I humbly submit 10 predictions for the future of FinTech — please suggest your own or comment as you see fit!
- Big tech will fail in FinTech
- Apple has created an inherent contradiction in their approach by issuing a (fairly generic cobrand — design, packing and activation aside) card directly competing with the issuers upon which ApplePay depends
- Apple Card will be relaunched (with a plastic card and more tiered rewards and benefits)
- Google has never managed an even remotely coherent strategy — perhaps by choice as is their way. The deal with Citi is more like GPay for bank accounts and not Google offering direct to consumer banking services.
- Amazon will trundle along with Amazon Pay and their Card — don’t expect to see anything different here
- Facebook fail — Libra — possible upside if they get serious about commerce in Messenger
2. Banks will fail in FinTech but it won’t matter
- Innovation theatre continues to be the major output from banks and traditional financial services companies (hackathons, innovation labs, etc.)
- Disruptive change in banking will be measured in decades
- Current “Challenger Banks” are focussed on customers the big banks don’t care about
- Doing innovation in banking is directly attacking the bank’s core foundation of profitability — $2tr held in checking accounts in the US earning nothing for consumers and hundreds of billions for banks in pure profit creates an incentive against change
- Gentle flow of acquisitions of FinTech companies by established financial services companies will continue and they will be crushed by corporate pressure — possible exception with Goldman Sachs who is sort of a Fintech Challenger bank but with unlimited resources — one to watch — their great advantage is that in the retail space they have nothing to lose unlike the traditional retail players
3. At least 1 Wework’ish blow-up by a Challenger Bank
- Something has to break — it’s going to be one or more of Founder miss-behavior, overvaluation bubble bursting, some sort of accounting or regulatory/compliance infraction on a systematic scale
4. Bifurcation of the “Challenger Bank” market into mass undifferentiated brands and hyper fragmented ones
- Chime, Revolut, N26, and Varo are committed to the mass market play
- Others will mine specific targets like Greenlight (kids), Step (teens) etc.
5. The next big battle will be for revenue
- Challenger Banks have convinced many investors that its all about account acquisition — something that must make conventional financial services companies laugh behind closed doors
- Account acquisition without deposits and spend is just cost — investors will force challenger banks to come up with revenue strategies more sophisticated than debit interchange
6. The next big battle will be for affluent consumers and credit cards
- With over 35 “Challenger Banks” in the US offering essentially the same thing to the same people (you can see the spreadsheet here) the sub prime space has reached saturation point
- Merchant funded offers are great but only go so far — you need engaged consumers to make it meaningful
- Follow the money — with over 200 bps possible with affluent credit cards the generic Challenger Bank model (bank account with zero interest (no fees!), app and debit card) will need to quickly move upscale to secure revenue
7. Competition will change from access to value for money
- 1st Wave of FinTech Challenger Banks were all about the app — i.e. they had one and it did things (Simple, Moven)
- 2nd Wave was access — serving consumers who the traditional banks ignored
- 3rd Wave will need to be on value for money
- Consumers get pretty screwed by financial services companies and so far FinTech has done little to address that in the Spend and Save category — where it has excelled is in the Invest category where Robinhood, Acorns and Wealthfront as examples have genuinely driven real change
8. PFM apps will have to consolidate or die
- Too many apps chasing too few consumers (you can see the spreadsheet here)
- Problems with engagement (its just not that interesting tracking spend and the people who need it the most are the least likely to use it)
9. The rise of real product innovation
- Challenger Banks to date have not really changed the underlying products but rather overlaid a UI on traditional products like bank accounts and debit cards
- The economics has not changed for consumers and its led to fragmentation and complexity (30 years ago most people would have had a Bank and that’s it whereas today many people have multiple providers albeit a primary and likely traditional bank as well)
- Questions FinTech should be asking and challenging include — why do I need a separate saving and checking account? why do I need 2 cards (debit and credit) that do the exact same thing? if banking is free how come the banks make so much money?
10. Bank as a Service will struggle
- BAAS is a broad church and includes a mass of different approaches and the number of companies professing to offer such services has exploded in the last few years
- The approach that will suffer the most is the API layer over a program bank
- Competition from the bottom up — Program banks API’s are getting better and they are waking up to their ability to work with others and create compelling platforms
- Competition from the top down — SAAS platforms like cloud computing companies will be able to move into this space by expanding their platform offerings via 3rd parties and organic development
- The real competitive differentiation will not be in software or licences but those companies willing and able to offer flexible and innovative underwriting capabilities for critical services like loans and credit cards
11 (+1 bonus). Investors will start to look at the market in a more nuanced way
- The broad categorization of “FinTech” and especially “Challenger Bank” is meaningless in the same way as Automotive does not differentiate between say Tesla Cybertruck and a Honda Civic
- Yet this is precisely the way many in the investment community have been talking about the market
Join our newsletter
We are now slowly rolling out our beta program. Be one of the first to get access by signing up today.
Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.