Happy 2020 everyone~ As usual, I’m on a plane to SF but this time with some news of my own to break - the next two weeks are going to be last weeks at Plaid! I’m starting a new gig in New York (still in fintech of course) and will have more to share once I start in a few weeks :)
In other news I also just got back from Thailand and in addition to waking up at the oddest hours thanks to jetlag, have also been some time in the past few days thinking about what might be ahead of all of us in fintech in the US. I’ll try and push myself to give some more hot takes, but I also believe that truly monumental change takes time - especially in financial services. Most of my “predictions” tend to be extrapolations of existing trends that I’ve observed but I’m hoping some of these will be interesting nonetheless. Please send me any thoughts, comments, and feedback as I'm always interested in adding more data points!
US Fintech in 2020
Embedded fintech expands with more financial products for businesses launched by tech companies - Amazon being the first tech company to announce a business banking account
Matt Harris at Bain Capital Ventures has been blogging about embedded fintech + fintech as the fourth platform for a while, with fintech joining internet, cloud and mobile as part of the modern technology business stack. I very much believe in this thesis and wanted to add my own spin - I think 2020 onwards will see a significantly more activity for fintech products focused on businesses launched by tech companies. While consumer finance has seen a ton of activity, the SMB market has historically been less efficiently served. In just the past couple of years, we’ve seen a few companies focused on specific niches + products within the SMB market - BankNovo, Mercury, BlueVine, Clearbanc to name a few. We’ve also seen larger fintech companies launch distinct product lines aka capital is so hot right now (Stripe Capital, Toast Capital, Square Capital, Shopify Capital…I can go on). While Amazon shut down plans for a consumer bank account, my bet would be that they go into business bank accounts first
I believe that more tech companies will focus on launching embedded financial products for businesses due to the revenue opportunity, platform loyalty upside, and regulatory climate (collecting data on businesses is more palatable vs collecting consumer data). I’ve even personally invested in a company that’s reducing the barriers to entry for embedded financial products (Unit) and I’m super excited to see them launch this year, so more to come…
More fintech infrastructure launches in 2020 - particularly around lending activities
A bit of superset of the above, but I also believe that we’ll see a lot more fintech infrastructure companies launch in 2020 due to a few headwinds - On the supply side, in addition to net new B2B infrastructure companies, we’ll see more earlier stage consumer fintech companies hit an acquisition wall and pivoting towards B2B. On the demand side, growth stage fintech companies will be increasingly focused on unit economics and wanting to increase LTV vs growth at all costs- as a result they will need more infrastructure to quickly launch + test new financial product lines.
I’d expect to see more infrastructure on rewards, issuance, underwriting, servicing, brokerage, and many more…
More banking fees moving to $0 over 2020 - my vote would be someone like Wells Fargo in their efforts to rebuild consumer trust
The attack on brokerage fees happened gradually, then suddenly and I believe other consumer banking fees are finally under similar attack. Brokerages such as eTrade and Robinhood showed that net interest revenue + low/zero fees potentially result in a more aligned + efficient business model (I wrote about this previously here). The average fee for ATM withdrawals and overdraft “protection” has continued to increase year over year, and the revenue collected by large banks has also continued to grow -
Large banks reported charging consumers $11.45 billion in overdraft and NSF fees in 2017, up $10 million from the 2016 total and up 2% from 2015. Nine billion dollars of this amount was earned by the 20 banks that charged the highest volume of fees. More than one of the top 10 largest banks still engage in each of the following abusive practices: charging sustained/extended overdraft fees in addition to per-transaction overdraft fees; artificially changing the order of debit transactions in order to trigger more overdraft fees; and allowing five or more overdraft fees to be charged per day to customers.
More and more fintech companies have launched features to directly attack this line of revenue - whether it be Dave, Brigit, Chime’s SpotMe, Varo, etc and they’ve been able to gain a non-trival amount of scale as a result too. Free overdraft protection is starting to become the norm and I would challenge a large FI to truly deliver something innovative by matching this feature for their consumers.
Increased consolidation in consumer fintech driven not by large FI’s, but rather large fintech companies - Chime, Stripe, or Robinhood acquire 3 or more companies between the three of them.
In my opinion, getting to scale as a consumer fintech company is harder than ever before. While it’s still takes a very non-trivial amount of effort to launch, say a neobank, there is increasingly more infrastructure, playbooks, and expertise easily available vs years past. Many VC's all have their own bets in the market and these bets have also increasingly become more competitive with each other as companies move from a monoline product offering. In terms of the largest FI’s, it seems that Marcus and Paypal are going to be the most acquisitive going into 2020 but I believe we won’t any of the other largest banks execute large M&A opportunities of fintech startups - it seems that most are trying to compete via “new” products + relying on distribution. Instead, I think we’ll see more M&A activity driven by large fintech companies with large warchests available for disposal - looking to acquire companies for new customer segments, product lines, or just pure talent. If I had to make a guess on which companies - I wouldn’t be surprised if Chime, Stripe, and Robinhood made a few more acquisitions in 2020 for all the reasons above.
Increased focus around data access from large corporates + media - but no direct regulation in 2020
I expect more pressure on financial institutions, credit reporting agencies, and other financial services companies around their philosophy on user data + ownership. Open banking + data access is now top of mind for pretty much any consumer banking executive and state+federal regulators (although the election will slow this down). That being said, I still think it’s very early days for consumer awareness as much as the media wants to make a case that consumers don’t trust tech companies.
Rewards and points will be the consumer mousetrap for 2020
2019 saw the rise of the debit card + checking account as the acquisition mousetrap of choice (and access to interchange revenue). I believe that rewards and points will be the consumer mousetrap for 2020 - companies like Point have started to show early promise, jumpstarting their rewards programs off balance sheet with the goal of forming direct relationships. Meanwhile, PayPal’s major acquisition of Honey has driven a ton of renewed interest in the rewards/card linked offers market - companies like Drop, Rakuten, Dosh, etc are going to be very interesting to watch. I would expect more and more partnerships and integrations to offer more value add to consumers.
Auto + student debt will see a lot of funding activity
I think the election is going to put auto and student debt back into focus which I’m hopeful will result in more startup activity! There just seems to be a lot of low hanging fruit and I wouldn’t be surprised to see some interesting M&A and partnership opportunities in these spaces by large fintech companies to jumpstart their product offerings.
Rebuilding of financial products driven by autonomous finances + product discovery
The past decade has seen a cambrian explosion of consumer fintech companies and the sheer number of applications is starting to become a bit overwhelming. As a result, in 2020 across consumer fintech I think we’ll start to see more discovery and autonomous finance focused products that sit on top of existing fintech products vs creating their own. There are some early companies in the space including Astra and Copilot (disclosure: also a very small investor in Copilot) as well as larger established players such as Nerdwallet and Credit Karma. Even is also an interesting disaggregated play for discovery and I’m curious to see what verticals they expand into. Best in class fintech companies will leverage partnerships to be able to expand their own product coverage and try to provide other non-competitive offerings to consumers - aggregation is step 1, actually building out infrastructure to automatically move money efficiently a big step 2.
That’s all I’ve got for now, let me know what you think :)
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