of the iceberg as the latest cryptocurrencies outbreak has shown. The whole finance sector has changed in only one decade.
So what about the real estate sector? Traditional, hardly digitized, opaquely, complicated and not very customer-friendly. Sounds familiar?
FINTECH, An Epochal Shift
FinTech (Financial Technology) describes the use of technology and innovative business models in financial services.
In its early days FinTech was mainly describing computer technology applied to the back office of banks or trading firms. It has come a long way since then, and what began as a small movement to optimise processes triggered an epochal shift. Such as managing investments without the assistance of a person, transferring money with the smart phone or applying for credit without a bank. The newest revolution in the FinTech sector, which is making headlines on a daily basis, are cryptocurrencies.
PropTech is following a similar path. Property market analytics, digital processing for constructions and data collection used by sales have been in use since the ‘80s, however, more recently, startups and individuals have set out to maximize the use of new technologies to disrupt the industry. The results have been innovations, which have completely changed the way we work, live and buy such as the shared economy business Airbnb and WeWork; or the tokenization of real estate projects via Blockchain and other Distributed Ledger Technologies.
The real estate industry is finally breaking with tradition and entering the digital age. One can only ask oneself what comes next? Buildings completely built by robots? Houses which can interact with each other through IoT? Green buildings that contribute to its maintenance? Properties to be sold 100% online without any physical visits?
FINPACT, The impact of FinTech
- China moved 96% of its e-commerce sales without the services of a bank in 2018.
- The peer to peer lending volume in China is at approximately $66 billion. ( US: $16.6 billion/ UK: $5.4 billion)
- Global investment in FinTechs in 2018: $111.8 billion. Trend rising.
Today one-third of consumers use at least two or more FinTech services as a part of their daily lives. Banks and other big financial institutions have realised that they neither can stop the change nor ignore new technologies. In order to provide the best services to customers, they have to adapt.
What about PROPTACT then?
- US$4 billion was invested into real estate technology (PropTech) start-ups in 2018
- More than 500 PropTech companies have launched worldwide in the past 5 years.
- In 2018, the total value of PropTech deals globally was 5.4 billion U.S. dollars.
Similar to FinTech, most people under 45 use PropTech innovations: Online market-places for housing, software to design your kitchen at IKEA, co-working places such as WeWork, traveling with AirBnB, or playing music with Alexa are all part of their daily lives. However, PropTech is not at the same level as FinTech - so watch out, there is a lot more to come!
How do you adapt as a traditional, big and slow-moving institution to the fast and agile world?
There are basically two ways to approach this challenge: Cooperation with startups or In-house solutions. Most of the big institutions embrace both options and in a later stage also turn to Mergers & Acquisitions. They run their accelerator and innovation programs, whilst simultaneously they start working on their own solutions in-house.
Join forces with startups
Working together with startups enables financial institutions (such as Barclays Bank, Wells Fargo, Bank of America, Deutsche Bank, HSBC, ING, JP Morgan, Credit Suisse, BNP Paribas) to integrate technologies for customers without having to build solutions from scratch. It also gives them more flexibility, with less risk, as they don't have to hire a complete innovation team. Moreover, there is a lot they can learn from startups in regards to their mentality and culture. In order to tackle the new challenges they need to be lean, agile and bold - like a startup.
PropTech startups have already brought solutions onto the table for tackling these new challenges at every scale, making the real estate stakeholders evolve faster. The case of Aproplan that replaced pen and paper in the construction follow-up by a fully digitised path through a software platform, is an excellent example how bigger and smaller construction players have been accelerated in their digitalisation process.
Innovate in-house - get used to it
Of course, only depending on the innovation power of startups might seem a risky business and implies the danger of being left behind. Therefore many financial institutions launched their own innovations and followed new strategies. Three examples on how to embrace change in-house:
1. Likable brand and engaged customers is a must
Stephen Bird, CEO for global consumer banking at Citi, says that it is crucial for the bank to listen to their customers. That is why "Citi is developing new ways of doing things by actively listening to its customers through “co-creation." Furthermore it is important to be where the customers are. That increasingly means social media platforms such as WeChat as well as Instagram and Facebook.
The same applies for PropTech - listen to the people who want to buy your houses, are living in them etc. There is a new generation coming, who is used to customer-centricity and economy-on-demand. Are you ready? Take a look for example at Ask Porter, a start up which provides every property manager with a digital personal assistant and every occupant with a digital personal concierge.
The PWC report mentions it as one of the real estate trends 2019: The branding of real estate developers is key. The landlord is not meant to be anonymous anymore. The reputation of a landlord’s engagement and management of his customers will be part of the buyer-decision. The customer wants, their needs and wishes to be the center of attention and they want to be actively engaged in decisions relevant to their well-being.
