Hello Fintech Friends,
Happy 2023 - did you miss us?
It’s a new year and with new years come new opportunities. Let’s pursue them together! 🚀
My 2023 goal for TWIF is to radically simplify, double down on our core competencies, and keep the blinders on so that we can focus on what matters. What is the best resolution you made for the new year?
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We've got a lot of news to share this week after taking the last two weeks of the year off, but first, let's dive into some prediction calibration.
The end / start of the year is always prediction season, and there were a lot of great articles and threads laying out people’s fintech prognostications for 2023.
I generally believe the adage that we overestimate what is possible in 2 years and underestimate what is possible in 10. I think it’s very rare to see big step-function changes happen in tech in just a year: more likely, we see the inflection points of trends that have been building in the background for many years.
I try to avoid making 1-year predictions for fintech as a result - instead, I take the start of each year to grade myself on the fintech predictions I made for fintech’s next decade in back 2019 (a little over 3 years ago). I find it’s helpful to understand which look right, which look wrong, and - most importantly - what those learnings tell us about the future and how we should re-orient!
Prediction 1: Data will be openly portable and will no longer be a competitive moat for fintechs.
I would give myself a B for this one. I do think we continue to see increased movement between financial service providers, thanks to regulations like open banking, protocol-first technologies like cryptocurrency, and service providers like Argyle* or Stitch* that help you move between service providers. Still, I think consumer data is still a sizeable moat in financial services and will continue to be for a couple years.
Prediction 2: Basic financial services will become simple open-source protocols, lowering the barrier for any company to offer financial products to its customers.
I give this prediction a B- so far. You can probably tell where I’m going with this: decentralized finance will eventually eat away a lot of traditional (digital) financial services. I think we’ve seen bright spots in a couple areas like cross-border stablecoin payments, but for the most part, it doesn’t look like fintech has moved in this direction, and the first wave of DeFi has had a rocky crash on the shores of overleveraged lending.
Prediction 3: Fintech will become part of the basic functionality of non-finance products.
I give this prediction an A-. This dovetails from the embedded finance thesis expressed by Sheel Mohnot, Matt Harris, and Angela Strange in 2019 that more general tech platforms will provide financial services. We have seen this start to happen in pockets of the internet - Amazon provides loans, Doordash provides payment cards, Lyft offers real-time payments, Apple offers a credit card, Google offers P2P payments… But I think we still have much further to go.
Prediction 4: Consumers will access financial services from one central hub.
I give this prediction a C- so far. One day, whether it’s in a phone or an app or a digital currency wallet, somewhere, people will be able to easily centralize all of their financial activity in one place. But that hasn’t happened yet.
The article also had an accompanying piece called Who will the winners be in the future of fintech? where I picked 6 potential winners. Let’s dive into how those predictions are doing:
- Plaid: Admittedly, this was a bit of an easy prediction, as Plaid was already growing quickly and profitably. I got lucky with the timing, making this prediction about a month before Visa announced they would (try to) acquire the company. Since 2019, Plaid has continued to diversify rapidly into new product areas (some of which I outlined here) and win new markets.
- Stripe: This was another low-risk bet. Stripe continues to provide the payments backbone of the internet, with a massive list of ancillary products (loans, company formation, fraud risk monitoring…) complimenting its primary payment acceptance functionality. The question is now: do smaller players ever outcompete Stripe in niches that let them grow? Or does Goliath keep winning?
- MX: I was bullish on MX owning the secondary layer of open banking functionality (eg: transaction categorization). The company continues to announce new partners at a fast rate, but due to some leadership changes over the last year, probably has not grown as quickly as it could have. I am still bullish.
- Ant Financial: Ant’s meteoric rise as the payments superpower of China came crashing down in 2021 when regulators began heavily scrutinizing the company. Two months ago, it was announced that the company would pay a $1 billion fine, signaling that it may be able to start growing again, but it’s been a flat 3 years.
- Apple: The covid epidemic was a boon to contactless and phone payments everywhere, and that caused a surge in Apple Pay usage in the US. At the same time, its Apple Card program faces mounting credit losses, and with its App Store margins under pressure and its eyes on the metaverse, fintech may not be a priority for a while.
