Though finance and insurance have been traditionally very slow to change, the past year has seen a lot of innovation in both fintech and insurtech. Combining anonymized customer data and our own experience in the fintech space, Brex is uniquely positioned to predict upcoming trends in 2020.
We hope this forecast will help your own growing startup in the coming year.
Startups will continue to invest despite economic headwinds.
Q3 saw continued startup spend despite a worsening economic environment, in particular for technology companies. Brex data shows that Seed Stage Startups, including fintechs, increased their average monthly burn by 16% in the period from Q2’19 to Q3’19.This is a meaningful increase that shows no signs of letting up.
Continued unbundling of consumer financial services.
Select fintech providers (e.g. Chime, N26, Revolut) will continue to win business from retail bank incumbents.Meanwhile, merchant financial services (e.g. marketplace banking on Lyft/Uber, purchase financing via Affirm/Afterpay) and other entrants into consumer financial services (e.g personal financial management platforms with deposit accounts, Square Capital + Cash) are all offering new consumer products. – As these platforms continue to evolve, only a few will truly scale deposits / loans. But much like the unbundling of television in the media space, customers will soon face a paradox of choice.
The customer wins.
As most emerging neobanks are limited by their issuer partners on features and functionality, there is a race to the bottom on zero fees, cashback on spend, and high yield on deposits. In 2019, online brokerages all cut fees to compete with Robinhood and digital banking offerings competed with very aggressive interest rates, especially given a declining interest rate environment. Customers will game rewards, bonuses and signup offers and many providers will be left with account creation/closure expenses and little-to-no balance and spend.
Payments meet loans.
Payments and lending are converging as payment platforms like Square and new lending entrant Stripe grow their capital arms. These business lines scale quickly as the payments companies benefit from captive merchant audiences and large data sets with which to make loans.Meanwhile, lenders like Kabbage, Fundbox, SoFi, and Upgrade are increasingly offering payments products to their customers as a means to both diversifying their revenue streams and gain stickiness with their customers.
Fintech battles over ecommerce.
Lenders and payments platforms will continue to try and capitalize on the proliferation of ecommerce. Affirm and Klarna will introduce additional products into the space to capture more of the ecommerce financial landscape. Shopify Capital, Brex’s ecommerce credit card, Clearbanc and Stripe’s new lending arm will battle for who can be the primary lender to emerging ecommerce brands.
Cards, cards everywhere.
Card issuing APIs and platforms promulgated by the likes of Marqeta and Stripe have lowered the barrier for companies to enter the credit card business. Expense management platforms like Expensify, accounting platforms like ScaleFactor and payments platform Stripe themselves have already announced new entrants to the space. In 2020, many others will follow across tangential spaces like travel management, procurement, online payments and lending.
Tension between lower fees and lower interest rates.
Fees are racing to zero as the neobanks (Chime, Varo, Marcus by Goldman Sachs) and new asset managers (Robinhood, Betterment, Wealthfront) compete for deposits and investment dollars respectively. Many banks and asset managers previously benefited from the formerly rising interest rate environment, and passed on less interest to customers as rates rose. However, rates are now falling, fintechs will have to search for new profit centers or continue to expand product lines.
Insurtech arrives.
Insurance has attracted less attention and investment than other areas of fintech like payments, lending, banking and asset management. However, 2019 saw some high profile insuretech acquisitions and funding rounds like the $2B+ purchase of Assurance IQ by Prudential and Next Insurance’s unicorn round. Many prominent VC have been calling for greater technology presence in the large, often confusing insurance world. 2020 should be a strong environment for fintechs to disrupt this $5T+ global market.
Regulators checking in.
Consumer protection is top of mind among regulators with recent global regulatory intervention in areas such as data privacy (GDPR, CCPA) and most relevant to Fintech, with the outpouring of criticism for Facebook’s Libra. In the fintech space, go-live timelines continue to expand given the complexity of translating concept to regulatory approved action.Robinhood’s bank account offering rollout is one prominent example of a rollout that happened too quickly. While the developed markets remain interesting playgrounds for fintech innovation, the friendly regulatory environments – and associated business needs – create a highly conducive environment to innovation throughout Central and South America.
Old does not make way for the new, in the developed world.
Paypal/Venmo, Square Cash, Apple Cash (and respective peerset in EU) continue to scale in users and merchant acquiring, but there has been no dramatic shift from cash and card to digital wallets. This is in clear contrast to the payments landscape China (and has been forecasted in India and Southeast Asia). In the developed world, Visa and Mastercard networks continue to provide extremely broad merchant coverage and high degree of reliability to conveniently authorize payments transactions.