So what happens when fintech ‘brings it all together’? In a world where people access their financial services through one universal hub, which companies are the best-positioned to win? When open data and protocols become the norm, what business models are set to capitalize on the resulting rush of innovation, and which will become the key back-end and front-end products underpinning finance in the 2020s?
It’s hard to make forward-looking predictions that weather a decade well when talking about the fortunes of individual companies. Still, even if these companies run into operating headwinds, the rationale for their success will be a theme we see play out over the next ten years.
Here are five companies positioned to win the 2020s in fintech:
1. Plaid
In 2014, I met Zach Perret and Carl Tremblay when they reached out to pitch Funding Circle on using Plaid to underwrite small and medium businesses with banking data. At the time, I couldn’t understand how a bank account API was a valuable business.
Plaid’s Series C round in 2018 came with a valuation of $2.65 billion, which caught a lot of people in fintech off-guard. The company, which had been modestly building financial services APIs since 2012, recently crossed the threshold of 10 billion transactions processed since inception.
For those unfamiliar with Plaid’s business model, it operates as the data exchange and API layer that ties financial products together. If you’ve ever paid someone on Venmo or opened a Coinbase account, chances are you linked your bank account through Plaid. It’s possible in 2020 to build a range of powerful financial products because fintechs can pull in robust data through aggregator services like Plaid, so a bet on the fintech industry is, in a sense, a derivative bet on Plaid.
Those 10 billion transactions, meanwhile, have helped Plaid understand the people on its’ clients fintech platforms. This gives it the data to build more value-added services on top of its transactions conduit, such as identity verification, underwriting, brokerage, digital wallets… the company has also grown at a breakneck pace, announcing recent expansions into the UK, France, Spain, and Ireland.
As banks, entrepreneurs, and everyone in-between build more tailored financial products on top of open data, those products will operate on top of secure, high-fidelity aggregators like Plaid.
The biggest unknown for aggregators like Plaid is whether any county debuts a universal, open-source financial services API that puts pricing pressure on a private version. However, this looks like a vanishingly remote possibility given high consumer standards for data security and Plaid’s value-added services.
2. Stripe
Predicting Stripe’s success is the equivalent of ‘buying high,’ but it is hard to argue against Stripe’s pole position over the next fintech decade. Stripe is a global payments processor that creates infrastructure for online financial transactions. What that means is: Stripe enables anyone to accept and make payments online. The payment protocol is so efficient that it’s won over the purchase processing business of companies like Target, Shopify, Salesforce, Lyft, and Oxfam.
Processing the world’s payments is a lucrative business, and one that benefits from the joint tailwinds of the growth of ecommerce and the growth of card networks like Visa and Mastercard. As long as more companies look to accept payment for services in some digital form, whether online or by phone, Stripe is well-positioned to be the intermediary.
The company’s success has allowed Stripe to branch into other services like Stripe Capital to lend directly to ecommerce companies based off their cashflow, or the Stripe Atlas turnkey tool for forming a new business entirely. Similar to Plaid, Stripe has a data network effects business, which means that as it collects more data by virtue of its transaction-processing business, it can leverage this core competency to launch more products associated with that data.
The biggest unknown for Stripe’s prospects is whether open-source payment processing technology gets developed in a way that puts price pressure on Stripe’s margins. Proponents of crypto as a medium of exchange predict that decentralized currencies could have such low costs that vendors are incentivized to switch to them to save on the fees of payment networks. However, in such an event Stripe could easily be a mercenary, and convert its processing business into a free product that underpins many other more lucrative services layered on-top (similar to the free trading transition brought about by Robinhood).
3. MX
MX is a quiet giant in fintech. The company rarely receives the attention that other fintech infrastructure players enjoy in the spotlight, even when it quietly raised $100 million over the summer from top-flight venture investors — its first outside capital since 2015.
Banks and traditional financial institutions have the benefit of long legacies, which gives them the knowledge, reach, and backing to still dominate financial services today. This benefit is a double-edged sword, however: because they were built in ‘offline’ periods, the way they were set up is not naturally configured for digital transformation. Data is siloed, systems don’t talk to each other, regulations prohibit some information exchange, which makes it difficult to understand customers at both an aggregate and nuanced level.
