2019 FINTECH PREDICTION: Collision of Fintech Bundles and Focus on Transformation Strategies

The economic principle of perfect information is applied to instances in which arbitrage opportunities are driven away by a market with indifferent and absolute information. This principle has led us to predict that in 2019, we will see the convergence of unicorn fintech startups like Robinhood, Acorns, Revolut, Monzo, N26, Betterment, SoFi, Lending Club and others on the same multiple financial product offering across lending, banking, payments and investments. Noting that, if most players -- including large operating businesses -- understand how to market to and serve Millennials in relation to their competitors, then customer acquisition costs are likely to rise and the digital model will become more competitive as servicing costs commoditize at a cheaper price point.

Let's take this one layer deeper. Digitization costs are falling -- fueled by open banking regulation, data democratization, and freely accessible infrastructural platforms offering data storage or marketing for nothing. This is, in part, thanks to the long tail of finance aggregators such as Plaid, Bud, and Tink who pull data across multiple capital sources, using it to build/offer consumer facing products/services like budgeting tools, wealth management nudges, and/or service provider recommendations. As a result, Fintech verticals are becoming more competitive red oceans, as both big and small players fight over shrinking profit margins driven by such transparent data and freely available technology. But this isn't new news. What's happening now is a reaction by Fintech players and financial incumbents to get bigger, shed fixed costs, and take a shot to monopolize the industry vertical. The payments industry is a great example of where consolidation is happening all at once, with FIS buying Worldpay for $35 billion and Fiserv winning First Data for $22 billion. Consolidation is taking place in other forms as well, take UK-based challenger bank Revolut -- consolidating its cost exposure per transaction by building its own payment processor called RevP, and potentially launching a fee-free trading product to target Robinhood by the end of the year.

We have already seen what happens when traditional bank-backed neobanks use apps as digital channels in an attempt to capture a younger client base through edgy and innovative user experiences tied to traditional financial product -- JP Morgan's Finn became a victim of this approach which eventually resulted in its demise. Wells Fargo's Greenhouse, RBS's Mettle,and MUFG's PurePoint could face a similar fate, should they fail to acknowledge digital as more of a transformation strategy than a channel. The financial initiatives of Chinese e-commerce giant Alibaba, for example, serve as a powerful representation of how an online e-commerce chassis can translate to the physical world leveraging a digital value proposition across its front, middle and back ends. This is why we still believe to see more Fintech mergers and acquisitions beyond the current $97.53 billion industry aggregate deal value for 2019 -- more than twice the aggregate of the same period in 2018.

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