U.S. financial institutions have recognized that technology and product innovation is no longer a strategy that can stay on their wish list.
More than $11.8 billion in private placements, excluding debt transactions, poured into the U.S. financial technology ecosystem from January through November 2019. Fintech firms continue to use these funds to expand into new products and markets, making them more closely resemble the incumbents they compete against regularly. Those incumbents have responded by transforming their own businesses, in some cases through high-profile deals that brought additional scale and allowed for investments in technology to keep up with the competition.
S&P Global Market Intelligence's 2019 US Fintech Market Report offers an overview of how these entities are navigating the changing financial landscape across multiple industry verticals. The report covers themes like the rapid growth in digital lending origination volumes, shifting investor focus in the insurtech space, and intensifying price competition among online brokerages among others.
Click here to read the full 2019 Fintech Market Report
Digital lenders broke out of a trend of flat growth in quarterly originations in the latter half of 2019, according to S&P Global Market Intelligence estimates. Robust growth has brought with it greater variation in loan products and funding sources. As more digital lenders expand into adjacent financial products, their relationship with the banking system will become more complex. Some digital lenders have shown interest in pursuing charters themselves, at least in part, to avoid increasing reliance on bank partners. At the same time, other digital lenders are seeing traction by offering their loan engine software to banks.
Double-digit growth, complex bank relationships lie ahead for US digital lenders
2019 US Digital Lending Market Report
Digital payments are fueling a shift from cash around the globe, especially as more people are equipped with mobile devices. In the U.S., consumer mobile payment platforms have been built around existing, bank-based infrastructure and have seen rapid growth in adoption. Like their digital lender counterparts, nonbank payment platforms – both fintech and "big tech" - are expanding their service offerings to incentivize greater use and drive monetization. Banks have responded to the growth of these platforms with initiatives like Zelle, a peer-to-peer payments service that allows users to send money directly to each others' bank accounts via their mobile device.
Rising usage drives competition, cooperation among mobile payment providers
2019 US Mobile Payments Market Report
The development of the digital payment ecosystem in the U.S. stands in contrast to its evolution in other parts of the world, like Asia. While most U.S. nonbank payment providers leveraged the established card network and interbank payments infrastructure to build their products, payment providers in Asia did not have that option. As a result, digital wallet balances have funded a more prominent share of consumer payments volumes in that part of the world and have had a greater role in driving the evolution of the payment infrastructure in the region.
Mobile payment apps driving fintech frenzy in India
2019 India Mobile Payments Market Report
Electronic money knows no bounds in Southeast Asia
2019 Southeast Asia E-Money Market Report
Investor interest appears to have shifted to the digital agency model relative to last year, though prominent full-stack carriers were able to raise significant funding in 2019. While several smaller digital agencies are in the process of transitioning to a full-stack model, the higher funding into agencies can be explained in part by the recent success of companies like Hippo Insurance Services. The digital agency space is poised for continued growth in the near-term, but the situation could change if more carriers increasingly opt for a direct-to-consumer distribution model.
Digital agencies attracting insurtech investor dollars in the US
2019 US Insurtech Market Report
Digital investment management
Competition intensified in the digital investment management space in 2019. A multilateral price war erupted between several major online brokerages who all took their investment commissions down to zero. These moves bring the incumbents' brokerage fees to parity with fintech startup Robinhood Financial LLC, which has been championing the no-fee brokerage model for years. Multiple companies in other areas of the fintech world launched their own no-fee brokerage accounts. Meanwhile, the robo-advisory space has become concentrated, with the three largest independent fintechs growing discretionary accounts by double digits amid closures of at least half a dozen startups.
Despite Q4 stock slump, several US robo-advisers boosted AUM in 2018
The rapid growth of newer digital entrants has increased competitive pressure on incumbent banks to augment their digital capabilities. Direct banks have grown consumer deposits much faster than the rest of the industry, often by marketing attractive rates. Fintech "neobanks" like 1Debit Inc. have also seen high adoption rates and climbing valuations by marketing convenience without fees. And "big tech" firms like Apple Inc. and Alphabet Inc. are making inroads into the banking space more aggressively.
In response, traditional banking institutions are investing more heavily into their own platforms. Increasing the functionality of mobile banking apps and promoting services like Zelle offer some examples. Scale will play an important factor in bolstering incumbent banks' competitive position as suggested by the First Horizon National Corp./IBERIABANK Corp. and BB&T Corp./SunTrust Banks Inc. deals. Banks will also need to invest further into upgrading their core banking systems to integrate more easily with new payment systems and build applications. U.S. banks may be able to learn from the experience of banks in the Asia-Pacific region who began upgrading their core systems following the financial crisis.
2019 US Mobile Banking Market Report
2019 US mobile banking report finds stiff competition, appetite for innovation
APAC banks seek rewards of core system modernization
The hype around blockchain in the U.S. has subsided, but S&P Global Market Intelligence considers this a positive development for the technology. While the buzz around the technology has died down, blockchain projects continue to go live in different areas of the financial industry. There seems to be an increased focus within the U.S. financial services world on generating actual revenue from blockchain related projects to test whether or not it is a "solution in search of a problem" as several of its detractors claim.
Outside of the mainstream financial space, blockchain continues to spawn innovative experimentation as well. Decentralized finance, or DeFi, is a somewhat nebulous term used to describe companies that are using blockchain technology to create financial applications without a central intermediary. While developments in DeFi and the blockchain space more generally represent interesting possibilities that will likely draw the attention of financial services firms, we do not foresee massive disruption to the U.S. financial system coming from this vector. However, the attention blockchain has garnered has had several positive impacts on the financial services industry and will likely be remembered for ushering in a period of modernization whether or not it proves to be the technology it was made out to be.
Less hype could be positive for blockchain technology
2019 US Financial Services Blockchain Market Report