Fintech industry in the US to grow to $2.88 T by 2023

As of 2018, US accounts almost 57% of the global fintech market followed by Asia and Europe at 31% and 10% respectively.

However, the adoption of fintech is limited at 46% in the country. The rise of digital only banks and mobile payments has led to increase in penetration of fintech money transfers and payment services.

  • Definition / Scope
  • Market Overview
  • Market Risks
  • Market Trends
  • Technology Trends
  • Regulatory Trends
  • Other Key Market Trends
  • Market Size and Forecast
  • Market Outlook
  • Distribution Chain Analysis
  • Competitive Factors
  • Key Market Players
  • Strategic Conclusion
  • References
  • Appendix

Definition / Scope

Generally, the term Fintech represents ‘Financial Technology’ where the technology represents mostly digitalization within the Banking & Financial services industry.

The scope of the technology covers digital infrastructures allowing establishment of new types of agreements and procedures in classic areas of banking such as lending, investment strategies and payments.

Some of the benefits of leveraging fintech technologies include: convenience of use or access via internet & mobile phones, increase in processing speed, reduction of costs, higher transparency and much focus on consumer experience.

At present, Fintech market can possibly be sub-divided into two sectors namely, banks & non-banks. The non-banking sector utilizing fintech include startups and businesses without bank licenses.

The latter sector focuses on modern banking value chain and is utilizing fintech to unbundle traditional banking business models.

The four most common categories of Fintech are as follows:

Digital Payments: The segment includes consumer payment transactions for products and services made via internet as well as mobile PoS or smartphone applications. In the US, the segment is the largest, both in terms of number of transactions and with most penetration.

Personal Finance: The segment accounts for technologies such as automated investment services i.e. Robo-advisors and digital remittances. However, online brokers without automated or recommendation-based advisory roles and domestic online payment doesn’t fall under the scope of this segment. This is the second largest segment in the US Fintech market.

Alternative Lending: This market segment includes digital financial services for business or institutional customers as well as private borrowers. The segment mostly focuses on lending to SME’s, freelancers and private individuals. Thus, crowd lending and marketplace lending is provided via online platforms.

Alternative Financing: This is the final segment of Fintech where the business models particularly lie in crowd investing models, other solutions such as non-monetary compensation for instance, product launches, music & film financing etc., applications that are mostly reward, loyalty or monetary based.

Market Overview

The Fintech technology and sector itself is transforming the working ways of financial sector in the US including ways of lending, investing, fund startups and also insurance. In the US, out of 3 digitally active customers, 2 or more use fintech services & solutions.

As of 2018, US accounts almost 57% of the global fintech market followed by Asia and Europe at 31% and 10% respectively. However, the adoption of fintech is limited at 46% in the country.

The rise of digital only banks and mobile payments has led to increase in penetration of fintech money transfers and payment services.

In the US fintech, in 2018, highest investment was grabbed by the payments segment at $1.9 billion followed by Insurance technology with $1.8 billion, Investment & capital markets technology at $1.39 billion, Digital banking with $1.2 billion, banking technology with $0.9 billion and finally media & data solutions with $0.5 billion respectively.

Market Risks

Market Growth: As there has been drastic changes in demography, technology in past 10 years, customers are empowered by broadband and smartphones which has made them more demanding in terms of financial services and products.

Thus, fintech companies that are not able to provide innovative product/solutions and those that have lack of investment capital may be in risk to lose access to market and also become unable to scale up their businesses.

It is necessary for fintech companies to become more innovative to receive funding or gather interest of investors.

Emerging technology: The growing penetration and proliferation of various types of technologies such as RPA, cognitive technologies, blockchain, automation has led to new business models, new product & service delivery channels which is essential in attracting and gaining loyalty of customers.

Thus, companies that are not able to tap onto these technologies may face the risk of running behind in competition and more importantly lose interest of customers.

Partnerships and alliances: Thousands of deals take place every year in fintech sector and the number of deals is increasing every year.

The trend of M&A and VC is so prominent in fintech sector that fintechs have begun collaborating with other financial institutions and big corporate companies to expand their operations and presence.

Any fintech company that seeks to arise independently may lose out growth opportunities as well as ability to gain competitive edge in the market.

Regulatory inspection: Initially, fintechs were relatively unrestricted by regulatory requirements that bound banks and other financial institutions.

