Here’s a piece of trivia for your holiday party: what is more widely adopted in the United States – fintech or social media? Predictably, for the purposes of our objective here, it’s the former, which increased by 52% year over year. An EY survey found 37% of consumers saying a fintech firm is their most trusted financial services brand – with those numbers higher among Gen Z and millennials.
There was plenty to talk about in fintech and in particular the payments space in 2021. From IPOs to inclusive capitalism, here’s some of what caught our attention.
1. Record number of fintech IPOs
There were a record-breaking 37 FinTech IPOs globally through the first three quarters of 2021, with 30 on US exchanges, at last count by Financial Technology Partners. Flywire was of course among them, with the list including SoFi, Toast, Coinbase, Nubank, Remitly, Marqeta, Affirm and Robinhood.
As a whole, fintech investment continues to surge. Deal volume hit new records, and global fintech investment in the first half of 2021 sat at $98 billion, according to KPMG. Half of that investment came from the Americas, followed by investment in the EMEA region.
In fact, fintech had a big hand in driving the total number of IPOs up for the first time in more than a decade, according to research quoted in the WSJ, with IPOs in 2021 topping 4,000.
What’s powering this wave? Flywire CEO Mike Massaro put that question to Nasdaq Senior Vice President Karen Snowat our Flywire Forward virtual fintech conference earlier this year. Snow offered that there is a 10 year pipeline of pent up demand funded through private equity and venture capital, and investors are now looking to recycle their capital and realize their gains. She added that “unlike, I would say, historical booms in the market, these are real companies, with real business models, real tailwinds.”
2. Regulation and standards changed or increased, but didn’t yet tackle emerging technologies
As evidence of the growing number and complexity of global fintech legislation and regulations, in November the World Bank announced a new database housing the laws, regulations and guidelines of 200 different countries.
We’ll take just one slice: crypto. The digital currency has the ears of everyone from the FASB to the SEC, with US standards boards, legislators and regulatory agencies aiming to bring structure and rules to a still vastly “under-understood” space that rises and falls with a mere Musk tweet. Even the recently passed Infrastructure Bill tackled crypto, increasing tax reporting requirements for crypto transactions by requiring brokers to report transaction details on 1099-B forms.
3. Buy Now Pay Later is so now
Today’s reverse layaway removed the least immediately gratifying part of the installment payment process that still exists in a handful of chain stores – waiting to get the stuff. With the retailer’s payment assured by fintechs like Klarna, Affirm and Square AfterPay, use of the almost irresistible payment method soared this year – with 7% of shoppers saying in a CNBC survey that they’d pay for holiday purchases that way this year. Its use during Cyber Week grew nearly 29% year over year, according to data from Salesforce.com. Microsoft took BNPL a step further – announcing support for BNPL at the browser level. The tech giant partnered with Zip to allow consumers making a purchase of anything between $35 and $1,000 through its Edge browser to split that buy into four installments over six weeks.
But guardrails are on the horizon, with legislators and regulators around the world trying to better understand the payment model. In December, the CFPB issued orders to BNPL providers to collect information on the risks and benefits of the loans, saying in its release that it’s “concerned about accumulating debt, regulatory arbitrage, and data harvesting in a consumer credit market already quickly changing with technology.” Important discussion at the federal and global levels is summed up well by John Adams of American Banker.
4. Big tech plus (and minus) fintech
On the consumer side, big tech made more than a few splashes in the payments space this year. There was Amazon’s announcement that it would stop accepting Visa cards issued in the UK because of fees, and its plans to accept PayPal’s Venmo payment method. Google abandoned plans to deliver checking accounts and debit cards to Google Pay users. Its so-called Plex initiative was scrapped in favor of “delivering digital enablement for banks and other financial services providers rather than us serving as the provider of these services,” according to coverage in the WSJ.
2021 saw more indications that enterprise tech is ready to ride the fintech wave as well. Those seeking further proof that the market for B2B payments is massive need look no further than Oracle’s recent earnings call. “Oracle Cloud ERP will soon bring an entirely new level of automation to B2B commerce, one that very much resembles the ease of doing business and efficiency of B2C e-commerce,” Larry Ellison said on the call.
There’s also work underway on standards to help businesses more easily exchange electronic invoices – with the Federal Reserve partnering with companies to build a framework, and another 42 organizations assessing whether a similar exchange framework can facilitate electronic delivery of remittance information across all payment types.
5. Open banking becomes mainstream
“Open banking is mainstream whether consumers realize it or not,” a recent Mastercard report proclaimed, with more than ¾ of Americans linking bank accounts to third-party applications. Open banking allows the secure transmission of account data if authorized by a customer to a third-party application. An EY survey found 63% of consumers saying they would “highly value” open banking and embedded finance solutions that “curate, connect and personalize their experiences with trusted third parties.”
Unlike in the EU and other countries (notably Brazil), open banking in the US continues to be a market-led movement, and industry groups continue to drive the building of frameworks to develop common standards.
But with a new CFPB leader confirmed in September, open banking is on the regulatory agenda. An executive order issued in October encourages the director of the CFPB to consider “commencing or continuing a rule-making under section 1033 of the Dodd-Frank Act to facilitate the portability of consumer financial transaction data so consumers can more easily switch financial institutions and use new, innovative financial products.”
6. Fintech is a force for inclusive capitalism
At the end of 2020, The Council for Inclusive Capitalism got rolling, and commitments from its members show how financial services will play a major role in the unique global partnership/challenge ignited by none other than Pope Francis. There are commitments and participation from nearly 200 members of the financial services industry, including Bank of America, Mastercard, Visa and State Street.
Asked whether there were ways fintech could lead when it comes to inclusive capitalism during Flywire Forward in September, Flywire’s Massaro offered that part of enabling people to more fully participate in the economy is helping to reduce areas of friction around paying for potentially life-changing experiences. “It’s the jumping off point of a whole new life for people,” Massaro said. “I think that’s the amazing part, when you deal with financial services, it is the well-being of individuals.”
You know this story all too well. But, as it relates to how COVID has impacted financial services, JP Morgan called fintech and the increased demand for digital services, ”the real Covid-19 story with the rise of online start-ups and expansion of digital platforms into credit and payments.” Cash usage continues to decline (16% globally in 2020 according to McKinsey’s 2021 Global Payments Report) and ecommerce transaction methods grow. Some 82% of Americans now use digital payments, up from 78% in 2020, according to McKinsey’s recent Digital Payments Consumer survey.