Financial Data Fuels Personalized Experiences — And Consumers Are Willing To Share It
August 8, 2023 | 1 min read
The fintech landscape market was expected to grow to $309.98 billion at an annual growth rate of 24.8% through 2022. Then the unexpected happened. We were all suddenly faced with a global pandemic — COVID-19. In this new reality, things have shifted dramatically, leaving some fintech companies scrambling to realign strategies and plans with this new normal in mind. According to the latest State of Fintech Q1 ‘20 report by CB Insights, deals have dipped to 2016 levels and funding has dipped to 2017 levels.
Not all fintechs have been impacted equally or in the same way. Some of the hardest hit fintechs are those in the payments sector. And it makes sense since the expected drop in transactions means fewer fees collected. Furthermore, The Commerce Department said “consumer spending, which accounts for more than two-thirds of U.S. economic activity, plunged 13.6% last month, the biggest drop since the government started tracking the series in 1959. It eclipsed the previous all-time decrease of 6.9% in March."
On the other hand, the pandemic has caused an increased focus on cashless payments and digital identification minimizing person-to-person interactions and human contact. Fintechs focused on offering digital banking solutions are likely to see a positive boost. Furthermore, consumers’ increased use of mobile devices is likely to encourage financial institutions to partner with fintech providers in order to keep up with pace of innovation in the financial industry. Additionally, in an attempt to boost the economy, government organizations and regulators might look for ways to ease regulations on fintech companies, which would stimulate growth and expansion in that sector.
A big factor behind some of these trends is consumer behavior. Anyone in the financial industry will tell you that consumer behavior towards their finances has dramatically changed since COVID-19 turned the world upside down. Not only are people spending less, holding on to cash longer, and checking their finances more frequently, they’re also finding new ways to carry out these activities.
MX surveyed over 1,000 consumers to see how their behavior on digital platforms has changed since COVID-19. Our findings show that an incredible 71% say they use a financial technology company such as PayPal and Venmo for payments rather than their bank or credit union. Furthermore, 25% said they use apps from both their financial institution and fintechs equally. People seem to be more comfortable with alternative ways to manage their finances, with 35% of respondents expressing that they’re likely to use fintech services to carry out most of their banking activities rather than a traditional bank or credit union. As consumers continue to take a closer look at their finances and become more educated on their options, 39% of respondents said that COVID-19 has made them more likely to use banking services from a fintech company.
The CB Insight report findings show that “VC-backed fintech activity dropped to $6.1bn across 404 deals — the lowest level of deals since the first quarter of 2016 and the worst for finding since the first quarter of 2017.” Further findings from the report show that currently “there are 67 fintech unicorns globally, valued in aggregate at $252.6bn.”
Visa’s $5.3bn acquisition of Plaid
Intuit’s $7.1bn acquisition of Credit Karma
SoFi’s $1.2bn acquisition of Galileo
LendingClub’s $185mn acquisition of Radius bank
Morgan Stanley’s $13bn acquisition of E-Trade
Fiserv’s $22bn acquisition of First Data
PayPal’s $4bn acquisition of Honey
Schwab’s $26 bn acquisition of TD Ameritrade
Ally’s $2.65 bn acquisition of Cardworks
Apple’s partnership with Goldman Sachs
One of the biggest strengths that fintechs have is their ability to pivot and innovate quickly, unlike many banks and credit unions. However, on the flip side, fintechs rely heavily on investor funding to grow, whereas established financial institutions don’t, putting them in a vulnerable position during the COVID-19 outbreak. So how will the fintech winners be determined? It’s likely to be based on the solutions they offer and the product category they’re in.
Digital P2P payments:
P2p payments are likely to rise as people look for digital alternatives to paying bills and managing finances.
Deposits and savings:
With the uncertainty of COVID-19 on the economy, consumers will continue to hold on to their cash, positively affecting deposits and savings.
The FBI released a public service announcement stating the rise in fraudulent activity during the pandemic. This is likely to cause fraud detection fintech companies to become more on demand.
Fintechs that offer regulatory technology solutions will likely be unscathed by the economic downturn in the fintech sector since the demand for these services will still remain high.
Fintechs that provide mobile banking technology are well positioned to do well amidst the pandemic as consumers flock to their mobile devices for their banking needs.
Digital B2B Payments:
As spending continues to slow down, digital B2B payments are likely to see a huge negative impact.
Because these types of banks rely so heavily on transactional revenue, they're likely to see a negative impact with the economic downturn due to COVID-19.
Retail POS systems:
The economic downturn has caused stores to close and people to shop less frequently, which will negatively impact fintechs in the retail software space.
Online Trading/robo advisors:
With a volatile economy and uncertainty ahead, these fintechs are likely to take a big hit as people become more conservative with investing and hold on to their money.
Unemployment levels are likely to make it harder for both consumers and small businesses to take out loans, causing a negative impact across fintechs in the lending space. Lending criteria is likely to become more stringent, creating a smaller pool of approved applicants.
These predictions seem to track with our own survey results. Our findings show that since COVID-19 restrictions went into effect, the most frequently used financial services app have been remote check deposit (28%), transferring money via mobile app (37%), and verifying account balances (30%). Furthermore, 42% of respondents said the primary banking solution they use most often is mobile banking apps.
When it comes down to it, it’s no secret that fintech companies have taken the financial industry by storm in the last few years. But, almost overnight, the entire financial ecosystem has been permanently changed due to COVID-19, leaving fintechs hanging in a delicate balance as uncertainty looms. As the economy continues to adjust to the new normal, and the nation looks for ways to bounce back, it leaves more questions than answers as to how fintechs will adjust and grow in the unique situation they find themselves in.
MX partners with forward-thinking fintech innovators to create powerful solutions that combine clean and enhanced data with personalized, digital-first experiences. Our tools and solutions make data more accessible and actionable, help powerAI-driven technologies, and much more. Through a shared partnership, we are able to work together towards the greater goal of helping make the world financially strong.
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