Every year, the FinTech industry experiences moments that serve as guideposts for the industry, entrepreneurs, investors, and Banks looking to profit from the wisdom of the past. 2019 was no different; as a matter of fact, it gave rise to some transformational moments that has forever changed the landscape of financial services.
The list of top moments and over-arching trends that defined 2019 is long. However, I’ve listed Five (5) such moments I think best represent the biggest moments and largest conversations that occurred in the industry. As always, you can contact me if you have thoughts, opposing opinions, strong feelings, or relevant anecdotes.
1. MEGA MERGERS
2019 kicked off with a series of large, multibillion-dollar acquisitions that promised to forever change the landscape of the Payments industry. And while those big deals were clustered at the start of the year, many other pivotal deals took place over the course of the year.
The three largest Payments industry mergers; Fiserv and First Data ($22B), FIS and Worldpay ($34B), and Global Payments and TSYS ($21.5B) – created companies of massive scale, power, and customer reach. The merger was an attempt to create a competitive moat to the rising threat of FinTech startups like Stripe and Square.
Another mega merger announcement was that of Charles Schwab and TD Ameritrade ($26B). The combined entity will be a $100B brokerage powerhouse that will reportedly manage $5T in global assets. The move will likely drive further consolidation in the market, could further compress fee-based revenue streams across wealth management, accelerate proprietary ETFs and robo-advisor offerings in market – posing significant challenges to both incumbents and startups.
2019 will be remembered as the year that marked a period of consolidation in financial services market.
2. $0 TRADE COMMISSIONS
2019 will be remembered as the year that set $0 trade commissions as the ‘industry standard’.
Major brokerage firms have been pressured to go to zero fees since 2013, when Silicon Valley start-up, Robinhood offered stock trading for free. Since then, Vanguard Group slashed fees on exchange-traded funds trades and J.P. Morgan Chase started its own free trading app. Interactive Brokers also announced a commission-free product called IBKR Lite. These movements ignited a price war in the industry spurring Fidelity and eTrade to do the same.
With $0 trade commissions and scale of incumbent brokerage firms, tables have turned for startups like Robinhood who will now be competing against these monster mega firms for the same customer. However, with these types of aggressive price cuts – admittedly a boon for customers – have some observers wondering whether anyone can win in a business where more and more services are handed out for free. This space is one to watch in 2020.
3. LIBRA CREATES A RIPPLE EFFECT ACROSS GLOBAL REGULATORS
My favourite moment of 2019 was that of Libra; not because it was a bold move by Facebook to create a new digital currency but because it sparked an important debate among regulators on the need for legal clarity regarding any digital currency arrangements. Few even started to explore creating a digital currency to counter any threat from a Facebook controlled digital currency.
Some regulators reacted swiftly, such as China’s Central Bank announcing launch of a Digital Yuan in a mere 18 months’ timeframe. Other regulators were dismissive; the President of Switzerland called Libra a Failure, Germany and France flat out said they would NOT allow Libra. The EU and the European Commission declared that there is NO room for Libra in Europe.
To be perfectly honest, Facebook did not make it easy for regulators to understand Libra. The structure of Libra Association, is admittedly confusing. “A Facebook-led digital currency, which is to be issued and governed by the Geneva-based Libra Association. The currency is backed by a reserve of assets such as bank deposits and government debt held by a network of custodians; each of which pay $10M to join the association” It doesn’t take much to conclude this is “Risky” and “Suspicious”.
Even though, Libra has raised concerns among regulators and politicians ranging from privacy, to its potential influence on monetary policy, and change it can bring to the global financial landscape. It has sparked an important conversation about the role of technology, finance, and regulations and the need for the three forces to work together, if true innovation is to be brought to the financial system. 2019 ignited the debate and in 2020 we will see some positive developments by regulators on this front.
4. BIGTECH(S) GET INTO BANKING
Technology firms have been offering some form of finance to consumers for many years. These have included credit cards, loans that are delivered to customers at the point of sale (purchase), prepaid cards, insurance products etc. However, 2019 will be remembered as the year when technology firms formally announced their entry into Banking.
Google announced it will offer checking accounts to consumers in partnership with Citi Bank, Apple announced a credit card in partnership with Goldman Sachs, Facebook debuted ‘Facebook Pay’ which consolidated its Payments offerings across WhatsApp, Instagram, Messenger, and Facebook, including the failed currency initiative, and Uber launched Uber Money, which is a collection of financial services targeted towards drivers and riders. These few announcements in 2019 sent strong signals to the industry announcing formal entry of BigTech(s) in Banking.
The appeal for BigTech(s) to get into Banking is obvious: Handling customers’ personal finances gives these firms new streams of revenue, of course, but also an opportunity to embed themselves more deeply into the financial behaviour – and access to sensitive personal data – of their customers. A win-win situation for BigTech(s) that’s likely going to attract regulators to have more say over how technology companies venture into financial services. Another space to watch in 2020!
5. BANK ACCOUNTS BECOME A COMMODITY
In 2019, we saw a record number of firms, ranging from startups to technology firms to retailers, announce their own version of a checking account. Google announced a checking account, T-Mobile launched a bank account, and Amazon is reportedly flirting with one. FinTech startups like Acorns, Stash, Betterment introduced a checking account besides their core product offerings. And then there are digital banks like Chime, Aspiration, N26, Simple, etc. with their core offering of a checking account.
Different companies have different reasons for offering a checking account and they’re approaching it from different angles; however, the appeal of a basic checking account appears to be dying. Checking accounts are one of the most valuable (and profitable) products that give insights on how consumers manage, track, and spend money. However, with a record number of checking account offerings and lack of differentiation; 2019 made checking account a commodity in financial services.
