The FinTech Chemist: Hindsight Is Always 20/20

Studying the properties and composition that make up the FinTech ecosystem

Welcome to this week’s industry analysis with the FinTech Chemist. Another Money20/20 is under our belt (lab coat?), and boy, did it deliver. After four days of embarking on “the journey to the future of money” at the 2019 edition of Money20/20, five themes stood out to me:

Emerging markets, specifically LATAM, were recognized

Latin America is one of the fastest-growing regions in the world when it comes to the usage of mobile phones. While only trailing behind North America and Europe, increased smartphone usage has given rise to great strides in mobile payment innovations. In the LATAM region, several rising stars in the market have secured large and aggressive investments and are now set to drive incredible change. This has also led to the rise of neobanks popping up in the region to service a large underbanked population. According to Crowdfund Insider, “Roughly 70% of people in Latin America do not have a bank account. Unlike in the US, opening a bank account in Latin America can be a complicated process. One of the first digital banks to emerge in Latin America, Nubank, offers a free mobile credit card that more than 13 million people have requested so far.” For years, the focus has been on advancement in the APAC region, but FinTech is a global story after all.

Financial health is at the forefront of the industry 

FinTech apps are helping take the guesswork out of becoming fiscally fit by aligning incentives with consumers and automating daily decisions. The holistic approach to consumer experience is paying off when it comes to helping them before educated investors and savvier savers. FinTech has democratized access to financial advice – a lot of information and advice is free (or much lower cost than traditional financial services), and FinTech has enabled the sector by being online and accessible at any time. For instance, we spoke with Dovly, which is now tackling credit repair. Not having good credit or no credit history hinders people from being able to rent an apartment, buy or lease a car, get a credit card, or even get a mortgage. Financial security should be available to everyone and not just the wealthy few. Financial instability is a massive stressor in many households, so it’s refreshing to see companies are willing to step up to the challenge. 

Pictured: MEDICI’s Shannon Rosic and Dovly’s Nirit Rubenstein

The cannabis industry is challenging the banking and payments ecosystem 

Cannabis banking is proving to be a unique problem, as well as an opportunity for financial institutions in the US. The ultimate goal for the industry is to be able to take a predominantly cash-only business and create a system that lowers the risks to communities, financial institutions, employers, and employees in the cannabis industry. Also, the lessons learned, the frameworks built, and the products created for this industry could have significant applications across several industries, particularly SMB banking. According to Marijuana Business Daily, “Retail sales of medical and recreational cannabis in the US are on pace to eclipse $12 billion by the end of 2019 – an increase of roughly 35% over 2018 – and could rise as high as $30 billion by 2023.” Efforts are being made on the regulatory and compliance front to normalize banking, but until agreements can be reached, the electronic payments in this space will continue to struggle.

Banking-as-a-Service is gaining steam across the globe 

Somehow, everything in the FinTech ecosystem ultimately stems from regulation. There was a fair amount of discussion at Money20/20 around how in Europe, for instance, regulation and open banking have pushed BaaS platforms to the forefront as banks are forced to open their APIs. But in the US, the rise of the BaaS model has been driven more by customer demand and competitive pressure. In an article by Business Insider, “Incumbents are turning to BaaS and seeking out new partnerships as a way to team up with challengers and delve into innovative new services.” We spoke with Dave Richards of Mbanq about the current state of the core banking and BaaS industry, and to put it lightly, it’s still a mess. Watch his Money20/20 interview here.

Privacy, ID verification, and security continue to be industry challenges (and opportunities)

We interviewed John Ahrens, CEO of Veratad Technologies, for his insights on the ID verification and regulatory landscape: “Consumers are starting to realize the importance more and more about how we handle their data and personal information.” Veratad has been successful in the ID verification space because they specifically innovate for and around regulations like GDPR and CCPA. Security tracks focused on a range of topics, including the changing nature of threats/cyberthreats, the opportunities when it comes to biometrics, and the creation (and increased) role of security executives within financial services institutions. A hot button issue kept resurfacing – one of the most significant issues that FinTech startups (in particular) face is creating better security protocols to enhance encryption data. Without adequate protocols, data is easily exposed, leaving companies vulnerable to attacks. 

Be sure to check out all of MEDICI’s Money20/20 video coverage here. Now, onto my next scientific… I mean FinTech hypothesis adventure. And, as always, remember to take your vitamins!

Read the previous edition of The FinTech Chemist.