Fintech Fire Alarms: April, 2021

Banks' response to fintech misses the mark, teen banking, and more.

Fintech moves fast and there's plenty of hype.

What's real? What should you pay attention to? What should you be worried about? What should be on your roadmap?

What's just smoke and what's fire?

Here are the five fintech trends, from April 2021, that should be setting off alarms in your organization.

1. Banks' responses to fintech are missing the mark.

What happened?

  • PNC released details on its checking account for underbanked consumers, with no added charges and a $5 monthly cost.

  • PNC launched a feature to let users avoid overdraft fees with proactive notifications.

  • PNC is on track to complete its acquisition of BBVA USA by mid-year.

  • KeyBank launched Laurel Road for Doctors, a bank designed for doctors and dentists with tailored savings and sending products for their needs.

  • Fifth Third has been expanding into the southern US, with 32 of 120 planned new branches open.

  • Fifth Third launches Momentum Banking, a digital deposit product with goal-based savings, early wage access, and tools to help avoid overdraft fees.

So what?

Banks are trying to keep pace with the product innovations introduced by challenger banks like Chime, but deeper structural challenges continue to hamper them.

PNC and Fifth Third are trying to help customers avoid overdraft fees. Challenger banks eliminated them.

PNC is closing down Azlo, the digital business bank that it acquired from BBVA, despite Azlo having 100,000 customers at the end of 2020. Meanwhile, Brex just raised $425 million at a $7.4 billion valuation after reaching 10,000 customers at the end of 2020.

Laurel Road for Doctors is a good attempt at a niche digital banking play, but it's a confusing mashup with the established Laurel Road brand and there's no mobile app.

Fifth Third is introducing a new digital deposit product and opening 120 new branches; an odd bifurcation of resources.

2. The crypto product development dilemma.

What happened?

  • Venmo added functionality to let users buy, hold, and sell cryptocurrencies on its platform through its Paxos partnership.

  • SoFi will now let users redeem credit card rewards points directly into cryptocurrency.

  • Wealthfront added cryptocurrency investing to its platform.

  • MoneyLion made a strategic investment in Zero Hash to enable cryptocurrency features for its users.

  • Unifimoney has integrated Gemini for crypto trading.

  • Payments app Ziglu launched an interest-bearing bitcoin account.

  • Revolut added 11 new cryptocurrencies to trade in its app.

  • Youth checking account Strive launched a piggy bank named Penny to teach kids about crypto investing.

So what?

At the end of 2020, 15% of US consumers owned some other form of cryptocurrency and 17% of consumers said they planned to invest in cryptocurrency in 2021. These numbers are almost certainly higher today.

Fintech companies are rushing to add crypto services to their apps in order to drive increased engagement, following in the footsteps of early leaders like Cash App.

Despite 60% of crypto owners saying that they would use their bank to invest in cryptocurrency, 79% of banks have no interest in offering crypto investing services to their clients.

Not every crypto service makes sense. Making everyday purchases with Bitcoin is a bad idea. A crypto piggy bank for kids is a really bad idea. But banks need to get over their squeamishness and at least start offering crypto investing services or risk losing more customers to fintech competitors.

3. Fintech ushers in a new era of relationship banking.

What happened?

So what?

Banks have long argued that relationships matter in financial services. This argument has been used to justify investments in branch distribution models and human-centric sales strategies.

Banks are right. Relationships do matter because financial services is still, fundamentally, about trust.

The problem is that the people that consumers trust aren't in branches. They're on YouTube and Instagram and TikTok.

Influencers and creators now play an enormous role in shaping consumer affinity, preference, and choice.

Fintech companies (Square and Current, in particular) are forging genuine relationships with these influencers and leveraging those relationships to build trusted brands.

4. Teenagers are our future.

What happened?

  • Current, a digital bank for teens and young adults, raised a $220 million Series D at a $2.2 billion valuation.

  • Greenlight, a family-focused fintech app, raised a $260 million Series D at a $2.3 billion valuation.

  • Step, a digital bank for teens, raised a $100 million Series C at a valuation of nearly $1 billion.

  • Till Financial raised $5 million for a kids’ spend management app.

  • Apple introduced Apple Card Family, which allows families (including kids between the ages of 13 and 18) to share an Apple Card and build credit together.

So what?

Fintech for kids/teens/young adults has exploded in popularity over the past year.

Providers like Current and Step appear to be focused on owning the next generation of financial services customers and are building their brands (with the help of influencers and celebrities) to appeal to them.

Other providers like Greenlight and Till Financial appear to be focused on building financial literacy platforms for kids and teens (and their parents), with the intent to graduate them off the platform as they turn 18.

Banks will need to develop new products in order to compete with companies like Current and Step (and Apple) for Gen Z and Gen Alpha.

Banks should also consider referral and white label technology partnerships with companies like Till Financial and Greenlight (who has already partnered with Chase).

5. The disruption of Credit Cards-as-a-Service.

What happened?

  • OppFi, a credit provider to underbanked consumers, announced a new credit card.

  • Instacart and Doordash are both planning to launch credit cards.

  • Gemini, a cryptocurrency platform, is launching a credit card.

  • Unifimoney launched a credit card in partnership with Railsbank.

  • Cardless partnered with Manchester United to launch a co-branded credit card.

  • Ramp, a business spend management solution, raised $115 million at a $1.6 billion valuation.

  • Brex, the corporate card provider, raised $425 million at a $7.4 billion valuation.

So what?

Traditionally, launching a credit card has been one of the harder things to do in financial services. It requires both operational excellence to facilitate a high volume of payment transactions and credit risk management expertise to manage the lending process. This explains why:

  • The top ten issuers control 90% of the $3.8 trillion credit card market in the U.S.

  • Of the 70+ challenger banks in the U.S., only a handful have launched credit cards.

The emergence and maturation of Credit Cards-as-a-Service (CCaaS) providers like Deserve, Railsbank, and Cardless significantly reduces the upfront time, expense, and complexity of launching a credit card.

This will lead to a boom in new, more focused credit card value propositions offered by challenger banks, crypto exchanges, merchants, sports teams, and others. It will likely also lead to more competition for Ramp and Brex in the corporate credit card space.

Alex Johnson is a Director of Fintech Research at Cornerstone Advisors, where he publishes commissioned research reports on fintech trends and advises both established and startup financial technology companies.

Twitter: @AlexH_Johnson