Will 2018 Be the Year of the Bank of Amazon? Experts Weigh In
Will 2018 Be the Year of the Bank of Amazon? Experts
Weigh In
Maybe more M&A, IPOs and bigger push by technology
companies
Fintech companies raised $4 billion in 3Q, on pace for
record
By Julie Verhage, Selina Wang, and Jennifer Surane December
12, 2017, 2:00 AM PST
For the financial technology industry, 2017 will be
defined as the year that the threat of tech giants grew stronger, artificial
intelligence cemented its importance and some startups applied to become banks.
What to look for in 2018? Maybe more mergers and
acquisitions, initial public offerings and deeper forays by Amazon.com Inc. and
Facebook Inc. Here’s a wrap from industry experts:
Payments
In the world of payments, all eyes are on the part of the
ecosystem that helps retailers process card transactions. Incumbents like First
Data Corp., Vantiv Inc. and JPMorgan Chase & Co.’s merchant services unit have
long focused on winning business from large brick-and-mortar retailers,
neglecting to spend a lot of time on the growing e-commerce sector. That’s made
room for startups like Stripe Inc. and Adyen BV, which have garnered high
valuations for doing just that. Now the questions are: What will be the next
way that consumers make purchases and what will the incumbents do to catch up?
Matt Harris, Bain Capital Ventures: “SoftBank buys 20
percent of Stripe for $3 billion. PayPal continues to push itself down the path
of being the leading financial services company for millennials and the mass
market.”
Dion Lisle, Capgemini SA: “‘Alexa, buy this’ or ‘Siri, I
need an Uber, pay for it with my AmEx.’ Payments are going to be activated by
that voice because that’s a great security method.”
Lending
For investors in online lending, 2017 was the year of the
shakeout. The companies that didn’t pay enough attention to underwriting were
burned by losses, while longtime leaders like LendingClub Corp. and CAN Capital
Inc. struggled with operational troubles and securing sufficient capital. Next
year might not be any easier, according to experts. Banks have finally gotten
their act together, and that means online lenders will increasingly have to
compete against these large financial institutions.
Dan Ciporin, Canann Partners: “Scale is increasingly a
competitive moat, with established players like LendingClub and SoFi now
competing much more with bank offerings like Marcus from Goldman Sachs.”
Spencer Lazar, General Catalyst Partners: “Potential
changes to the Consumer Financial Protection Bureau (CFPB) under the Trump
Administration will likely turn back the clock on Obama-era regulations on
non-bank lenders. This will be a boon to startup lenders, making it far easier to
dole out capital. The fear is that rates could potentially become predatory.”
Amazon vs. JPMorgan
Retailers like Wal-Mart Stores Inc. have long wanted in
on banking, and regulators might finally be on their side. That could open the
door to a Bank of Amazon or a Facebook Financial. If these technology giants
did decide to move into finance, they would have a few major advantages over
the banks: better data, a superior user experience and immense customer
loyalty.
Andy Weissman, Union Square Ventures: “Some combination
of Amazon, Google, Facebook, Apple, etc. will move deeper into online financing
of small businesses.”
Jeff Richards, GGV Capital: “Facebook has rolled out
payments via Messenger to compete with Square Cash and Venmo, but hasn’t been
super aggressive on this front. A ramped up effort in e-commerce could tie into
an increased focus on payments.”
Jeremy Philips, Spark Capital: “The tech behemoths have
been slow-ish but that’s changing quickly driven largely by Chinese
chat/payments envy. Facebook and Apple and others will double down on trying to
replicate this in the US.”
M&A
While some areas of fintech have seen consolidation,
there’s still room for more. The maturing sector could see some combinations in
areas such as lending, payments, personal financial managers and more.
Tyler Sosin, Menlo Ventures: “Stripe and Adyen will
merge, forming a $20 billion plus enterprise-value business and API-driven
merchant processor.”
Sean Park, Anthemis Group: “We think 2018-2019 might be
the sweet spot for this since it’s part of a maturing ecosystem. In consumer
finance, personal financial management and consumer lending, both could see a
lot of combinations.”
Brendan Wallace, Fifth Wall Ventures: “Many generic
online lending startups will fail or be acquired by large financial
institutions at discount valuations.’’
Asset Management
The past 12 months have seen new hybrid versions of
investing, pairing humans with the technology backing robo-advisers. Large
banks are making moves, with Morgan Stanley and JPMorgan each announcing
robo-adviser versions as a way to attract younger generations and create better
user experiences.
While these moves add legitimacy to the startups, Wall
Street could also simply turn around and duplicate them. Or, the banks could
decide to partner with them as a way to beat the tech giants?
Kyle Lui, DCM Ventures: “Digital advice assets under
management is estimated to hit $1 trillion by 2020. Traditional banks are
waking up to this trend and viewing digital and robo-advisory products as a
core part of their consumer growth strategy within asset management.”
Alois Pirker, Aite Group: “For startups in wealth
management, it’s getting tough to differentiate yourself. I think you
increasingly get beat with your own weapons since big firms can do this in
greater varieties and have clients on board already.”
Funding
Venture capital-backed fintech companies raised $4
billion in the third quarter of 2017 alone, according to CB Insights. If the
year’s current run rate holds steady in the last quarter, global fintech
investment dollars and deal activity could hit records. And if that pans out,
which areas should be seeing the most funding?
Alex Rampell, Andreessen Horowitz: “The first phase of
fintech was ‘unbundling’ banks -- taking one of the features of a mega-bank,
and doing it better. The next phase is rebundling -- adding other services, and
cross-selling products (like SoFi starting in lending and later adding wealth
and insurance). Venture capital will flow to successful startups moving into
their second act of rebundling.”
Charles Birnbaum, Bessemer Venture Partners: “Valuations
in the alternative-lending space were overly optimistic in our opinion over the
prior five years, but we do feel that the pendulum has likely swung back too
far in the other direction following the recent pullback” leaving the sector
ripe for potential funding or M&A.
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