10 fintech thoughts for 2020
As a venture investor in early-stage fintech, I’m lucky to meet hundreds of smart and focused thinkers from across the world every year. They’re entrepreneurs, inventors, bankers, lawyers, academics, regulators, and investors who share their visions and ideas. I’ve learned a lot from them and am grateful for their insights.
Here are my thoughts on where fintech is going next.
1. Rebundling will follow the great unbundling
The last decade has seen start-ups unbundling financial services for easy delivery through mobile app stores and direct-to-customer acquisition models. Meanwhile banks have mostly been caught flat-footed with outdated one-size-fits-all offerings.
Well-funded, single-product disruptors have reached significant scale in many markets. As they present new products and services, these startups will expand into modern money hubs. Their significant financial benefits and actionable financial advice will secure stickier and higher-revenue customer relationships.
Incumbents should take note: it’s time to cut across product lines and re-sell services from industry peers (including startups), or develop more of your own, to create cohesive finance experiences for your customers.
2. eCommerce battles are brewing
Lenders and payment processors across the globe will continue their quests to democratize ecommerce and prevent it from becoming concentrated on a handful of powerful platforms.
The fast growing popularity of video-based mobile platforms will prompt the launch of more QVC and HSN-like services across emerging markets, giving local sellers access to sizeable markets that were previously unreachable.
Watch Asia for leadership: free from Amazon’s dominance, large national markets with rising underserved populations and rapid adoption of smartphones present mobile commerce opportunities.
3. Big tech is moving into fintech
Big tech has data and distribution locked in — key elements for the launch of new businesses. To boost future revenues, the giants will build payments businesses. BCG estimates that $1trillion payments revenue stands to be won by Big Tech through 2027. Bank accounts and other core banking services could follow once consumers become more comfortable with a perceived lack of privacy.
Once trust is established, machine learning and artificial intelligence assets developed by the technology leaders could change the way we run our businesses and personal financial lives. Process automation, real-time insights, and safe online storage will lead to cost savings, efficiencies, and better decisions for all types of consumers. Alexa, Siri, and their voice-powered peers will be your future CFO and financial advisor.
4. As neobanks become incumbents, more will launch
Millions of global customers have adopted new digital-only challengers as their “bank” of choice. Remarkably, these neobanks are not, strictly speaking, banks, and rely on a handful of licensed institutions to conduct business. The neobanks have successfully won customer relationships away from the traditional banking sector. Given their size and success they are unlikely to fade away anytime soon.
The banking industry needs to stop treating these new participants like underfunded, unproven upstarts and instead embrace them as peers. Success begets success: we’ll see the launch of many more neobanks in underserved markets and sectors globally. Even the saturated US and Western European markets are ripe for verticalized challengers that will out-hustle incumbents. Small business, medical and legal professionals, new home-buyers, and college students are huge market segments that are ripe for the taking.
5. Fintech’s AWS moment will drive more attacks on incumbent value chains
Open data, open protocols, and modern infrastructure platforms have thrust the financial services sector into an ”AWS moment” where it’s cheaper, faster and more reliable than ever before to launch new fintech products or services. Fast moving innovators will continue to attack the most profitable elements of local financial services value chains and gradually unseat incumbents, from typical sectors such as payments, savings and credit, to adjacent sectors such as insurance and real estate.
The handful of licensed financial institutions who have historically supported the fintech industry through innovative partnership strategies will become more active in seeking equity-based upsides in the unicorns they helped grow.
The real estate sector in particular seems ready to be taken apart. Global structural similarities in residential real estate have been defended in the interests of slow moving incumbents. Look to South East Asia for the most rapid changes. For those in the US, I reluctantly believe that our multi-state regulatory framework will be an impediment to real progress unless well-funded challengers deploy legal strategies in support of technology strategies.
6. Suffocatingly high CAC will get relief through embedded strategies
The Achilles heel of many start-ups is the high cost of acquisition of new customers. Fintech innovators have an opportunity to pursue new “sell-through” and “sell-with” strategies thanks to recent success stories at Big Tech. New high-growth services do not have to be delivered as standalone offerings; they can instead become part of the native UI of other products, embedded as features of platforms that already have direct customer relationships.
