For the financial technology industry, 2017 will be defined as the year that the threat of tech giants grew stronger, artificial intelligence cemented its importance and some startups applied to become banks.
In the world of payments, all eyes are on the part of the ecosystem that helps retailers process card transactions. Incumbents like First Data Corp., Vantiv Inc. and JPMorgan Chase & Co.’s merchant services unit have long focused on winning business from large brick-and-mortar retailers, neglecting to spend a lot of time on the growing e-commerce sector. That’s made room for startups like Stripe Inc. and Adyen BV, which have garnered high valuations for doing just that. Now the questions are: What will be the next way that consumers make purchases and what will the incumbents do to catch up?
- Matt Harris, Bain Capital Ventures: “SoftBank buys 20 percent of Stripe for $3 billion. PayPal continues to push itself down the path of being the leading financial services company for millennials and the mass market.”
- Dion Lisle, Capgemini SA: “‘Alexa, buy this’ or ‘Siri, I need an Uber, pay for it with my AmEx.’ Payments are going to be activated by that voice because that’s a great security method.”
For investors in online lending, 2017 was the year of the shakeout. The companies that didn’t pay enough attention to underwriting were burned by losses, while longtime leaders like LendingClub Corp. and CAN Capital Inc. struggled with operational troubles and securing sufficient capital. Next year might not be any easier, according to experts. Banks have finally gotten their act together, and that means online lenders will increasingly have to compete against these large financial institutions.
- Dan Ciporin, Canann Partners: “Scale is increasingly a competitive moat, with established players like LendingClub and SoFi now competing much more with bank offerings like Marcus from Goldman Sachs.”
- Spencer Lazar, General Catalyst Partners: “Potential changes to the Consumer Financial Protection Bureau (CFPB) under the Trump Administration will likely turn back the clock on Obama-era regulations on non-bank lenders. This will be a boon to startup lenders, making it far easier to dole out capital. The fear is that rates could potentially become predatory.”
Amazon vs. JPMorgan
Retailers like Wal-Mart Stores Inc. have long wanted in on banking, and regulators might finally be on their side. That could open the door to a Bank of Amazon or a Facebook Financial. If these technology giants did decide to move into finance, they would have a few major advantages over the banks: better data, a superior user experience and immense customer loyalty.
- Andy Weissman, Union Square Ventures: “Some combination of Amazon, Google, Facebook, Apple, etc. will move deeper into online financing of small businesses.”
- Jeff Richards, GGV Capital: “Facebook has rolled out payments via Messenger to compete with Square Cash and Venmo, but hasn’t been super aggressive on this front. A ramped up effort in e-commerce could tie into an increased focus on payments.”
- Jeremy Philips, Spark Capital: “The tech behemoths have been slow-ish but that’s changing quickly driven largely by Chinese chat/payments envy. Facebook and Apple and others will double down on trying to replicate this in the US.”
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