This is my third year at DailyFintech. Looking back, this year has been the most eventful year of the three, with several significant Fintech trends emerging across the world.
Typically, I am not a big fan of the “Top” titled posts. But, I have had to use it, thanks to the events of 2019. A few key themes stand out for me.
Starting from Asia- be it China slowdown, India Payments or South East Asia for Financial Inclusion – there were some big headlines this year.
Facebook’s Libra, China’s Digital Currency and the FCA regulations for crypto businesses kept the crypto hodlers interested.
Softbank Fund 1 saw a massive hit due to a bad year at the IPOs, and there were several learnings from there. Fund 2 is now up in the air, although they are revisiting their strategy to be more profitability and less growth.
Google Bank, Apple Card, Facebook pay are perhaps giving wall street a few sleepless nights.
The idea for a trend post came from Theodora Lau, when we were discussing a theme for our podcast episode. As we went through the recording of the trends episode, I felt this definitely deserved writing down as a blog post. Anyways, here you go!
Trend 1: India – the key battleground
(I had to start with India)….. Asia Fintech was where all the action was this year. China saw a slowdown due to the trade war. Investments dried up, and India overtook China for Q1 and Q2 Fintech investments.
The more interesting aspect of India Fintech this year has been the growth of payments. It has been largely due to the rise of internet, thanks to Reliance Jio. 300 Million Indians suddenly got access to internet in a matter of 24 months. Many digital business models that weren’t viable before, started scaling quickly.
I personally made an investment into Niki.Ai, a voice app for even the rural population of India to do transactions in their regional languages.
Walmart’s 2018 acquisition of Flipkart hit jackpot with PhonePe – a payment business that was valued at about $300 Million last year. PhonePe has gone from 26% of payments market cap to 47% in 12 months since the acquisition. Its valuation is expected to be around $10 Billion now.
With China payments largely taken, India is the battleground for the big firms like Alibaba, Amazon and Google. In a “winner takes all” world, getting 20% of the world population onboard is a big deal for these firms.
Trend 2: Tech giants conquer Wall Street
Apple did it again. They picked up an already existing, relatively well executed product, and did it even better. The apple card experience is seamless, simple and sophisticated. We can argue that the challenger banks had done it already, but we all know that, when Apple does it, it takes some beating.
Google bank has been in the news for the last couple of weeks. Google’s announcement that they would be launching checking accounts shook social media. On the day it was announced, all I could see on my twitter feed was just that. People were predicting doomsday for mainstream banks.
Facebook pay is yet another recent development. Instagram got an in-app-checkout functionality that allowed users to make purchases from the app. Facebook pay however, is a common capability across all FB apps. They will be powered by Paypal and stripe, and plan to take over the mobile e-commerce market.
I believe, banks may have to accept that tech companies will be distributors of banking products. Banks will need to collaborate with them, rather than view them as competition.
Trend 3: Growth vs Profitability
As much as I like the VC job at Green Shores Capital, I often find that the industry is hyped up. This was especially the case until last year. This year though, funds are drying up top-down. I saw four Series A funding rounds fold because the funds (or their funders) pulled out of the round.
Nothing has been more pronounced than Softbank Funds portfolio. Softbank fund took a strategy of investing in pre-IPO firms, taking them to IPO, and making money in the process. A $100 Billion fund was seen as super powerful. But the market brought their portfolio firms to their knees.
The Wework collapse could be compared to the dot com bubble burst. This time it may be a graceful slowdown in the market, however, it has led to a much needed introspection within funds. Softbank has started focusing on profitability as a strategy for their next fund.
Even with their portfolio firm PayTM in India, Softbank have asked them to demonstrate profitability before an IPO.
Trend 4: Challenge banks look at Global Expansion
There are challenger banks across the world. For those in Europe and the UK – Monzo, Revolut, Starling and N26 have all had pretty decent growth stories. This year, some of them have started to plan an US expansion. They are all largely in growth mode, and there are still questions around if they can really be profitable. Something for them to figure out in 2020s perhaps.
The other set of challenger banks are in Latin America (Nubank) and Asia. These are markets that don’t have the burden of legacy banking infrastructure. As a result, their challenger banks have grown pretty fast. Softbank invested into Nubank, and their valuation has skyrocketed past $10 Billion.
So the key takeaway is that, when you are a challenger bank in an underserved part of the world, the opportunities are sky high. If you have the “misfortune” of being a challenger bank in an over-banked part of the world, you may have to quickly look outside your region.
Trend 5: A year of Financial Inclusion
While several public and private firms across the world have been trying to solve this issue, South East Asia over the past 12 months suddenly emerged as a case study. Only 18% of adults in S.E.Asia use a bank account and 11% use financial products. As a result, there is a genuine opportunity in this part of the world for a provider of last mile financial products.
Grab and Gojek have conquered S.E.Asia, and as they expanded through their ride sharing apps, they have also started offering payment services. As Singapore opened up their licenses for digital banks, Grab have applied for it too.
A key takeaway here is that, in several parts of the world, expansion could happen as a lifestyle business. Fintech offerings can follow.
A broader takeaway is that, distribution of banking is getting disrupted, not as much the banking services offered.
Trend 6: Blockchain Unchained
Libra has been quite noisy on social media. It should have ranked quite high on the hashtag list of the year. Despite all the negative press around anything related to FB, Libra still has its merits. It may or may not be the tool that brings banking and payments to every household. But it may have scared governments and central banks enough to act on digital currencies of their own.
As a result of Libra’s announcement, China have had to expedite their digital currency offering. Libra’s success may not be its own product. If sovereign digital currencies emerge, we will see transparency and ease of transactions at a global scale never seen before.
Trend 7: Climate Risks
This is my favourite trend of the year – without a doubt. The extinction rebellion, and dramatic climate patterns across the world has sent shock waves across financial services too.
Recently the Bank of England (BoE) released its supervisory text on how banks should include climate risks as part of their stress testing. This is a pretty interesting move.
If it is executed right, climate risk management would be overseen by financial regulators and central banks across the world. Banks would be asked to capitalise themselves against climate risks that they were exposing themselves to.
Therefore, if a bank had a counterparty that had a high carbon footprint, the bank would need to recognise that. They would have to rank a high carbon footprint transaction as a higher risk transaction, and as a result allocate higher capital against that transaction. This would soon change the way banks deal with their clients – and could help keep the wider business ecosystem climate conscious.
As the world welcomes 2020, it’s critical to note that these trends are green shoots of something big and mostly in the right direction too. That is perhaps what interests me the most. Despite the financial aspect of it, most of these trends have a strong social impact too!