Fintech Trends to Watch

 Rise of the Neobanks

The coronavirus pandemic led to an explosion in digital challenger banks. In the first half of 2021, Chime, the 8-year-old neobank, had 6.4 million installs of its digital banking app in the US alone. 

Apptopia reports that Chime was the most downloaded digital banking app in the United States. Although Chime’s more than doubled competitors’ download total in that time frame other neobanks also saw large gains. Current had 2.7 million downloads in the first half of 2021. Varo Bank had 1.95 million downloads and Step had 1.94 million downloads in the same time period.

Bank mergers

Speaking of banks, the number of banks in the United States has been steadily shrinking since the 1980s. This is, in part, due to the consolidation of banks in our ever more networked world.

In July, President Joe Biden signed executive orders intended to put more “robust scrutiny of [bank] mergers” into place. In addition, Biden signed an order encouraging the Consumer Financial Protection Bureau (CFPB) to issue rules allowing customers to download their banking data and take it with them.

Some in the banking industry believe this gives an unfair advantage to fintechs. Greg Baer, the president and CEO of the Bank Policy Institute noted “banks continue to lose business to unregulated FinTechs or government-sponsored enterprises, whose presence in the market current DoJ guidelines inexplicably ignore in assessing market competition.” If Baer had his way, the Department of Justice’s guidelines would be changed to, as he put it, “reflect the underlying law” and put more scrutiny on fintechs.

Cybersecurity Ramps Up

One of the unintended consequences of the massive shift to working from home has been much more exposure to cybersecurity risks. With the amount of financial data being gathered and networked, the opportunities for cybercrime have increased.

Malicious cyber activity including phishing, malware, and ransomware has significantly increased in the last 18 months. Data from the Financial Services Information Sharing and Analysis Center Incidents shows that malicious cyber activity went from about 5,000 instances per week in February 2020 to more than 200,000 per week by late April 2021. Cybercriminals targeted bank employees and customers with malicious activity during this period, many of whom were working from less well-defended home networks during the coronavirus pandemic shutdowns.

Fintech vs. Banks animosity

More and more fintechs and banks are working together in specific categories. While not exactly allies, “frenemies” is an apt way of describing some of the recent collaborations between fintechs and banks.

Take the cross-border payments category. For small and medium-sized businesses, moving money across borders through traditional banks has been largely a slow and costly procedure. The process is slow because moving money still requires money to go through a network of banks, which takes time. The fees for this service have a floor, meaning that moving a small amount of money requires a baseline payment. This makes things costly for small businesses. For example, in 2020, the global average cost of sending $200 was 6.5%, according to the World Bank.

Fintechs have stepped in to address the cross-border payment field include Wise (formerly TransferWise), Ripple, Rapyd, Banking Circle, dLocal, and Payoneer. Meanwhile, banks still dominate business-to-business payments. So, banks are starting to work with fintechs to tackle business cross-border payments together. A recent partnership between PayPal and Citi allows the bank’s institutional clients to make payments into customers’ PayPal digital wallets through Citi’s cross-border payments platform. Expect more “coopetition” efforts like this as banks and fintechs find more common ground.

Consumer Market Ups and Downs

Any discussion of trends in the fintech space should also include a bit about consumer trends since the fintech industry relies, at least in part, on consumers. In the consumer space, a pair of trends stand out. Following the format above, we’ll look at one “Up” trend and one “Down” trend.

Since the coronavirus pandemic took hold, we’ve seen an uptick in consumers using blockchain wallets. According to a Finances Online report, the number of blockchain wallet users worldwide has grown by about 28 million users since 2018.  The same report projects that the blockchain market size will grow to $39.7 billion by 2025. This will have massive implications for the fintech industry.

Finally, we’ll end with a consumer “down” trend, but it’s a positive downtrend, at least as far as consumers are concerned. As Payments Dive reported, average credit card delinquency rate for six of the biggest U.S. bank credit card issuers also declined in early 2021. Consumers are increasingly using debit cards for expenses and carrying less debt. The trend is expected to continue through the year and into next year, so fintechs that ease debit transactions should see an uptick from this downward trend.