But as the sector is maturing and the presence of such companies is increasing around all locations, regulators have started expressing their expectations of fintechs by introducing policies, laws, acts that bind such companies.

Thus, any fintech company which fails to operate within the set boundary of regulatory, their license might be seized, they could be liable to pay compensation or bear other forms of punishment as prescribed in the law.

Market Trends

Some of the major factor contributing to growth of Fintech scene in the US are as follows:

Wide reach: As consumers are increasingly using financial services, they require more value out of those services in terms of convenience, efficiency etc. this has led fintech firms to gain more traction among consumers as they can be accessed 24/7 from any location without requiring customers to visit banks or their service providers.

Rise in millennial influence: As per latest US census bureau, millennial population is the largest generation of US i.e. with total of 71 million and is further forecasted to reach 76.2 million by 2036.

This generation are tech-savvy, highly present in media and further demand speed, flexibility, personalization and are most convenient with internet and mobile phone channels.

Thus, this generation are most likely to adopt fintech and similar technologies as traditional businesses lack in providing same value out of their service which fintech companies are being able to cater. Thus, fintech businesses catering to millennial needs have attracted a total of $3.7 billion in funding.

In line with that, the millennial adoption of fintech services in the US is at 59% surpassing the global average of only 48%.

In addition, millennials not only desire fintech in general, but also demand array of financial services to be catered via fintech platforms. Also other age groups are continuously adopting fintech solutions.

For instance, age group 35-44 have penetration of 50%, 45-60 years with 40% and above 65 years with 17% penetration is highest in the US in global comparison.

High scope and investment: In the US and around the world, the rise of fintech is hugely supported by proliferation of fintech firms in niche segments.

As segments of fintech are niche due to varied demands of end-users there is plenty of space to be ventured. Innovative services and high scope of the market has also led major technology giants to invest in the sector, as a result in 2018, the total investment in the sector totaled $5.8 billion.

In addition, the existing businesses across industrial verticals are also collaborating with fintech firms to cater their customers which is driving the business of these companies both horizontally and vertically. Almost $27.4 billion was poured into the sector in 2018 via VC fundings.

Data protection requirement: As fintech businesses generally operate via digital & online platforms and applications, they are required to keep the information of their users/customers protected.

Not just single but multiple data protection laws are present in the US which binds the fintech companies. For instance, GLBA, FCRA (Fair Credit Reporting Act), Federal Trade Commission Act (FTCA), Wiretap Act and Electronic Communication Privacy Act (ECPA) among others.

The federal agencies have the jurisdiction to enforce these laws upon fintech companies. In addition, some of the states in the US also limit companies to share and use sensitive information such as driver’s license, social security numbers, financial & health data among others.

In case of data breaches, companies are liable to pay heavy compensation.

  • Cybersecurity for financial market participants is another major concern for the country’s regulators. In October 2018, federal management agencies have pledged to establish enhanced cyberrisk management standards that will be bind fintech companies that obtain special purpose national bank charter from OCC. Additionally, at state level, ‘NewYork State Department of Financial Services’ cybersecurity act became effective from March 2017 requiring fintech companies along with money transmitters to maintain and establish cybersecurity programs.

Technology Trends

Even though at present, Fintech is causing disruption within the financial services industry, fintech businesses still hold the potential to become more customer-centric, efficient and provide secure & intelligent solutions.

Some of the advanced technologies that hold the key to make fintech space more competent are as follows:

Hybrid cloud: The technology is gaining huge traction majorly in banking as it provides banks both benefits of private and public cloud while solving issues related to data security, governance and compliance.

API platform: If financial services companies wish to thrive in the digital age, they must consider deploying Open Banking APIs. Until now, the technology has only been initiated in one country market in the world and that is UK.

Robotic Process Automation (RPA): The use of software robots to cater to labor intensive tasks is an ideal for number of banking applications. This could reduce manual workload and at the same time employees could also focus on intricate banking operations and decision making.

AI: With the help of AI, organizations could overcome traditional customer service challenges. The companies could also leverage the technology to mitigate fraud and improve compliance. Some of the significant applications of the technology include AI Chatbots, digital payment advisors and quality service to broad customer base.

Blockchain: Lately, blockchain is becoming one of the most embraced technologies in the FSI sector mostly in banking. The technology is enabling services providers to offer their consumers faster and cheaper ways to transact.