- DeFi: It’s hard to remember that there was a time before everyone in fintech was talking about decentralized finance. We’ve now gone through our first DeFi Gartner Hype Cycle and found that a lot of the most quickly growing businesses built on DeFi rails had unrealistic basic business constructs - couple that with ever-growing hacks and exploits, and the DeFi wave has definitely crashed on the shores. However, the good news is that the protocols worked and continue to work as intended - I am optimistic that this learning period will incentivize teams to return to the market in one or two years with more thoughtfully-built, more resilient products.
What do the last three years tell us about these predictions? The answer is likely 'not much.' Tech moves in well-known innovation S-curves, and the early hype and consequent disillusionment both obscure the long-term potential of new technologies. The best we can do is to predict, reflect, and - if needed - reorient. It will be interesting to see how these predictions fare over the next few years.
Let's have a great 2023!
Please enjoy another week of fintech and banking news below.
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🏦 Financial Services & Banking
🚀 Product Launches
🤯 The country of China is launching a state-backed NFT and digital asset marketplace.
Hong Kong’s ZA Bank rolled out a real-time currency exchange service.
Bank LHV UK launched small business loans, starting at £500,000.
Abu Dhabi Islamic Bank launched tokenized contactless payment wearables.
📰 Other News
Wells Fargo was ordered to pay $3.7 billion for repeated consumer finance violations including unjust foreclosures and vehicle repossessions. The CFPB action included this choice quote: “In the CFPB’s eleven years of existence, Wells Fargo has consistently been one of the most problematic repeat offenders of the banks and credit unions we supervise. Put simply, Wells Fargo is a corporate recidivist that puts one third of American households at risk of harm.”
This week in financial services + crypto: Visa is exploring automated recurring payments for crypto wallets. Banque de France, HSBC, and IBM are testing an interoperable central bank digital currency (while the Boston Fed and MIT shuttered their own project). The Basel Oversight Committee published a standard on bank crypto exposure, which may enable more banks to custody crypto.
And - in regulators + crypto: Brazil’s central bank will launch its own cryptocurrency in 2024, with Turkey and Russia both right behind it. Japan will lift its ban on foreign stablecoins in 2023 - while Nigerians overwhelmingly prefer private stablecoin alternatives to the country’s e-Naira. The UN is piloting a blockchain-based payment system for people in Ukraine.The New York Department of Financial Services told banks they need to let the regulator know about crypto activity 90 days beforehand which… seems bullish? And… The SEC’s Gary Gensler vowed to intensify his crypto crackdown.
The Hong Kong Stock Exchange is pitching international companies on using it to access Chinese capital markets.
Italy scrapped plans to let merchants refuse digital payments of less than €60 after pushback from its central bank and the Central Bank of Nigeria abruptly reversed its short-lived bank withdrawal limits. The UK is creating a successor entity to its open banking authority. The Canadian government was urged to open up access to payment systems. Denmark went cashless and now nobody robs banks anymore.
In the wake of bank branch closures around Europe and the US, the UK’s banks are banding together to create shared banking hubs (like coworking spaces).
🚀 Product Launches
Gen Z banking app Copper launched an investing product for teens. Neobank Cogni launched its own multi-chain wallet to integrate web3 into its web2 offerings. (Meanwhile, DeFi’s central bank MakerDAO relaunched a 1% fixed yield for DAI holders.)
Iraq-based fintech Blue debuted its financial superapp for the Middle East.
Quantit launched Olly, a roboadvisor for asset management.
MoneyGram launched its MoneyGram Online x-border transfer service in Brazil.
Enfuce, Epassi & Visa partnered with nonprofit Welcome.Place to launch a card for refugees in France.
📰 Other News
Debit cards, credit cards, and bank accounts are all coming to Uniswap.
Capchase, the revenue-based financing provider to software startups, increased revenue by 250% in 2022
Silvergate was hit with a class action lawsuit over its involvement with FTX. BlockFi filed a motion to claim FTX’s frozen crypto assets in order to return them to customers (while the US government seized its $460 million Robinhood stake). Meanwhile, investors are suing Gemini over its high-yield interest product, which the exchange blames on Genesis, who say they need more time to figure things out. Not to be left out, Coinbase got hit with $100 million in fines and penalties from the New York Department of Financial Services.
Crypto on / off-ramp provider Wyre, founded in 2013 and which was supposed to be acquired by Bolt for $1.5 billion, is reportedly shutting down.
Monzo, Wise, Moneyhub, and other fintechs are asking for regulatory clarity on the future of open banking in the UK.