2. Turn the act of paying into a pleasure
Nobody likes to pay, and even less when it is complicated, time consuming and bound to extra costs. As a company you face the dilemma that you want to make your customers happy, but of course you can't renounce his money. Why not turn the act of paying into a pleasurable experience, maybe even playful?! The US-based Signature Bank and the Japanese Mizuho Bank came up with smart innovations:
- Signature Bank launched a blockchain-based payment system for its customers, which enables corporate customers with account balances of at least $250,000 to send dollar payments to each other in real time, 24 hours a day, without transaction fees. Signature’s cryptocurrency payment network uses a stable coin pegged to the dollar, and runs on a proprietary blockchain based on Ethereum. Source: American Express
- Mizuho Bank (Japan) developed a mobile payments platform based on a digital currency called J-Coin Pay, in cooperation with about 60 other regional domestic banks. Consumers and businesses that are customers of the banks will be able to make payments using a smartphone app and QR codes. The J-Coin will be pegged to the Yen.
- N26 is a mobile bank, which offers a free bank account and Mastercard, that can be managed directly from your phone. They promise that the process of opening up a bank account online is done in 8 minutes.
What about PropTech? Is paying for a mortgage, buying a property or even selling your house a pleasurable experience?! Not at all:
"The basics of buying and selling a house and getting a mortgage to pay for it, have changed very little over the years. To a large extent we are still forced to stick to ‘tried and trusted’ methods that are more often than not plagued by delays, frustrations and rising costs, propped up by an industry that offers little or no transparency in the way it works, and is ripe for reinvention." Source: IT Pro Portal
In order to succeed it is time to change this. Quite a few startups discovered this pain point of the real estate industry and came up with solutions. Take a look:
- Homeday is a fast-growing Berlin-based PropTech company. Established in 2014, the company is on a mission to revolutionise the way people can buy and sell property. Homeday offers a better way by offering more efficiency, transparency and smooth experience for the involved parties at all stages. The unique technology that the company uses aims at making real estate transactions effortless, simple and fast.
- Nested: Founded in 2016, this London-based online real estate agent raised €135 million in November 2018. This home sales platform comes up with an accurate property valuation for your home using in-depth data analysis. The startup then takes on all aspects of your home’s sale – including taking photos, managing visits, and negotiating with potential buyers. What makes this property platform unique, is that after 30 days, if your home hasn’t sold yet, it will offer you an advance of 90-95% of your home’s value, so that you can afford to buy a new one. According to the startup, it’s selling twice as many homes in London as the average brick-and-mortar real estate branch.
- Exporo is an innovative internet platform offering investors an opportunity to take part in real estate projects via crowd-investing. It was founded in 2014.
So far so good. But why are FinTech and PropTech often mentioned in the same breath?
FinTech & PropTech are intrinsically linked
Many PropTech solutions wouldn't exist if it wasn’t for FinTech and the other way around. FinTech is a PropTech enabler and PropTech is pushing FinTech to expand its possibilities.
- Online payment systems, crowdfunding equity and debt platforms, and online exchanges provide the foundation for a large part of recent PropTech innovations.
- The growth of the real estate market is intrinsically linked to the availability of credit to consumers. Equally PropTech cannot grow without the wider adoption of technologies in the finance sector. PropTech relies on FinTech’s ability to bring lines of credit to a new generation of potential homeowners.
- There are multiple challenges in regards to the mass adoption of PropTech, such as complicated and obsolete regulations, information asymmetry, and lack of financing. Issues which PropTech can only tackle in a joined effort with FinTech.
- PropTech relies on the safety and trustworthiness of FinTech innovations - as buying a house is definitely a bigger number than buying clothes online.
- PropTech is going to challenge FinTech to evolve even more due to its growing needs.
It's going to happen to you anyway - you might as well be prepared.
- PropTech businesses are expecting a similar trajectory to the growth and success of their FinTech peers.
- PropTech and FinTech both seek to cut the middle man out of transactions in order to make them less complicated, quicker and cheaper. In short: more customer-friendly.
- Both sectors benefit from a widespread public mistrust in traditional institutions and a growing demand for more transparency.
- 63% of current financial services players didn’t exist a decade ago. This implies that considering the parallels between PropTech and FinTech, there is a lot more to come in the following years from the PropTech sector.
- Some financial institutions had to learn the hard way, that you can't stop innovation. The solution: Prepare, embrace and lead!
- Evaluate your business for pain points, especially when it comes to customer-centricity - because that is where the potential for innovation lies and where startups will attack.