The technology is helping banks save billions of cash and is reducing processing costs. Blockchain has numerous applications such as money transfers, record keeping and other back end functions.

Perspective security: The banking and financial services industry are the ones coping the pressure brought by cybercriminals and attackers that are rising day by day around the world. Some of the tools such as advanced analytics, real-time monitoring is helping providers to detect potential threats in advance and make appropriate decision respectively.

Quantum computing: The technology uses fundamentals of quantum mechanics to speed up complex computation solving. These computation processes are made of one-qubit and two-qubit operations which in turn are unlocking opportunities across risk assessment and trading for the banks.

VR& AR: The technology is being utilized by financial services providers to help customer improve their experience. For instance, both customers and employees are using visualization of data and services via immersive projection. The technology also hold potential to give customers feel of at-home banking.

Regulatory Trends

The Consumer Finance Protection Bureau (CFPB) at Federal level has initiated a project called ‘Project Catalyst’ that aims to increase CFPB’s collaboration with fintech companies to develop friendly policies.

In addition, as part of the program CFPB has issued a provision of no-action letter which can be requested by fintech providers to mitigate the control upon new products introduced by them.

Another Federal Body called OCC has recently created an office of innovation in order to issue regulatory framework for the fintech companies that supports innovation of products/services. The Office of Innovation acts as a central point of contact to fintech players that require information related to innovation.

In October 2018, Chairman of Federal Deposit Insurance Corporation (FDIC) announced to launch another innovation office that will focus on developing a convenient and hospitable environment for banks to explore fintech opportunities. The Corporation will play a middleman role in connecting appropriate fintech company to improve efficiency and service of banks.

In July 2018, the US Department of Treasury report on fintech and innovation. Among the 80 recommendations made in the report, the department identified need of regulatory sandbox to improve the fintech ecosystem in the country.

Thus, after the recommendation, the government is set to establish a regulatory sandbox that would be dedicated in establishing unified solution for fostering innovation as well as bringing binding laws for the fintech sector.

In March 2018, the Governor of Arizona signed into a new law which has made Arizona officially the first state in the US to enact regulatory sandbox. For businesses willing to participate in the sandbox, their period lasts for two years and they may seek extension of up to one year to obtain proper licensing and authorization to launch products or services more widely.

In February 2019, the Wyoming Governor signed the ‘Fintech sandbox act’ which allows companies participating in the program to test innovative products/solutions under fintech scope including blockchain technology. However, the act will come into effect from January 1, 2020.

In February 2019, the governor of Washington DC established a 21-member District of Colombia Financial services Regulatory Sandbox which aims to develop and investigate the feasibility of regulatory sandboxes for fintech and financial institutions.

The council is also required to produce reports that includes recommendation regarding, implementation, operation and development of regulatory sandboxes that are effective for fintech and other similar companies present in Washington DC state.

Other Key Market Trends

Some of the popular fintech trends to pay attention to in 2019 and upcoming years are follows:

Automatic service and pay down app services: A few number of applications are being developed which aims to encourage customers to save their money by providing a simple bank like saving feature.

The app generally works by saving change amount received from buying any product and diverting that money to a designated account which could either be a savings account or debt account of the customer.

For instance, if a customer buys $2.5 worth ice tea, $0.5 will be saved to the customers’ account. This is becoming one of the most easiest and innovative ways of saving money for people in the US. Some of the apps that are equipped with this feature include, Qapital, Digit, Blast, USAA and ChangEd.

Voice technology in banking: The technological feature also known as voice banking is offered by Ally Bank, Merchantile Bank of Michigan and Capital One.

The tasks that can be performed with voice banking is fairly limited to things like finding out last few transactions. The technology is currently being tested for other applications such as transferring money and applying for mortgages.

Fintech to protect vulnerable consumers: One new innovative business idea has popped up in the world of fintech where new services to help protect senior citizens from financial fraud is gaining a lot of traction.

The main idea is to help parents and grandparents maintain financial independence while still protecting their assets. One of the most popular services is pre-paid Visa cards that come with controls that allow to block certain merchants.

For instance, if an old member of the family is suffering from dementia then another family member can block the card from paying for the merchandise that was ordered by the person. ‘Eversafe’ is another application that simply alerts people about a fraudulent activity or if a regular deposit is missing from their respective account.

