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The Future of Fintech: Embedded Finance, Quantum Computing & More


By David J. Blumberg, founder and managing partner, Blumberg Capital

Over the past ten years, fintech has developed from an ‘emerging technology’ into a mature industry. There has been increased adoption by the general public and businesses of all sizes and shorter selling cycles. In fact, the current fintech market share is worth more than $187 billion and investments in the space have increased from $2 billion in 2010 to $35B in 2019.

Fintech use has been on a steady rise and the COVID-19 lockdowns have further accelerated adoption. For example, there  has been a decisive move away from cash and towards contactless payment or digital methods. Recent data found that almost half of consumers only use digital banking services for their financial needs.

Now more than ever, consumers worldwide are ready, willing and able to adopt new fintech solutions, and this increase in adoption is putting wind in the sails of entrepreneurs and investors in the field.

How fintech met the COVID-19 challenge

 Throughout the pandemic, but especially as we enter the recovery phase, financial technology has allowed organizations to not only create new ways of providing value but also to position themselves for success in the longer term.

Fintech provides businesses with the agility needed to quickly create and deliver new solutions – whether that’s in property management, insurance or cybersecurity.

As social distancing and remote work has become normalized, the consumers’ use of online – and especially mobile – fintech solutions will continue to advance the state-of-the-art, providing new functionalities and superior customer experience.

It is remarkable how resilient our fintech lending portfolio, notably Lendio, Fundbox, Katapult, Credorax, Easyknock and others have been through this unprecedented period of financial stress and volatility. Part of the success of these companies has been their superior underwriting models and algorithms leveraging AI and big data to make better decisions in real-time. And against all predictions, the default rates have remained reasonable. Moreover, these companies have benefited from stable and improved terms from their lenders despite steep market gyrations.

What is the future of fintech?

 While the fintech industry has grown rapidly over the past decade, there are exciting new trends on the horizon:

  • Embedded finance: There is a significant movement toward the integration of financial services within the offering of non-financial businesses. This can be seen in the form of distribution platforms, connectivity as a service and infrastructure as a service. Examples of companies that have executed on this include Lyft, Amazon and Shopify, as well as our portfolio companies Shyft, a digital moving company and WorkJam, a mobile-first workforce employee engagement solution.

The benefits of embedded finance are abundant, providing more efficient distribution, added credit facilities, monitoring and other products to consumers, enhanced customer loyalty and new revenue streams. Notably, the fintech business model can more than double revenues per user versus a standalone software subscription.

  • Quantum computing: While still in the early stages of development within the financial industry, capital markets are becoming more and more interested in the potential of quantum computing.

When applied to fintech, quantum technology can boost computing capacity, increase the speed of transactions and reduce the amount of energy used for processing. Among other things, this allows businesses to scale their processing at a much lower cost.

  • Neobanks: Lastly, the rapid growth of digital and mobile banking has led to the development of digital-only neobanks, which are proving to be a sustainable business model. Currently, an estimated 9 million Americans say they already have – or are planning to – open a digital-only bank account.

The reason is simple: as convenience becomes more of a commodity, consumers are less and less willing to go into physical bank branches. Additionally, neobanks typically offer lower fees and a better user experience than traditional banks.

  • Identity & Anti-Fraud: The demand for intelligent comprehensive solutions is rising as the world becomes more virtual and criminals increasingly target digital assets. Companies such as Trulioo, BioCatch and IntSights are ensuring compliance, preventing fraud and mitigating digital theft for many of the leading global financial service firms.

A bright outlook

 Over the past decade, fintech has proved to be an industry burgeoning with innovation and able to onboard new customers with relative ease. If history is any indicator, the fintech sector is poised to generate new and transformative solutions for many years to come.

 Given their wide range of capabilities and uses, fintech companies are well positioned to not only survive the crisis but continue to contribute to society in meaningful ways once the lockdowns are behind us.

This is the first of a series of fintech content we’ll be launching leading up to industry conferences LendIt FinTech, Money 20/20 and CBInsights Future of FinTech. Check back for research, video interviews with portfolio company CEOs and more.

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