Fintechs (Not Banks) Could Reap Windfall From $800 Billion Opportunity in US Equity Market 

As the global pandemic changes life as we know it, accelerating the homework culture, shifting priorities and creating an increasing demand for zoom conferences, fintech solutions are quickly entering the banks – the Blockbuster video on their Netflix. The digital shift could create a $ 800 billion opportunity in the U.S. stock market, according to global asset manager ARK Investment Management.

Digital wallets, which are non-cash payments, allow people to make purchases through smartphones and other devices that can digitize payment information.

With on-demand offers, cheaper fees and more efficient processing, fintech companies such as Square, Stripe and Venmo provide digital wallets and position themselves as trusted players able to deliver mobile financial services using clear, millennial-friendly interfaces, enabling legacy players look pinned to the last century.

Says Stripe CEO Patrick Collison through Twitter,

“Companies that started on Stripe since the start of the locks in March have – somewhat unbelievably – already generated more than $ 1 billion in total revenue. We are very happy to be able to play our part by helping them sell, customize and to grow. “

Cathie Wood, founder of the global asset management company ARK Investment Management, adds:

“Innovation is gaining accelerated market share in turbulent times: better, faster, cheaper, more productive, more creative!”

According to Research conducted by ARK, the major shift in banking and financial services driven by digital portfolios will be a boon to fintechs over the next four years.

“By 2024, we expect more than 220 million users of digital wallets in the US who, if valued as bank customers at maturity, could represent a $ 800 billion opportunity in the US stock market.”

China is leading the shift towards digital wallets. Consumers in the world’s second-largest economy process more than 10 times the number of mobile payments than consumers in the US. Powered by Chinese tech giants WeChat and Alibaba, digital wallets in China are bundled with apps that provide users with a full suite of features from everything from restaurant bill distribution to managing balances to holding taxis.

China’s digital payment revolution
Mobile payment transaction volume
Source: People’s Bank of China, Caixin Data, CEIC via Brookings.edu

China’s digital wallets are looking at how fintechs can diversify and go beyond a bank-only model for financial institutions only. Instead, they can directly address consumers and their daily shopping and spending habits by quickly integrating other ecommerce platforms and offering digital discounts.

WeChat features in one app

  • Quick Pay for paying merchants
  • Send money to friends and family
  • Tencent digital currencies to boost payments in the ecosystem (i.e. gaming)
  • Go Dutch for splitting accounts
  • Access to ride sharing app
  • Buy group coupons
  • Asset management products
  • Tap to pay for utilities and phone bills
  • Access to website for clothing and skin care products
  • Access to deals through ecommerce giant JD
  • Integration of Starbucks and other major brands

Wood, who was present Rosenblatt’s 12th Annual Fintech Summit Last week highlighted a scenario of banks switching to utilities as agile fintechs quickly seize their opportunities to acquire new customers more cheaply – while offering more, reports Forbes.

Regional banks that invest $ 1,500 to get a new customer on board by using interest rates as carrot sticks compete with fintechs like Square and Venmo that can leverage a slew of rich features and benefits to sign up a new user by invest about $ 20.

Wood says,

“Square SQ Cash App and PayPal PYPL’s Venmo are evolving to the point where customers no longer need to use a traditional bank. Once they have their own bank charters, they start to circle circles around the banks. That is eroding banks and becoming more like utilities. ”

The road to dominance for fintechs can even be faster than Facebook’s trajectory. As banks lose ground in the payment sector, the use of cash and credit cards is also decreasing. According to research by Mordor Intelligence, mobile payments powered by digital wallets are expected to increase with a compound annual growth rate of 26.93% between 2020 and 2025.

Adds wood,

“Cash app and Venmo are adopted twice as fast as social networks like Facebook used to be adopted … It takes a year to achieve the network effect that lasted two years in the early days of social media.”

Alipay is currently the world’s largest mobile payment platform with over 1.2 billion users.

Featured image: Shutterstock / GaudiLab

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