Market Size and Forecast

  • The total transaction value of the overall fintech market in the US was estimated at around $1.76 trillion in 2018.

The market size of the different segment of Fintech market in the US are as follows:

  • In 2018, the digital payments segment was largest securing approximately transaction value of $961 billion. In addition, the total number of users in the segment were around 270 million during the same period.
  • In 2018, the personal finance segment total transaction was valued at $767 billion. The total transaction value was also highest in the US in global comparison. In addition, the total number of users in the segment were around 9.63 million during the same period.
  • In 2018, the total transaction value of alternative lending segment totaled $32.5 billion. The amount of loan deployed using online lending platforms resulted to 1687 thousands in the country.
  • In 2018, alternative financing segment had a total transaction value of around $1.6 billion. Further, the largest sub-segment was crowd investing accounting 53% of the segment with a total transaction value of $816.7 million in same period.

Market Outlook

  • The overall fintech market in the US is growing at a CAGR of 8.6% in 2019-2023 period and the total transaction value is expected to reach $2.88 trillion by 2023.
  • Secondly, the digital payment segment is expected to rise at a CAGR or 8.6% in 2019-2024 period and reach $1.3 trillion in transaction value by 2023.
  • Thirdly, the personal finance segment is expected to rise at a CAGR or 18.6% in 2019-2024 period and reach $1.5 trillion in transaction value by 2023.
  • Next, the alternative lending segment is expected to rise at a CAGR or 1.4% in 2019-2024 period and reach $34.3 billion in transaction value by 2023.
  • Finally, The alternative financing segment is expected to rise at a CAGR or 8% in 2019-2024 period and reach $2 billion in transaction value by 2023.

Distribution Chain Analysis

Some of the most flourishing fintech communities in the US are Silicon Valley, New York City and Boston but besides these places, US is also witnessing a cluster of other fintech hubs which are as follows:

Atlanta: The city is currently host to numerous fintech startups, incumbents and technology accelerators including the Techstars Atlanta Program. Some of the top digital payment companies such as NCR and WorldPay are headquatered in Atlanta.

Besides large companies, startups such as BitPay has become players in bitcoin payment allowing users to store, save and transact bitcoin via mobile or physical card. Other startups such as Ingo Money is headquartered in nearby Georgia is a leader in providing modern forms of exchange.

Finally, First Performance Global, a company innovating in authorization of payments using data analytics and automation to make businesses stay competitive is also placed in Atlanta.

Austin: The city is abode to traditional fintech companies such as banking technology provider Kasasa, mobile trendsetter Malauzai and digital banking solutions provider Q2 Holdings.

Most of the companies present in this city are innovators and have unique business models. Some of the new entrants in Austin are Draft which is the company that uses data analytics to help financial advisors to mitigate poor portfolio performances and build trust with clients.

Another company, Self Lender is focusing on the underbanked using digital savings plans and finally, Able, that is focusing on the small lending market (for SMB’s).

Miami: Miami is one of the emerging fintech hub at present within the US. The diverse demography of Miami is actually creating opportunities for fintech market. For instance, Waleteros, a banking app dedicated to serve underbanked US Hispanic customers.

The noble cause associated with its business model helped the company secure $520k of equity funding. Another application called ClassWallet is headed to help schools. The wallet helps streamline payments and processes for schools.

The app has already over $100 million transactions and total of $4 million in funding. Thirdly, InvestReady is another company that uses API integration to allow crowdfunding portals to verify investors simplifying tedious compliance and verification process.

Till date the company has successfully raised $120k in funding. Looking at the success of the region, more fintech companies are set to venture in Miami in near future.

Omaha-Lincoln, Nebraska: Both cities are separated by 50 miles of Interstate but are united when it comes to fintech. Omaha is thriving in banking scene anchored by First National Bank of Omaha while Lincoln has the largest tech talent pool coming mostly from its research institution, the University of Nebraska that has more than 25,000 students.

Some of the successful fintech startups in the region are Q2, Centrix Solutions, Zillow, Mortech, Fiserv and others. Other successful companies in the region include D3 Technology which is a leader in mobile banking that is helping institutions switch their outdated first generation mobile apps with data-driven solutions.

