Fintech’s Wild Ride: Who Will Dominate the Next Phase?

Special Report Fintech has permanently changed the world of money, but faces new challenges in 2024, as players seek profitability and scale. Not all will survive. To help understand where fintech will go next, this three-part series re-examines how we got to where we are today, and asks: Will the future of the industry require a radical break from its past?

It was perhaps the most notorious Super Bowl ad of all time: an era-hopping Larry David playing a perpetual skeptic, pooh-poohing inventions like the wheel, the light bulb, the U.S. constitution — and cryptocurrency. The crypto exchange FTX delivered the ultimate FOMO message: digitized money is here, and it will change the world.

Less well-remembered is that 2022’s tightly fought contest between the Los Angeles Rams and the Cincinnati Bengals was punctuated by numerous ads that spoke to the increasing merger between finance and technology, including FTX’s competitors Coinbase, Crypto.com, and eToro; Rakuten, a cash-back service for your phone; the return of the E*Trade baby; the online gambling service Draftkings; the online mortgage provider Rocket Homes; TurboTax Live; and Greenlight, a financial app for children.

Not that long ago, the idea of conducting sensitive financial transactions online was foreign to the vast majority of Americans. Now, these ads suggested, it’s a necessary daily activity.

The 2022 Super Bowl can be thought of as a kind of peak in fintech’s meteoric journey. In the ensuing two years, the sector has experienced major convulsions, including layoffs, bankruptcies, and a sharp drop in private funding. The abrupt change in circumstances led some to speculate that the fintech revolution had run its course, and that an imminent winnowing would leave standing only a few of the more resilient players.

Dig deeper: Tough Times Breed Better Companies: the New State of Fintech

That scenario may be overstated, but 2024 will undoubtedly be a pivotal year for the fintech world. Fintech has fundamentally and permanently changed how people relate to money, and how financial firms relate to their customers. Now, as we approach Super Bowl 2024, it’s an opportune time to map the arc of the sector, its breakneck rise, its recent pullback, and its probable future.

In this three-part series, The Financial Brand chronicles fintech’s remarkable history, in order to explore which companies and technologies will dominate the next phase.

How Did The Fintech Wild Ride Happen?

As with most technological developments, fintech didn’t occur overnight. The late 1990s saw the rise of online banking and stock trading, which became the building blocks of what would later be labeled “fintech” — they solved crucial issues around security and customer trust. The ubiquity of smartphones turbocharged that trend.

But the real driver of fintech has always been unsatisfied consumers — and untapped demand. Square cofounder Jim McKelvey is a hobbyist glassblower. When he wanted to accept credit card payments for his creations, he was appalled at how difficult and expensive it was — and thus he, along with his onetime intern Jack Dorsey, became part of the payments revolution.

Square — along with its counterparts PayPal, Stripe, Venmo, Zelle and eventually CashApp — didn’t just make it easier for the existing market to transfer money easier and cheaper. They expanded the market itself, by allowing tens of millions of people and businesses to transfer money.

How big is that market? World Bank research indicates that 1.7 billion people worldwide have no relationship with a financial institution. Rightly or wrongly, fintech has long been perceived as a way to bridge inequality gaps. And even the wealthiest wanted a better deal from the world of finance, such as lower fees for stock trades and cross-border payments.

All of this caught the attention of private investors, who pumped unprecedented money into the fintech sector beginning in the late 2010s. In 2017, investors put $59.2 billion into fintech companies worldwide. Just two years later, that number ballooned to $216.8 billion and, after a COVID-induced dip in 2020, hit $247.2 billion in 2021.

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The thousands of startups that received these billions created fintechs of every conceivable stripe — basically any way that money is deployed was suddenly digitized to be faster and, usually, cheaper. A whole new vocabulary had to be devised to describe these companies. “Neobanks” like Dave and Chime made it possible to use financial services without actually having a bank account. “Insurtech” companies like Lemonade and Root digitized the sleepy insurance process, allowing claims to be resolved in minutes through a smartphone app.

Lenders like SoFi and Upstart dramatically reduced the time and effort required to get a personal loan. BNPL providers like Affirm and Klarna reinvented the installment plan, allowing customers the ability to split purchases into multiple payments.

The world of traditional finance took notice — it had to. The venerable Wall Street giant Goldman Sachs not only launched a digital personal finance service called Marcus, but purchased a BNPL company, GreenSky, that focused on loans for home renovations. Similarly, American Express snatched up the small-business fintech lender Kabbage. Robinhood, a venture-backed startup for app-based trading of stocks, options, futures and crypto, launched its mobile app in 2014.

It offered a revolutionary model: no-fee trading. Within months, the online brokers that themselves had built their businesses on undercutting traditional Wall Street broker-dealers, had no choice but to eliminate trading fees themselves.

Read more on our coverage of fintech in banking:

And Then Came COVID

Not only did the 2020 lockdown period create massive demand for contact-free payments, but also hundreds of billions of stimulus money moved through fintechs. Ultimately, the US government spent something like $5 trillion on COVID-related stimulus, and fintechs benefited tremendously. The Paycheck Protection Program (PPP), for example, was an $800 billion rapid transfer of funds between governments and employers; one study found that $8.6 billion of that went to fintechs in fees.

Even though the stock market tanked in early 2020, this unexpected windfall pushed many fintech companies toward an IPO. Indeed, the most successful US IPO of 2020 — as measured by first-day share pop — was the New York-based insurtech pioneer Lemonade. In April 2021, Coinbase went public and was suddenly worth $87 billion, for a company not a decade old. In mid-2021, the market capitalization of PayPal surpassed a staggering $350 billion — roughly the size of Mastercard.

And fintech expansion appeared to extend into infinity. In June 2019, Facebook announced its intention to create a digital currency called Libra, and while there was some griping from central banks and regulators, many of the world’s largest financial firms — including Visa, Stripe, and PayPal — signed on as Libra partners. The idea that a global tech firm would have its very own form of money somehow seemed normal.

The prevalence of fintech ads in the 2022 Super Bowl was a signal that a money revolution had taken place, and a new group of leaders — PayPal, SoFi, Plaid — sat on the throne.

Of course, a mere ten months after these ads aired, FTX declared bankruptcy, and its founder Sam Bankman-Fried was on his way to a lengthy prison sentence. And by then, much of the fintech revolution looked much less mighty. The market romance would not last, regulators were not satisfied, and the COVID growth period would prove to be more of a bloat than a boost.

Next: Why Did Fintech Stumble?

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