It’s only February, yet the fintech market is already triggering immense change within the financial industry in 2020. Visa is acquiring Plaid for $5.3 billion, Morgan Stanley is acquiring E*Trade for $13 billion, and Lending Club is acquiring Radius Bank for $185 million. Plus, Visa is granting Coinbase the ability to issue Bitcoin debit cards, making Coinbase a prestigious “Principal” member of the network. These are just a few examples of what has been happening in early 2020.
Why are these activities significant?
The examples above are significant to the fintech market for multiple reasons.
Visa’s acquisition of Plaid shows that the relationship between financial institutions and fintechs has become increasingly important. In a statement announcing the deal, Visa said:
“Seventy-five percent of the world’s internet-enabled consumers used a fintech application to initiate money movement in 2019, versus 18% in 2015.”
Morgan Stanley’s acquisition of E*Trade, along with the Charles Schwab acquisition of TD Ameritrade in 2019, shows the impact that fintechs such as Robinhood have had on the business models of incumbents. We expect a similar consolidation in the insurance and banking industry, as margins get squeezed from disruptive fintech business models.
The Lending Club acquisition of Radius Bank is the first time in United States history that a fintech has acquired a bank. Instead of going through the long and tedious process of getting a bank charter, Lending Club was able to acquire a bank and its charter. This will now enable Lending Club to offer Banking as a Service, expanding its reach from consumers to other fintechs.
Finally, with Visa allowing Coinbase to issue bitcoin debit cards, it makes bitcoin much more liquid. Previously, you would need to go through the process of selling your bitcoin and withdrawing your money. Now you can use your bitcoin to make instant purchases, such as buying a cup of coffee.
What does this mean for banking/fintech in 2020?
These activities will likely impact the banking and fintech market in 2020 in the following ways:
- There will be a wave of fintech acquisitions and strategic partnerships in 2020.
- More companies outside of the financial services industry will see the importance of providing fintech capabilities. This is what Hydrogen specializes in – being a fintech enablement platform for any company.
- Fintech as a Service will be the hot topic in the corporate boardrooms of all the major financial institutions. Fintechs are disrupting their business models. They need to make it easier to partner with them, or risk losing market share. This can be done through open banking and REST APIs, like Hydrogen’s.
You can read our BaaS to the Future report, to learn more about the explosion in Banking as a Service globally. It will be an exciting year ahead!