Lincoln’s Hip Pocket is financial wellness tool that is allowing users to save money with a swipe. Also, Embermine which is a smart contract platform dedicated to artists which allows these professionals to conduct safe & transparent transactions via blockchain without need of agents, lawyers or middlemen is also based in Lincoln.

Washington D.C.: The capital state of US is becoming an emerging hub for fintech companies. Most of these fintech companies are focused on lending, social finance credit and data analytics.

Some of the successful companies in the region are Wealthmider which is using digitized financial planning tools and investment recommendations enabled by data analytics to aid long term financial goals such as buying home or retirement planning.

Whereas, other companies such as FS card is re-designing credit by offering new options for small dollar loan customers and StreetShares is enabling social finance for small businesses allowing like-minded investors to fund small businesses through via auction process.

Competitive Factors

In 2018, in the US, VC accounted for more than 50% of the total 1061 deals that took place within the fintech sector.

These deals included massive $17 billion investment by Blackstone group into Refinitiv-formerly, the financial and risk group of Thomson Reuters, followed by $3.5 billion buyout of Blackhawk Networks by Silver Lake and P2 Capital Partners and finally $3.4 billion buyout of VeriFone by Francisco Partners.

The total of $100 million mark mega deals in 2018 were 773 in number up from 661 in 2017.

Some of the major mega deals in the US included, $392 million raise by Daaminr, $375 million by Oscar, $363 million raise by Robinhood and $300 million raise by Coinbase which altogether helped raise overall VC funding in Fintech to $11 billion in 2018.

The fintech investment not only increased in the US but also doubled in around the world to $111.8 billion in 2018. Among three of the biggest deals which were comprised of $10 billion plus was based in China, UK and US respectively. Overall Americas region saw significant growth in fintech investment in comparison to Asia and Europe.

The rise of fintech investment in the region was also majorly driven by the US where deal volumes in the fintech sector of the country is witnessing solid increases year-over-year.

In the first quarter of 2019, US accounted 7 out of 10 biggest fintech deals in the entire Americas region. In addition, US also seems to drive significant investments in other parts of Americas outside of the US.

For instance, companies such as Morgan Stanley, H&R Block and Advent International have invested in foreign companies. Prisma Medios De Pago- a payments company based in Argentina sold 51% stake to US based Advent International.

Similarly, in Q1 2019, US based fintech businesses also received $18.3 billion across 470 deals. The top deal was the $6.9 billion buyout of the firm Dun & Bradstreet by consortium of investors.

On VC front top three highest raisers were SoFi with $500 million, Carta & Affirm and with $300 million raise respectively. Among the segments, payments dominated fintech investment in the US and continues to become one the strong area of fintech investment.

The segment witnessed mostly B2B deals such as Mastercard’s acquisition of global P2P and B2B transfer company Transfast, JP Morgan acquisition of medical payment technology InstaMed.

Another segment in rise is Weathtech where investors are embracing digital platforms and Robo advisory in line with other products and services in order to enhance a value proposition.

Finally, the growing M&A deals witnessed in 2018 in the US is expected to continue in the second half of 2019 and is most likely to remain high on radar of corporate investors.

The banking sector in the country has still seen limited amount of M&A deals because of stringent regulatory approvals. Payment is expected to remain key segment for investment followed by security which will also be an expected area of investment in 2020.

Key Market Players

As of 2018, according to the market capitalization, the top 11 Fintech firms in the US are as follows:

  • Stripe
  • Coinbase
  • Robinhood
  • Ripple
  • SoFi
  • Credit Karma
  • Circle
  • Plaid
  • Avant
  • Gusto
  • Zenefits

Strategic Conclusion

The global fintech financing/investment reached a new level in 2018, with deals in US reaching all time-high. The US is a global leader in fintech but the adoption level of fintech in the country seems to remain lower even in comparison to developing countries in APAC region.

Thus, US needs to ramp up its fintech innovation across more niche areas to serve untapped markets where demand is present.

More regulations need to be established especially on cybersecurity and data front in order to make fintech not just innovative but a safe business. Although, millennial population plays a major role in driving fintech activities in the country, fintech businesses must come up with new business ideas targeting other age groups too.

There are plenty of opportunities for fintech to thrive in the US most importantly among which is forming partnerships, alliances and collaborations with giant financial institutions to grow and compete successfully.



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