The convergence of proptech and fintech is reshaping the future of both sectors. It brings all-embracing implications for the entire real estate sector, from planning and construction to loans, sales, and maintenance, and significant implications for the
finance sector in expanding access to a major asset class that can be easily accessible, fundable and tradable.
Technological solutions that seek to disrupt and redefine the financial sector have been around awhile and have already been widely adopted. They rely on vast amounts of financial data and emerging technologies, including AI, blockchain, and cloud computing,
to improve financial services, such as digital banking, online lending, mobile payments, and investment platforms.
Proptech is a newer phenomenon and has grown out of the application of the same technologies that underpin fintech. It involves digitalisation of the whole real estate life cycle, from planning and construction to sales, leasing ,and property management
through energy efficiency and preventative maintenance. Apart from reshaping the real estate sector, many of these proptech innovations can enhance financial areas such as property valuation, credit scoring, loans, and investment.
The merger of the two fields will provide smarter, more efficient, and more accessible solutions for all involved. The impact of convergence will be evident in key areas, including:
1. Improved access to real estate as asset class
Proptech will impact the finance sector by expanding the access to an investment asset class significantly. For example, new LLM-driven valuation models (e.g., house pricing) can mix traditional data (e.g., on sales) and underutilised, unstructured data
such as property characteristics (e.g., floor plans, energy efficiency, climate risk/flooding data), which will provide a much more accurate information of the sector for investors.
2. Democratising real estate investment
Individuals can invest directly in high-value real estate projects with minimal capital, thanks to fractional ownership models that enable residential and commercial property to be divided into shares. This is facilitated by blockchain technology, which
provides an immutable and transparent record of transactions. Alternatively, peer-to-peer crowd funding models can be used. Reselling, however, it is not always an option in crowdfunding and can be difficult as it involves the transfer of documents - whereas
blockchain-based solutions maintain a single centralised, transparent, and traceable record, making it easy to swap ownership.
Fintech solutions can help improve the traditional rigid property loans processes. Provided the data is available, credit scores generated by AI-based models can produce a more accurate and broader set of potential borrowers (provided there is no AI bias),
contributing to financial inclusion.
3. Streamlining real estate transactions
Convergence between fintech and proptech should ensure more efficient and seamless property transactions. Traditionally complex and paper-heavy processes, such as mortgage applications, credit checks, and property title transfers, are now being streamlined
through AI and smart contracts.
Fintech solutions make it possible to apply for a mortgage online, receive approval in minutes, and complete secure digital transactions. Proptech platforms, in turn, provide real-time access to property data, 3D virtual tours, and market analytics, enhancing
transparency, and improving property asset valuation.
4. Streamlining property management
Through the integration of fintech solutions, real estate actors can improve rent collection, automated invoicing, and tenant screening, reducing administrative burden and improving cash flow for landlords. Tenants benefit as well, enjoying smoother payment
systems, maintenance request tracking, and direct digital communication channels.
5. Improving sustainability and efficiency through proptech
Residential and commercial buildings powered by IoT devices can collect and analyse data to optimise energy use, reduce costs, and improve property maintenance. When integrated with fintech solutions, such proptech systems can also provide financial incentives
for sustainable behaviour, such as discounts for energy-efficient practices or dynamic pricing models.
Data access struggles
Both fintech and proptech depend heavily on access to vast amount of diverse data to power AI models, which is currently challenging and the main limiting factor for the advancement of proptech. Without the data, small innovative companies and start-ups
cannot put new tech models and capabilities into operation.
While many challenges remain, including data security, regulatory compliance, and integration with legacy systems, the biggest obstacle for both sectors is data availability, compatibility, and access. Information must be digitised, and systems need to be
able to combine a lot of data in various formats. In practice, there is often trouble accessing diverse (often unstructured) datasets, leading to datasets holding only partial data. If data is bad quality or a non-compatible format, the value that data holds
cannot be easily extracted.
The issue is more pressing in proptech as an emerging field. Sometimes the data is simply not available (that is, not digitalised), but often companies are not willing to share their proprietary digitalised datasets, either because they don’t see the point
or they view their data as a competitive advantage.
For example, many of the property search platforms have detailed information on various data points but only grant partially access to their datasets. Another example is data from IoT sensors– normally the company that installs these sensors has the data,
but the data may not be in a suitable format for sharing or the company may be unwilling to share it with proptech start-ups.
The process of data digitalisation can be lengthy, so access to already digitalised open and proprietary datasets is important. While open datasets are useful, they can be incomplete or of low quality. At the same time, access to proprietary data is costly
and arbitrary. Such limited access makes it difficult for small companies or startups to innovate.
Open data platforms
To help solve this, proptech requires a similar mechanism as the mandated by Open Banking data sharing in fintech. Open banking has obliged banks to share data with fintech start-ups and scale-ups in order to unleash consumer innovation. In proptech, open
data platforms can be created but they need to be government or non-profit owned to ensure broader participation and that the interests of all participants are protected.
The prize is considerable. Once such platforms are set up and the data (including financial data) is made available, the potential is huge. This can reemphasize the notion that the fusion of proptech and fintech dramatically improves efficiency, transparency,
convenience, and access in financial and property markets - delivering a smarter, more interconnected future.
The Gillmore Centre series features authors from the Gillmore Centre of Financial Technology at
Warwick Business School as they explore new innovations in fintech from an academic perspective. Keep an eye out for more articles from the Gilmore Centre to learn more about new developments in the field.