The fintech landscape is evolving rapidly, reshaping how we interact with financial services. From instant payments to alternative credit scoring methods, the industry is pushing boundaries and challenging traditional norms. This blog post explores four key trends that are currently defining the fintech sector and shaping its future trajectory.
1. Instant Payments
Last year the Federal Reserve launched its real-time payments rail, FedNow, enabling more consumer options for instant bank-to-bank payments. Adjacent to this trend is the growth of popularity in stablecoins, with PayPal following FedNow and launching its own stablecoin PayPal USD (PYUSD). Stablecoins present a prime global opportunity for remittance-focused fintechs, with users in the US interested in cross-border transactions and consumers in countries with less stable financial markets looking to hold the dollar as a store of value.
2. Credit Score Alternatives
Younger generations have often been a prime target for credit-building products. To make matters more complicated, younger consumers also exhibit different income verification needs and are more likely to have multiple streams of income with less predictability (eg content creators who may sign a one-off five- or six-figure brand deal). Enter cashflow underwriting, which permits an institution to analyze a consumer’s transaction history as an alternative to a credit score. Last year middleware platform Plaid launched their cashflow underwriting tool. Many of the promising consumer use cases championed by fintechs involve income verification for BNPL, home improvement financing, and rental property management.
3. Pivoting from Unsecured Lending to Credit Cards
Many fintechs found product market fit via small-dollar lending, with TransUnion sharing that the market share for unsecured personal loans by total balance grew from 36% in 2018 to 55% in 2023. A significant variable in this success was due to fintech underwriting being effective in identifying the “invisible prime” from the subprime pool of borrowers, a segment that was often overlooked or overpriced by traditional lenders. With high rates becoming the norm, fintech’s sector focus shifted last year to credit cards, with many new product launches this year, including waitlists for the Klarna Card and Robinhood Gold Card in the first half of 2024.
4. Building Trust via Marketing Channels and Diversifying via an Ecosystem Approach
Typically newer entrants have leaned into their digital experience with their marketing channels, preferring to focus on performance marketing via paid social. Last year well-established fintechs like SoFi and Chime invested their marketing dollars into more expensive, traditionally incumbent channels like direct mail and national TV. This broader strategy is part of the longstanding effort to combat the gap in trust towards fintechs as 32% of consumers trust banks while only 5% trust fintechs.
In addition to this channel strategy shift, fintechs looking for longer-term staying power have been diversifying beyond their initial successful products, adding to their suites of offerings, and cross-selling their existing customers.
What we think
As we navigate these fintech trends, it’s clear that the industry is at a pivotal juncture. Regulatory agencies have adopted a more aggressive posture towards the industry than in years past, most notably with recent enforcement actions led by the CPFB and SEC. Among other actions that directly or indirectly affect fintech business models, the CFPB is attempting to broadly interpret laws intended to regulate incumbent banks and apply that to newer entrants. While innovation continues to drive progress, regulatory challenges and the need for sustainable growth models are becoming increasingly important. Fintech companies that can balance innovation with trust-building and navigate the evolving regulatory landscape will be best positioned for long-term success in this dynamic market.
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