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Essential Fintech Reading: Sept 26 - Oct 2

Has Fintech Been Overhyped?

Writing for American Banker, Penny Crosman reports that almost $14 billion has been invested in fintech startups in the last year, a 46% year-over-year growth rate. While fintech funding has seen steady growth since 2010, there have been few exits for fintech startups. Is the sector due for a reality check? Matt Harris, managing director of Bain Capital Ventures, opines that the sector is potentially overserved by investors, with an estimated 20% of the venture industry now concentrated in financial services. "I think you'll get a culling of existing startups going forward, because some of them won't be robust enough, the management will not be good enough," adds Ian Dowson, founder and principal of William Garrity Associates. Crosman notes that the top categories for investment have included online lending, payments, cryptocurrency and personal financial management.


SoFi Attracts $1 Billion Investment

Molly McGrath of Forbes reports that SoFi (Social Finance) has secured $1 billion in Series E funding, the largest financing round to date in the fintech space. SoftBank was the only new investor in the round, joining existing investors Baseline Ventures, RenRen, Wellington Management Company LLP and Third Point Ventures. SoFi CEO Mike Cagney said that SoftBank's investment puts an IPO on the back burner for his firm, which refinances student loans and mortgages. “Softbank is a long term investor and believes in extracting as much private value before you go public. The reality is that this pushes [an IPO] off.” 

Online Lenders For Small Business Going Overboard?

Small business owners complain that they're being inundated with calls from online lenders, report Peter Rudegeair and James Sterngold for the Wall Street Journal. Startups like OnDeck Capital Inc., Kabbage Inc. and Rapid Advance have been followed into the market by a host of competitors, with troubling signs of oversaturation as customers who sign up for loans are hit with "phone calls and spam from rival lenders hoping to piggyback on the borrower and sign them up for more credit." Lenders have been filing lawsuits against their rivals, arguing that these additional loans could increase the risk of default. WSJ notes that "upstarts have found small-business lending hot in large part because many brick-and-mortar banks have retreated from the market. The volume of small-business loans held on bank balance sheets has fallen by one-fifth since the financial crisis, according to a Harvard Business School working paper."

Chip-Equipped Card Uptake Painfully Slow

Retailers complain that a new mandate requiring them to install machines that accept more secure, microchip-embedded credit cards is a rushed half measure, reports Cory Bennett for The Hill. Groups like the National Retail Federation, which represents retailers ranging from grocery stores to chain restaurants, believe chip-enabled cards need to be a accompanied by a four-digit PIN code, similar to what's used at an ATM. Meanwhile, Bloomberg reports that only half of Americans have a chip-equipped card, fewer than half of banks and credit unions have adopted chips and only a quarter of retailers. "The card companies say they’ll likely need at least two more years for the transition from old-school magnetic stripes and that the Oct. 1 target wasn’t meant to be firm," notes Bloomberg. Chip-reader adoption has been especially slow among small businesses, with only 42 percent planning to make the switch according to a survey by Intuit. 

Impending Rate Hike Only Increases The Importance Of Improving The Digital Experience

Writing for the Financial Brand, Avoka's Chief Experience Officer Derek Corcoran observes that the impending Fed interest rate could be a great sales opportunity for banks. Chris Nichols, Chief Strategy Officer at Centerstage Bank, recently stated that "rate changes are a huge sales event trigger and are not used enough in banking. Any time rates do, or are poised to move up or down, that event can prompt a customer to move cash, increase debt levels or refinance." Corcoran argues that the rate hike will be a digital customer acquisition opportunity and that banks must roll out an improved account opening and onboarding experience for those products most likely to be impacted by the change. 

Topics: Design