December 10, 2020
Unclear crypto regulation and the shift away from small business could be on the way out in the new year, while the further fintech penetration of the logistics market and contactless payments could be on the rise, according to members of Protocol's Braintrust.
GM of RippleNet at Ripple
The past four years, the U.S. has been operating in a crypto development limbo without a clear regulatory framework. Fintech and blockchain innovators can build visionary products, but don't have the regulatory support to scale to widespread adoption. I predict crypto regulation is going to be a priority for the Biden administration. With streamlined processes for fintechs to apply for crypto licensing and a single clear framework, crypto will get the boost it needs for unprecedented innovation and mainstream adoption.
However, the regulatory uncertainty hasn't stifled innovation altogether. We've seen major companies like Square, Robinhood and PayPal making mainstream crypto adoption more of a reality. In 2021, I think there's a clear opportunity for Square's Cash App in particular to become the largest mobile money app in the U.S ahead of Venmo, PayPal and Zelle, giving more people access to crypto and other forms of digital banking. I predict we'll also see these platforms expand the assets that they offer to consumers as well.
Institutional interest is growing exponentially within crypto — in 2020 we saw major banks and financial institutions like Standard Chartered, Fidelity and BBVA not just proclaim interest in holding digital assets, but also providing trading and custody services for their customers. In 2021, I expect this trend will grow significantly. The line between crypto and banking is blurring, and it's possible we may even see a notable crypto or fintech company acquiring a traditional financial institution rather than the other way around. The tides are turning.
Partner at CapitalG
In 2020 the "buy-now, pay later" industry received a massive COVID-fueled turbo boost buoyed by its synergistic relationship with the ecommerce sector. BNPL makes high-value online purchases more affordable by spreading costs across multiple installments. Given soaring unemployment and underemployment rates, this feature has been useful to millions of consumers. BNPL has also been eagerly adopted by merchants who benefit from improved customer conversion rates and increased purchase values. BNPL is also easy for merchants to adopt; it integrates seamlessly into checkout flows.
This year, valuations have soared for leaders like Afterpay and Klarna, and Affirm is set to go public at an estimated $10 billion valuation. BNPL companies, which make money by charging merchants a fee and consumers interest for their installments, have clearly established an interesting new market. Longer-term questions remain, however, as to whether these companies will ultimately emerge as lending businesses or, more interestingly, as new payments networks capable of disrupting the card networks.
Looking ahead, I'm skeptical about the future of BNPL. First, as the world emerges from the pandemic, ecommerce growth will likely slow in some of BNPL's key verticals, such as home fitness. Second, BNPL is concentrated in a young, lower-income customer base. The pandemic has disproportionately affected these consumers and will likely affect their ongoing creditworthiness. Given BNPL's already thin economics, an increase in defaults would change the industry's outlook for growth and profitability. All of this said, fintech's future has never been brighter. I'll be curious to see how BNPL evolves within this exciting landscape.
Partner at Financial Venture Studio
We didn't really see a lot of new fintech trends in 2020, but we did see accelerated adoption of things that were already underway. For fintechs that serve consumers or small businesses, the hurdle has always been getting people to sign up and get into the habit of using something routinely, whether it's a personal finance tool or a SaaS accounting solution. That obstacle quickly fell by the wayside in an economy that became digital-first out of necessity. People will think twice before going back into a bank branch to deposit a check; they're comfortable with digital solutions now. Think about it: The digital, contactless requirements created by a post-COVID world may well have pulled fintech adoption forward about five years. I don't really see that slowing down in 2021.
As for what's happening that will make way for something new in 2021, APIs have made it easier than ever to build new products that embed finance into other offerings, like logistics. I think we'll also see more products being built for niche populations with very specific financial needs. There are still plenty of spaces that are ripe for innovation, from ag tech to silver tech to niche insurance offerings, and the successful innovators in those areas will be the ones who have a passion for the problem they are solving, and empathy for the population they're serving. On that front, a strong relaunched CFPB should be very good for more products that put consumers first.
Chief Risk Officer and EVP, Risk and Platforms at PayPal
Over the past few months, we have seen an unprecedented demand for PayPal's products and services as consumers and merchants have had to rapidly adapt to digital commerce for health and safety reasons. More consumers are shopping online than ever before, for everything ranging from common household and grocery products to essential health and wellness products and leisure and technology products. Simultaneously, and unfortunately, bad actors around the world used the pandemic as an opportunity to prey on people, particularly those not as familiar with online shopping, digital payments and the common signs of a potential scam.
The pandemic continues to threaten the health and livelihoods of so many people and businesses around the world, but we do have light at the end of the tunnel with the development of an effective vaccine, and hopefully we will be able to make progress in a return to engaging with one another in person. Despite this, we believe that the accelerated trend of digital commerce will continue.
While this acceleration of digital commerce has been clear, the future may hold a new paradigm for commerce with how business and people transact with one another — creating no single online versus offline world. For example, we may expect to see contactless in-person payments become more of a widespread norm, such as paying and getting paid with a QR codes. This will further support the continued growth in digital commerce, while also enabling customers and merchants to transact in convenient and secure means. And, while fraudsters will always seek out new ways to take advantage of emerging or unknown future environments, we will continue to be nimble, ready to adapt and work to stay one step ahead of bad actors as part of PayPal and Venmo's priority to protect our customers from fraud and scams.
Ultimately, digital commerce has proved it is here to stay, and we are excited to continue to drive its evolution and to empower more people and businesses around the world.
CEO and co-founder at Synctera
I think what we will see post-COVID, after vaccines are starting to be distributed (think spring/summer) in the U.S., is that there will be a dramatic resurgence in local shopping in so many ways. The online transformation that was "overnight" for many retailers and the adoption of "contactless" shopping will return to a much higher-touch engagement. Menus will come back! Anything with a human connection that we have been wanting for over a year will be what's top of mind for consumers, and thus financial services will move quickly back into the retrograde opportunities of vendor financing, retail space purchasing, and the online equivalents will stall.
In many small towns of America that have yet to see online solutions like DoorDash or Instacart arrive, life will return back to normal for restaurants, groceries, nail salons, daycares and so on. This is at the heart of small business in America, and we see a significant opportunity to work with banks and credit unions that are often the lenders to these businesses.
See who's who in Protocol's Braintrust (updated Dec. 29, 2020).
Questions, comments or suggestions? Email firstname.lastname@example.org.
Kevin McAllister ( @k__mcallister) is a Research Editor at Protocol, leading the development of Braintrust. Prior to joining the team, he was a rankings data reporter at The Wall Street Journal, where he oversaw structured data projects for the Journal's strategy team.
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