MX solves these problems for the financial services industry. It provides tools to help systems better communicate together, interpret their data clearly, create better front-end customer experiences, and provide a back-end dashboard with clear insights into business performance. Think of this as Quickbooks, Webflow, Salesforce, and Tableau all rolled into one for financial services providers. And MX’s business is not limited to legacy institutions; many fintechs use the company’s data categorization, analytics, mobile banking and data aggregation products. This gives MX the opportunity to harmonize the world’s financial data into one universal format.
Fintech maximalists are quick to predict the demise of traditional financial institutions, but as long as they can leverage services like MX’s, it’s unlikely that this transition will happen overnight.
4. Ant Financial
Most Americans still have not heard of Ant Financial, in-spite of its valuation of over $150 billion as a private tech company. The Chinese fintech, co-founded by Alibaba founder Jack Ma (and originally named Alipay), dominates financial services in China and operates the biggest money market fund in the world, with 588 million users – or more than a third of China’s population.
Ant Financial operates the largest mobile and payments platform in the world. Unlike back-end services like Stripe, the company offers a consumer-facing app that people can use to buy products or send peer-to-peer payments via credit card, QR code, or almost any other digital medium of exchange. It also provides users a credit score, online banking, wealth management and a range of other digital financial services.
The main differences between the growth of fintech between China and the U.S. is the dominance of ‘all in one’ products in China like WeChat and Ant Financial, which centralize a lot of different functions into one app. As we move into the 2020s, it is likely that the convenience of services like Ant wins consumers over from the status quo of multiple vertical-specific fintech apps.
On top of its success in China, Ant Financial made two telling moves in 2019: it debuted a service for foreign visitors in China to open digital wallets and make payments domestically — therefore beginning to familiarize users with its product outside of its borders — and it announced its intention to support 10 million European SMBs by 2024. This appetite for international growth is likely to make it a major player on the global fintech stage in the next decade, challenging the dominance of card networks like Visa’s and digital wallets like Apple’s.
5. Apple
Speaking of Apple, not a week goes by in fintech without speculation on Apple’s long-term plans and vision for financial services. ApplePay recently overtook Starbucks as the number one in-person mobile payments app in the U.S., with 30.3 million users (or 47.3% of mobile payment users) and the consumer tech company launched its own credit card in partnership with Goldman Sachs this summer.
Judging by Apple’s product positioning, it is unlikely that the company aspires to be an integrated retail financial services provider, the way Goldman has evolved with its Marcus banking, lending, and wealth management services. The co-branded card largely leverages Goldman on the finance side — underwriting, credit origination, portfolio management — while Apple controls the user interface, design and experience. This partnership structure lets both companies leverage their core competencies without having to develop new ones.
The partnership also hints at what Apple really wants: to drive more user adoption of its mobile wallet and convert iPhone users into thinking of their phones as their primary method of payment. Converting people to using their phones rather than their wallets would create ecosystem lock-in benefits for iOS, driving more value to Apple’s primary business. It would take fees on every mobile transaction. It could centralize other ‘wallet features’ like personal IDs and membership cards. Even more exciting, Apple could open up its mobile wallet for third-party developers to build apps directly on top of consumer financial data, all while taking a proceeds from the business – just as it does in the app store.
User preferences for data privacy — an area in which Apple has repeatedly taken a stand – give Apple a dominant brand advantage in building a trusted mobile wallet for storing sensitive financial credentials. It’s that data security brand that led the company to issue a credit card without a number written on it. As the company builds on its trademark understanding for user experiences, it has one of the biggest opportunities to become the go-to consumer financial hub.
The independent variable: decentralized finance
In “Bringing it all together,” I ended my 2020s predictions with the bet that consumer financial services would centralize onto single platforms, which would host individualized financial hubs and manage money on autopilot.
But what if that’s wrong? What happens if the world of open data and open protocols collides with a nascent but potentially powerful area of fintech development? That area is DeFi.
The promise of DeFi (well-outlined in fintech investor Sean Lippel’s Decentralized Finance Is a Continuum and crypto researcher Mario Laul’s DeFi Déjà Vu) is that financial services can be run on trustless, open protocols without middlemen or central intermediaries – essentially upending all the companies I described above.
DeFi projects cut across all areas of financial services – exchanges and brokerages, savings, payments, lending, derivatives… the promise is that the rules of finance can be coded transparently into contracts, that money can carry the same style of ‘genetic information’ as human cells, telling each digital dollar what to do and how to interact with the system in which it operates.
In a follow-up to this column, I’ll take a deep dive into how DeFi could change the financial services landscape in the 2020s in a way that obliterates the predictions above and challenges the fundamental structure of finance as we know it.