Is coronavirus fintech’s watershed moment?

The coronavirus pandemic of 2020 has been a watershed moment in everything. Time for some guesses and predictions on what it means for fintech. I’m phrasing these as questions as none of these changes are a given 🙂

Credit: Scott Adams

Will consumers will finally accept remote delivery of complex financial services?

Offering financial advice through a completely automated solution or via some sort of human/computer solution is a hill that many startups have died on (Remember Learnvest?). The biggest stumbling block was the consumer expectation of needing to meet their financial advisor in person. This forced quarantine has made the average consumer accustomed to virtual interactions, via Zoom or other platforms, for everything. Is it finally time for virtual delivery of financial services?

Will live video will be everywhere?

Every fintech product roadmap will need to figure out how to service the customer via live video. Chatbots were supposed to be the future but didn’t get there as the interface was too basic and extremely impersonal. Video is probably the right medium – its more personal than a phone call and more personal than a chatbot. It is also faster to solve customer problems as you can just see the customers screen via screen sharing. Live video will be a key component in the remote delivery of financial services.

Will the challenger banks finally break out?

A consumer’s primary bank account is a very sticky product and partly the reason why legacy banks push free checking accounts. Challenger banks had a huge hurdle in getting existing users to switch over their primary banking relationship. The feature set that they offered wasn’t differentiated enough to compel a switch from an existing bank. The only real driver for growth was enhanced deposit rates, which is (a) not foolproof since you had to partner with a bank and (b) is highly dependent on the policy rate set by the FED (which is currently at zero).

In this crisis, Chime offered to advance the CARES act stimulus proceeds to their customers who had set Chime as their primary bank account. This is innovative risk-taking – advancing stimulus checks for a customer that has a primary banking relationship with you is an almost zero risk transaction as you are the first person who sees all their cash inflows and outflows. This is one example of a feature that legacy banks are loath to, or slow to copy as they are risk-averse. This leaves a lasting impression on consumers. Why can’t my bank advance me money when I need it the most?

Will this crisis lead a lot of consumers to re-evaluate their primary banking relationship and actually move accounts over to the challenger banks?

Will the legacy bank’s regulatory advantage start crumbling?

Banks in the US had a huge regulatory advantage over new contenders, key being, access to deposit insurance, access to the FED discount window and other federal programs. All the contenders (i.e. non-banks) were shut out of these programs. The only way to get access in the past was to become a bank – a long fraught process. In this crisis, non-bank fintechs are slowly getting approval from the SBA to start lending via the PPP program,  a first for non-banks. Is the regulatory advantage for legacy players finally crumbling?

Will there be a new innovation in credit/cashflow solutions?

This economic crisis is primarily a cash flow crunch since revenue went to zero. All the existing private solutions to extend cashflow haven broken down as banks have tightened credit or slowed down lending and non-banks have stopped lending altogether. The government is the lender of last resort. Will this crisis spur some much-needed innovation in the credit/cashflow area? Some ideas to ponder on:

  • Revenue insurance
  • “As a service” models for everything
    • Rent based on % of sales rather than fixed pricing
    • Contracts that adjust downwards if certain revenue thresholds are breached. This will cost more upfront but will have an embedded knockout revenue trigger.

2021 may be the breakout year for fintech!

What are your predictions?

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