(by David Klein)
Alongside “Unicorn” and “Grexit/Brexit,” “Fintech” was considered one of the top 10 financial buzzwords of 2015.
But fintech isn’t a newcomer to this list — and for good reason. For a few years now, fintech companies have moved from the margins to the mainstream. They are building tech-enabled financial platforms that serve consumers better than traditional financial institutions, and consumers are responding.
As the CEO and co-founder of CommonBond, a fintech lender that to date has focused on student lending, I’ve seen that evolution firsthand. And from my vantage point, I see a fundamental shift in finance happening right under everyone’s noses.
Here are my top four predictions of where I think fintech is going this year (and beyond):
Capital will get more discerning and bunch up around the best players. Fintech companies that in the past year would have begun with a big idea, a few buzzwords and a PowerPoint deck will not get funded this year, or beyond. Capital will still be available, just not to everyone. Only the companies that have developed proven products and built brands that resonate with consumers will attract the capital they need. These are the companies with more proven platforms — the ones you’ve heard of.
Of the emerging fintech lenders, the big ones will get stronger and the small ones will attach to the larger players or simply peter out. We’ll move from a world that thinks about the top 200 fintech lenders to a world that only cares about the top 20 — and the market will be healthier for it.
A large tech company will make a big move into finance. I can’t tell you who it will be, but I can tell you that 2016 is about the right time for this to happen. Finance touches everyone’s life, technology in traditional finance has been slow to modernize and consumers are more open to tech solving their finance-related pain points than ever before.
According to The Millennial Disruption Index, 73 percent of millennials would be more excited about a new offering in financial services from companies such as Google, Amazon, Apple, PayPal or Square than from their own bank.
Fintech is moving fast, and the pace will only accelerate.
Tech companies are looking for ways to grow and play an increasingly important role in their customers’ lives. Facebook has a ton of data on its users, as does Google. Apple has a ton of cash — more than $200 billion, to be exact. That’s enough capital to generate more than $2 trillion in assets through a lending business.
To put this in perspective, JP Morgan Chase, the largest bank in America by assets, has $2.6 trillion in assets. Capital and data are the backbone of finance, and now big tech companies have them big time. They also have the technology, to boot. (Speaking of boots, if I were a bank, I’d probably be shaking in them a bit more this year.)
Millennials represent the largest generation in America, at more than 90 million people. They are young and have increasing purchasing power. Seventy-one percent of them would rather see their dentist than deal with their bank. Thirty-three percent of them expect never to use a bank, and instead expect that tech firms will be their financial saviors.
Seventy-one percent of [millennials] would rather see their dentist than deal with their bank.
And the market is responding. A new crop of companies across lending, wealth management and payments — think Prosper, Betterment, Affirm — are coming to market and gaining share quickly, most likely because these newer companies are more responsive to consumers’ needs than traditional financial companies.
JP Morgan CEO Jamie Dimon also understands this especially well, as evidenced by the bank’s recent partnership with OnDeck Capital to better serve small business owners, and JP Morgan’s recent purchase of $1 billion of Lending Club loans to add to its balance sheet.
The “great unbundling” will shift to the “great rebundling.” One of my favorite graphics comes from CB Insights and depicts a screenshot of the Wells Fargo homepage, with an overlay of the logos of various fintech companies that are disrupting different parts of traditional finance’s business — from student loans to wealth management to insurance. This is what has come to be known as the unbundling of banking, and we have seen this take shape over the past few years as fintech startups have emerged to disrupt banking.
But I see this “great unbundling” transforming into the “great rebundling,” with technology playing an integral role. While fintech companies usually start by excelling in a single asset class or product, some of us have set out to serve the customer across many, if not all, of the customers’ financial needs.
As fintech companies scale not just through market penetration in their existing products but by horizontal expansion into new products, we will see this rebundling — if executed well — serve customers better than traditional finance has been able to. And the reason for this in large part will be better technology that enables seamless experiences between products and services, as well as a strong focus on the customer.
Fintech is moving fast, and the pace will only accelerate. This is the year that the best ones will get stronger — and the market, including consumers, will be better for it.
Perhaps by the end of 2016, fintech will no longer be a buzzword at all.