The Winners And Losers In Fintech In 2019

OBSERVATIONS FROM THE FINTECH SNARK TANK

As we approach the end of the 2019, it’s a good time to look back and see who won and lost—or more appropriately, who’s winning and losing—in the fintech world.

The Winners

Goldman Sachs. The Vampire Squid took a few lumps this year with reports of $1.3 billion in loan losses (over a roughly three-year period) in its Marcus unit and accusations of bias in setting credit limits on the new Apple Card, but those were minor speed bumps on Goldman Sachs’ path to fintech success in 2019.

While many mid-size banks struggle to gather (and retain) deposits, Marcus ended 2018 with roughly $35 billion in deposits and by October had grown that to about $50 billion.

How do you follow that success? By partnering with Apple to launch the Apple Card. By the end of Q3, Goldman Sachs had extended about $10 billion in credit lines to Apple customers and new credit card customers had $736 million in loan balances.

Outlook: Marcus will continue its march towards becoming a consumer finance powerhouse. Goldman spent $80 million advertising Marcus in 2017 and double that in 2018. In 2019, it will spend $270 million on its retail businesses. That’s about as much as BBVA, Santander, and USAA will spend on marketing in the US—combined.

Zelle. Take a floundering consortium of large banks, re-form it within an established enterprise, give it a new name, re-count all the existing transaction volume as the volume of the new fintech....and voila!....you have Zelle.

In short order (or years depending on when you think the service started), Zelle has become the leader in P2P payments in the US according to a study from Cornerstone Advisors.

An analysis by S&P Global of the 27 largest banks in the US found that 21 of them offer Zelle as their P2P service, with two more soon the launch the service. Among mid-size institutions, Zelle is offered by banks like Umpqua, First Bank, and First Horizon.

In Q3 2019, $49 billion was sent through the Zelle on 196 million transactions, representing a 58% increase in dollar value and 73% increase in transaction volume over Q3 2018.

Outlook: Zelle has plenty of runway left to continue its torrid growth pace. But it’s not a winner-take-all battle in the P2P world, so don’t count Venmo, Square, and Apple out.

Chime. Chime’s account growth is nothing short of astronomical account growth. A December 5 CNBC article put the current total at 6.5 million, up from 5 million at the beginning of September, and up from 4 million in June 2019. The startup’s valuation is astronomical as well, with a recent $500 million raise valuing the fintech at nearly $6 billion (on expected 2019 revenue of $300 million).

Outlook: Chime has had strong tailwinds, but there are storm clouds ahead. As I wrote in The Warning Signs Ahead For Chime, the startup’s customer base is heavily skewed towards low- to middle-income consumers. Nothing wrong with in and of itself, but it doesn’t bode well for an entry into lending. And a revenue strategy based on interchange fees is risky with the political and market forces putting downward pressure on interchange rates.

Honorable mentions: Stripe, TransferWise, Brex

The Losers

Robinhood. With 10 million accounts (200,000 of whom signed up for fractional share trading on the first day it was announced) and a $7.6 billion valuation, Robinhood must be on the winners list, right? Wrong.

The company had a couple of missteps this year:

1. A botched attempt at launching a checking account (which, granted was actually late 2018). After announcing a checking account with market-leading interest rates and no fees, it turned out that the account wasn't insured by the SIPC. After being mocked by the fintecherati for being nothing more than a money market account, plans for the checking account were shelved.
2. The”infinite money” glitch. A glitch in its system allowed users to trade stocks with excess borrowed funds, giving them access to what amounted to free money.

Paradoxically however, another reason why Robinhood is the big loser this year is due to its success.

In 2019, Robinhood successfully disrupted the economics of the industry with free trades—what Efi Pylarinou calls the “Robinhood Effect.” This effect now puts the startup at a potential disadvantage relative to the brokerage behemoths with their deep pockets.

Outlook: With a strong fan base among its customer base, Robinhood isn’t going away, but, ironically, may now struggle to find a profitable business model.

Facebook. Nobody contributes to Big Tech’s bad reputation as much as Facebook does, with its tin ear towards data privacy issues and controversial ad policies. The company makes this list, however, because of its plan to launch its own cryptocurrency, Libra. Within weeks of Libra’s announcement, high profile partners like MasterCard, Visa, PayPal, eBay, and Stripe all pulled out of consortium.

Claims that Libra would help “bank the unbanked” were outlandish and unsupported, and with questions about the possibility that it might never launch—and its lack of trustworthiness if it does—one has to wonder if Facebook was ever really serious about this or if it was just a publicity stunt right from the start.

Outlook: Ironically, the (possible) failure of Libra had a flip side effect—it signaled opportunities for corporate-sponsored cryptocurrencies. 2019 saw two other high-profile announcements from JPMorgan Chase and Walmart. Both are attempts to avoid the current payment rails, not fiat currencies.

Revolut. The year didn’t start off well for Revolut when it took flack for a Valentine’s Day ad that led people to believe it was tracking people’s spending habits a bit too closely and not taking customer privacy seriously enough.

That was followed in late February by a Wired report documenting shady hiring practices and a toxic work culture in the organization.

Then, a March 2019 report in The Drum said that Revolut has faced “accusations of ad theft, fabricating data, having a money laundering loophole, of cultivating an exploitative workplace culture and most recently misplacing a £70,000 money transfer.”

Outlook: Revolut isn’t the first fintech to experience issues with managerial indiscretions and cultural problems (SoFi comes to mind), and could very well come through this unscathed. But the firm’s travails added another data point to refute an all-too-common belief that fintechs startups are more ethical than traditional banks.

Dishonorable mentions: GreenSky, SynapseFI, OnDeck

Last Words

There were plenty of winners and losers in fintech in 2019, and I know that my list suffers from a mostly Western hemisphere and retail banking perspective.

The continued success of superapps in China creates new fintech winners there, as well as losers thanks to the collapse of P2P lending in that country. In addition, there are certainly many fintech developments happening in India and Africa creating fintech winners and losers that I’ve overlooked here.

Likewise with advancements in areas like institutional trading and insurance.

But there is a common thread globally that emerges analyzing the fintech winners and losers: Not all of the winners are startups, and not all of the losers are the established players.