A weekly five-point roundup of critical events in fintech, the future of finance and the next wave of banking industry transformation.
How Plaid’s Pipes Made Their Way Into Every Bank
What happened: One in every three Americans with a bank account now has access to Plaid, a remarkable rise for a start-up that’s only a decade old.
Why it’s important: The app economy needed more efficient plumbing than what could be provided by traditional finance. An almost-purchase by Visa has kept the company private, and that may mean that Plaid’s ambitions end up threatening those financial institutions it currently works alongside.
What’s next: Plaid clearly has ambitions to “make old-school banks look like Blockbuster video.” Visa, whose effort to buy Plaid was thwarted by antitrust regulators, once described the company as an undersea volcano, whose true power had yet to be seen. Expect an eruption soon. (By Jenny Surane, Bloomberg)
Traditional Finance, Once Derided as Paper Hands, Now Prepared to Hodl
What happened: Traditional financial institutions have long turned up their noses at the prospect of helping customers hold or trade crypto assets. Now they’re building or investing in ways to do just that.
Why it’s important: Trusted entrants could lead to more trading. “‘The large, pedigreed, traditional institutional investors definitely prefer dealing with counterparties who they know have been in existence for years and have been regulated in the traditional sense,’ said Gautam Chhugani, senior analyst of global digital assets at Bernstein.”
What’s next: Look for the civil, criminal, and regulatory pressure on industry leader Binance to go from warm to scorching. There are already many hoping to see it fail. If traditional institutions believe its loss can be their gain, there probably aren’t many buttons they won’t push to make it so. (By Nikou Asgari, The Financial Times)
The Bank Failure Fallout: 10 Predictions
What happened: Silicon Valley Bank and First Republic collapsed. Now comes a guess at what happens next.
Why it’s important: The rise of risk officers and an absolute shellacking by regulators are only two of the many possible next steps for banking. What matters to the banks themselves versus what’s important for clients, businesses, and investors are two very different things. Just assume that in the near term there will be a lot fewer banks with non-diverse client profiles, and that has repercussions for everyone.
What’s next: That’s precisely the point: to figure it out. But at least we now have a way of measuring these very specific predictions. (By Editorial Staff, American Banker)
One of FinTech’s Oldest Start-Ups Finally Turns a Profit
What happened: U.K. FinTech Monzo earned a profit for the first time in its history in the first two months of 2023, largely on the strength of increased lending interest, which was up nearly 400%.
Why it’s important: FinTech viability is a question that’s asked about on either side of the Atlantic, but especially in the U.K. where the assumption is that a slow, invasive regulatory process is helping to kill off potential upstarts like Revolut. Monzo’s profitability may help snuff out those questions. But it comes only after the company moved its headquarters from London to San Francisco, and with a customer base that seems increasingly reliant on loans to pay for cost-of-living increases.
What’s next: Full-year profitability is still a year away at least, according to the company. And a continued dispute with U.K. regulators and the company’s move means that there will always be more questions about the island country’s tech friendliness. (By Ryan Browne, CNBC)
Crypto’s Biggest Investors Searching for Newest Shiny Thing, Just Like Rest of Industry
What happened: One of the most stable, active crypto VC firms, Paradigm, recently scrubbed mentions of crypto and web3 from its website in an apparent attempt to broaden investments into other industries, like AI.
Why it’s important: Crypto’s promise to, among other things, overturn traditional finance was built and funded off of the eager investment from, mostly, Silicon Valley-based venture capital firms like Paradigm. The fact that they among many others have begun to diversify doesn’t prove the dream is dead, but at the very least on something like a permanent hold.
What’s next: The collapse of FTX slowed crypto VC investments and cost Paradigm $300 million. “Venture capitalists put around $2.8 billion into crypto investments in the first quarter of 2023, down from about $3.5 billion in the fourth quarter of 2022, according to data tracked by The Block Research.” That number may look even lower soon. (By Yogita Khatri, The Block)