Four important and interlocking trends will drive this.

1. Fintech is yielding mega rounds and successful exits

Plaid is not alone. While historical fintech acquisitions have been smaller, early signs indicate incumbents have a growing appetite for larger deals. The last couple years have seen an acceleration of large fintech acquisitions and funding rounds. For example, Paypal completed its largest ever acquisition, Honey for $4 billion.

Incumbents have also been active: Charles Schwab purchased TD Ameritrade for $26 billion. Infrastructure players, “Fiserv Inc., Fidelity National Information Services Inc. and Global Payments Inc. did a series of deals that transformed payment processing in the U.S.”, according to a Bloomberg analysis. There of course have been some recent IPOs as well, notably Bill.com’s at approximately $1.6 billion.

The pipeline of fintechs is growing too. The quarterly funding for fintech has been on the rise over the last few years (excluding the exceptional Ant deals). In 2019, there were over 59 mega rounds, defined as over $100m, globally (and this is only to Q3).

This is set to continue. There are an increasing number of fintech funds, and mainstream funds where fintech is part of the allocation. As a result, we will see an acceleration of ever larger innovators and ultimately (hopefully) large successful exists.


2. Fintech is maturing and providing a more holistic solution for customers

The rebundling of fintech has been part of the narrative for some time. Challenger banks are one of the most direct manifestations of this phenomenon by placing themselves closest to a customer’s money and paycheck, providing intelligent insights for financial health and connectivity to best in class fintech products.

In 2019 Challenger banks had a blockbuster year and raised over $3b (over a billion of which in Q3), including for instance Chime’s most recent $500m round (disclosure the fund I work for is an investor). Today, there are 75 challenger banks around the world. They will fight to acquire users and to scale.

Challenger banks are not the only players to rebundle. A range of fintech players are expanding their product range – for example Robinhood and Acorns who recently added high yield savings. And of course, many incumbents are looking to create digital first offerings and this will accelerate as well.

3. Fintech’s globalization is accelerating

There are now leading fintech innovators scaling around the world. One of the largest digital banks in the world is Nubank, based in Brazil. The most famous mobile-banking player is in Kenya. The largest payment and insurance innovators are in China, Ant and Zhong An respectively.

The rise of global fintech deal activity has accelerated. In Asia for instance, deals spiked last year, and nearly overtook the US according to CB Insights. South East Asia saw a record over 80 deals and over $700 million invested (up from $125m in 2016). Africa saw deal volume double from Q3 2019 yoy.

Importantly, fintech is becoming more global itself. ideas that originate in some locations are being improved and evolved elsewhere by others. A more recent phenomenon is the number of fintech players that are scaling across borders.

4. Fintech is causing incumbents to react

Fintech is going mainstream. According to the Global Fintech Adoption Survey, staggeringly in 2019, 96% of survey respondents were aware of at least one fintech service. 75% had used a money transfer or fintech product. The report rates adoption at 64%, 4x the rating in its first year of publication in 2015. Fintech is no longer fringe, it is mainstream.

This is driving behavior change among incumbents. For instance, as Robinhood scaled, we’ve seen incumbents change their business models and offer fee-free trading, for instance Schwab and TD.

2020 may be the year of fintech

Combining these trends presents a powerful future for fintech. Fintech exits are becoming proven. More capital is being poured in to support the next wave. Fintech’s scale is affecting incumbents industry wide. This is not just happening in the US, but globally. And of course, fintech solutions are becoming more harmonized in customer facing ways, as challenger banks demonstrate.

Plaid’s acquisition in that way, as both a key enabler in fintech, and a powerful example of the value they create, is a bellwether for the industry.