Fintech is poised to become a new layer on a technology stack built on top of the internet, cloud, and mobile technologies. Keep an eye on the sharing economy: decentralized asset ownership and strong technology make this fertile ground to launch new models.
7. The US payments market is begging to be disrupted
If any payments market has an expired “disrupt by” date, it’s the US. This huge market is lagging behind global competitors, and those of us here experience it’s inefficiencies every day. Most electronic payments aren’t really “real time” and cash still isn’t dead. Politics and practicality are keeping cash alive.
Expect that retail environments will find a happy balance between checkout-free shopping and cash preferred customers. Specialized locations like grocery chains, airport retail stores, and sports stadiums will deploy checkout-free convenience options to eliminate lines and reduce waiting times for time-sensitive customers.
Despite criticism from domestic competitors, the promise of a Federal Reserve backed Real Time Payments network by 2024 gives hope that the US market will catch up with other developed economies. RTP for all, regardless of your bank, run by the Fed and not a consortium of banks, will be a massive gamechanger in the way we transact.
8. Blockchain is going institutional
Though still in the earliest stages, the financial services incumbents who initially derided the promise of the blockchain have been quietly collaborating and securing IP and technology leadership in this broader digital ledger category over the past five years with a focus on solving “real” financial services problems. As the discussion moves away from the price of a digital asset to the opportunities that a public digital ledger represents, these innovations will become critical parts of the financial services infrastructure, matched by significant investment and strong regulatory support.
9. It’s clicks, not bricks
Over the past decade, leading banks navigated a journey from being brick and mortar institutions to becoming digital banks. That’s where most cast anchor. A handful, like BBVA, had a stronger sense of the future and continued their journey, taking lessons from fintech’s digital challengers.
Today these forward-looking banks are striving to become digital companies and are enjoying the benefits of having the majority of their customers engaging in digital-only channels. They can rethink product offerings for these mostly mobile channels and reimagine the use of ornate low traffic bank branches.
The lines in the battle for wallet share and relationship banking have clearly been redrawn: customer acquisition and retention through digital channels in a mobile app world is the future of financial services. These changes have been driven by customer preference. Incumbents can still secure mobile dominance in smaller geographic markets where they enjoy industry leadership … it’s as simple as promoting the new channels and marketing some new enticing benefits to existing customers, while then riding the wave of leadership to pole position in the local app store. However it’s not so easy. In large competitive markets like the US, over 10,000 unique banks and credit unions are fighting each other and hundreds of well funded start-ups for customer loyalty. Only 4 of the top 10 free finance apps in the US Apple App Store are bank mobile apps; Cash App by Square currently holds the number 1 spot.
10. Don’t forget your regulator
Let’s not forget that fintech’s success is in large part due to the tacit approval of hospitable regulators who have allowed often unlicensed entrepreneurs to rethink and rebuild financial services enabled by advances in technology. As the challengers become incumbents, regulators will increase their oversight and enforcement activities. It’s a welcome sign that fintech has grown up. Privacy and competition will be top of mind for global regulators. Whether it’s the dominance of Big Tech, the launch of new global crypto currencies, or the entry of non-banks into the banking system, expect the regulatory agenda to be packed for the foreseeable future.
This reality presents exciting entrepreneurial opportunities too: the customer base has expanded significantly. Regulators are rapidly adopting new data tools and systems as they monitor their industries and enforce regulations.
Where am I going in 2020?
I’ve met some of the most fascinating thinkers at the fintech conferences that dominate our industry’s calendar each year. In 2020, these are the events that I plan to attend. Hopefully we can meet up too!
- January — Paris Fintech Festival
- May — Propel’s Annual Summit, San Francisco
- September — InsureTech Connect, Las Vegas
- October — Money20/20, Las Vegas
- November — Singapore Fintech Festival
Wishing you a successful year!