13 Thoughts on Fintech in 2017
Happy New Year everyone! I work with a lot of different companies across the fintech spectrum in my current role at Plaid (ps we’re hiring for almost everything). For my first post of 2018, I wanted to take a step back and give some thoughts on what I saw happen across fintech in 2017.
1) Rise of mainstream investment (but not quite usage adoption) of cryptocurrencies — Coinbase was at one point, the most downloaded app in the App Store. As result, prices shot up across the space dramatically, case in point.
2) Launch of the ICO — Initial coin offerings raised over $4BN in 2017 as an alternative way to kickstart company/protocol funding. Will see much more regulation here in 2018.
3) Large bank fintech M&A — More sizeable fintech investment and acquisition from some of the larger banks & FI’s in the US, typically for companies that were struggling to find further growth opportunities. Increasing focus on “fintech” and “digital” as a strategic priority. Ex: Chase acquiring WePay and investing in Bill.com, Navient acquiring Earnest, Goldman Sachs acquiring Bond Street, etc
4) “Standalone” application from Banks — In more core retail banking areas, rise of banks launching standalone applications to compete with fintech offerings. Core banking areas being wealth management, consumer payments, deposits, and card issuance. Ex: Chase Finn mobile banking app for millennials, Wells Fargo’s Greenhouse mobile bank + roboadvisor (powered by SigFig), Goldman Sach’s Marcus + building a roboadvisor, etc
5) Fintech product convergence — More established fintech companies starting to rebundle banking services and up-sell a bit. Ex: Wealthfront launching Path PFM, StashInvest launching savings + retirement, SoFi launching roboadvisor,
6) Lending consolidation + specialization — Emphasis more on lending products targeted towards specific use cases vs a broader lending portfolio. Ex: LendUp, Tally, UpStart, Even, Dave, Activehours, etc seemingly gaining traction with Prosper, Lending Club + Earnest regressed a bit
7) PFM bets set — Most top-tier VCs picked their own bets in PFMs and further investment activity seems low. Ex: Social Capital/Penny, Bessemer/RRE/Clarity Money, Bessemer/Albert, Sequoia/Empower, etc
8) Rise of brokerage as mainstream — Robinhood, Stash, and Acorns were some of the most successful fintech companies in 2017 in regards to user downloads (see Matt’s post below in Fintech apps). Crypto craze + record stock market highs drove increased interest in apps that make investing easy & cheap to understand and execute.
9) (Relatively) Hands off approach from US regulatory bodies towards fintech — I was expecting to see a much more aggressive clamp down from the SEC in regards to ICOs, but seems like it’s more of a wait, get educated, and see approach (which I believe is overall net positive). Ex: OCC putting forward proposal for fintech banking charters in Dec, CFPB non-action for Upstart’s use of alternative data (prior to the CFPB getting a bit declawed), continued engagement across regulators with various fintech companies
10) Remittances heating up — Transferwise, WorldRemit, Remitly all raised large rounds in 2017 to continue to deliver more offerings to tackle the $436B remittance market. A lot of new cryptocurrencies also popped up, trying to claim some market share.
11) Global + B2B payments as a growth area — Developing + establishes businesses increasingly were looking towards global markets for revenue opportunities and corresponding, 2017 saw more services geared towards helping companies go international. Ex: Stripe opening up Atlas, payment processors like Stripe, Braintree, and Adyen launching longer tail of international markets, Square expanding to the UK, AliPay pushing into US retail, etc
12) China leading the way to fintech IPOs — China seemed to be on a whole different level in regards to 2017 fintech IPO and M&A activity, with fintech “reshaping the way Chinese consumers pay, borrow and invest”. That being said, Chinese fintech companies that IPO’ed this year overall performed poorly. Most were lending focused “companies that grew quickly in recent years by making loans to China’s giant and increasingly tech-savvy population.” Increase regulation might dampen lending prospects, but still a ton of cash in reserve from the average middle class Chinese family. (https://www.wsj.com/articles/year-of-the-turkey-for-chinese-ipos-in-the-u-s-1513512000)
13) Mortgage is back — A ton of VC funding went into streamlining various aspects of the mortage process from title insurance, origination, payments, etc. Starting to also see more activity from GSE’s such as Fannie Mae & Freddie Mac who want to stay ahead of the curb. Alternative mortgage lenders now account for almost half (45%) of all home loans, according to the Federal Reserve — the largest share in 20 years. Ex: Blend raising $100MM from Greylock, Fannie Mae’s Day 1 Certainty program, Quicken’s Rocket Mortgage launch, growth of SoFi/LoanDepot/Lenda.
