Mitch Kitamura, Managing Partner, DNX Ventures predictions and trends he’s watching
1. The consumer financing players like Afterpay, Uplift, Affirm, Klarna, and others are expected to excel even more in 2021 – The financial uncertainty brought by COVID-19 suggests most consumers will have to reassess the need for their spending. While the big shift of consumer spending to online shopping seems obvious, it’s worth mentioning businesses are in need of finding ways to make it easier for the consumers to purchase online with a limited budget, the consumer financing players listed above are offering attractive deals during this economic downturn and it will continue in 2021.
2. B2B payments become online – 50% of all B2B payments globally are still made via paper check and this number will change in 2021. Consumers now have more options than ever for sending instant payments, often without fees via Facebook Pay, Venmo, PayPal, and Square Cash to name a few. On the other hand, businesses don’t have the same breadth of payment options as consumers do, and that’s a costly problem. It’s not uncommon to see innovation emerging with products for consumers then grow into the next level that spreads into B2B options.
Case in point, text messaging platforms, WhatsApp and iMessage made our personal communication easier and better connected. These apps were followed by Slack’s real-time company messaging service, which made it easier to communicate with our work teams. With businesses adopting a remote-first environment, the traditional B2B payment based on paper checks won’t be feasible anymore and the players like Paystand and Bill.com are on the rise to change this $25 Trillion US B2B Payment Market.
3. Use of Big Data and Data Integration by financial institutions will get more sophisticated – Just like the data management platforms completely changed the advertising industry by helping advertisers target their customers and leverage real-time business intelligence, it is time for the financial institutions to leverage the enormous amount of customer data they have. The financial industry is probably one of the most data-intensive industries, yet the use of the customer data hasn’t been developed as fast as the other industries. With the changing customer behaviors and increasing competition in the industry, financial institutions cannot afford to leave precious customer data unexploited. SafeGraph is one of the data players that provides unique and reliable data to businesses including financial institutions to help them better serve their customers in this changing environment.
4. While there were significant declines in all travel-related spending’s during the COVID-19 pandemic – We’ve started to see the growth in travel spending in the last couple of weeks and there is no doubt that the leisure and hospitality industry will come back in 2021. Travel specific fintech players like Uplift not only provide affordable financing solutions to consumers but also help airline companies and cruise companies get back to business.
Don Butler, Managing Director, Thomvest Ventures predictions and trends he’s watching
- Banks, insurance companies, realtors, and others have a legacy built around the retail distribution of their products at a local level. The shift away from this towards digital was already happening but has been greatly accelerated by the pandemic.
- As a result, both incumbents and fintech challengers are seeing a more balanced competition based on products, including the customer experience overall. This has shifted the dynamic from competing in distribution to competing more on shipping code. Incumbents still have a lot of assets – brand, assets, low cost of capital, experience, etc. – but the playing field has gotten a little more even.
- At the same time, we’re seeing a shift to the cloud and with that more and more data sets becoming available by API. The result for the automation of financial services that we’re seeing can be summarized as :
- Application automation – You can use APIs now to assemble data and create a much smoother customer experience. With the smoother customer journey, you get a chance to offer up products to consumers in a simple, checkout experience that you couldn’t before. Ladder Life, for instance, is integrated into the mortgage process with SoFi, so that SoFi customers can use their data to populate a Ladder life insurance application and get a provisional quote on life insurance at a point in time that also coincides with when people might consider getting life insurance.
- Point-in-your-life-product recommendations – With financial services you make significant decisions around key points in your life – when you change jobs, get married, buy a home, have kids, plan for college, retirement, etc. The data sets that are available now allow you to build a profile of a consumer to understand where they likely are in that path, and then to automate or greatly simplify taking an action when you need to do so. Blend, for instance, powers a significant percentage of the mortgage applications in the US these days and now integrates into the customer experience of a home insurance marketplace that allows consumers to get a quote and pick a home insurance carrier when they are completing their mortgage application.
- Shift to the Cloud will accelerate – One of the things we’re seeing is that banks and insurance companies have taken note of the shift in market share that has already happened in areas such as payments as well as of the valuations of companies like Lemonade and are reading this – as well as threat of encroachment by firms like Apple and Google – as a real challenge. With that we’re seeing the beginnings of what feels like a sea change where banks will move either to SaaS applications or cloud deployments of their infrastructure. Banks are (for good reason) among the most conservative adopters of the cloud, but I think in the same way that consumer interactions are moving from branch to digital, you’ll see a similar shift in the infrastructure of banks in moving to the cloud using technologies like low-code/no-code to help the transition.
- Consolidation – Lastly, every downturn has seen a consolidation in the banking sector, and I think you’ll see the same thing here but with banks either acquiring fintech lenders or neobanks or vice versa. We’ve already seen the trend with companies like LendingClub acquiring Radius Bank, but I think this consolidation between fintech challengers and banks will be one of the major narratives of 2021. Banks need to shift to the cloud, and the fintech companies are finding that the balance sheets they can access via deposits or other means is a game-changer when it comes to the cost and stability of their capital base, and (though there are regulatory costs), it gives them more freedom to control their own destiny.