How fintech is picking apart traditional finance
- January 1, 2020: Vol. 7, Number 1

How fintech is picking apart traditional finance

by Mike Consol

Let’s consider some cold, hard numbers for starters. Some 45 percent of personal loans are now originating through fintechs, a figure that stood at about 5 percent just four years ago. Goldman Sachs estimates the worldwide fintech space to be worth $4.7 trillion, and there are more than 12,000 fintech startups worldwide. China-based Ant Financial, heralded to be the world’s largest fintech company, is worth more than $60 billion and employs over 10,000 people.

What is fueling this trend? In a phrase, widespread consumer dissatisfaction with traditional banks. Again, the numbers tell the tale: U.S. citizens are being charged $130 a year in just checking account fees and those accounts are paying an average interest of 8 basis points. Even worse, bank customers are being charged $34 billion per year in overdraft fees, or an average of $50 per month per customer.

Get the picture?

Those are referred to as “pain points,” yet with 0.1 percent of the top banks controlling 50 percent of deposits, there is little motivation to change their revenue models. But it is those pain points that are under attack by fintech startups. Little wonder that in 2018 fintechs closed almost 1,300 venture capital deals worth more than $15 billion in North America and Europe alone, according to data from Pitchbook.

“It’s clear that a shift has taken place and fintechs are gaining more momentum,” Luvleen Sidhu, co-founder, president and chief strategy officer of BankMobile, said during a recent interview with the Wharton School.

BankMobile is an example of a fintech attacking banking customer pain points — including by is offering 4 percent interest on balances up to $3,000, which is 50 times more than the average checking account offers at traditional banks. BankMobile, a five-year-old company, uses a bank-as-service model that enables it to acquire customers at higher volumes and lower costs than traditional banks — in part through its partnership with T-Mobile with whom it launched a product called T-Mobile Money — which helps the startup pay higher interest on customer deposits.

Other fintech players include Robinhood, which specializes in brokerage services; SoFi, specializing in student debt refinancing; Square Cash, a payments service; as well as Chime, Monzo, N26, Revolut and Varo among many others.

Sidhu noted that many fintech players that started in business specializing in a single service have evolved from their original niche into multi-product offerings. Many of them are applying for bank charters.

Indeed, she noted one area ripe for rapid growth is digital banking.

“It’s amazing how many fintechs are applying for charters and how many neo-banks (a 100 percent digital bank that reaches customers on mobile apps) are entering the U.S. and trying to get partner banks,” Sidhu told the Wharton School. “Many marketplace lenders are struggling. They’re having trouble accessing low-cost funding … so, many of them are shifting to lending as a service and trying to help banks and being more of the backend.”

While the big banks are far from going away — in fact, they continue to grow — the proliferation and growth of fintech startups is offering venture capital and private equity investors some fertile territory.


Mike Consol ( is editor of Real Assets Adviser. Follow him on Twitter @mikeconsol to read his latest postings.

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