Exploring Opportunities in the Following "Disruptive Fintech Ideas”
This year, we believe the global economy is undergoing the largest technological transformation in history. Disruptive innovation should displace industry incumbents, increase efficiencies, and gain majority market share.
As technologies emerge and transform entire industries, investors in traditional benchmarks may face more risk than historically has been the case. To help investors stay on the right side of change, Singular Research seeks to identify the industries and sectors most at risk of disintermediation and disruption. We aim to size Singular Flagship Fund’s current exposure to those areas.
Based on Singular Capital's research, we believe the industries that could be disrupted by innovation and how investors could explore opportunities in the following "Disruptive Ideas”
Open Banking
Embedded Finance
Rise of Mobile -Centric Banking
1. Open Banking
For centuries, “financial organizations” have relied on physical distribution to attract and serve customers. In ancient Greece, money changers gathered in Athens’ ports while, in Italy during the 14th century, Bardi, Peruzzi and Medici organized physical branch networks. Meanwhile, in the 20th and early 21st centuries, financial institutions have evolved modern branch banking.
Today the innovation of finance is accelerating at a rapid pace. The innovation will go global and some companies will do so faster. Now, however, the internet and smartphones are transforming the distribution of financial services. Thanks to cellular services, we believe smartphones are distributing financial services much more efficiently and cost-effectively. Digital wallets - bank branches in user pockets – are rendering expensive physical infrastructure useless, putting at risk hundreds of billions dollars of traditional financial institutions’ assets.
2. Embedded Finance
Shopify is based in Canada. The idea that Shopify is a $120Bn. business. That’s a bit of an anti pattern and this continues to show the dynamism in embedded finance. Embedded finance is a broad , banks have many products and distributed products. Embedded finance is the idea that you have financial products and you have non-financial companies embedding products into it.
To understand how embedded finance works, let’s take an example of platform
One way many Fintechs are creating a superior user experience for customers is with embedded finance. It’s a way to make financial processes like payments work seamlessly with other end-user platforms to make transactions easier and faster.
Take for example embedded finance and consumer Fintech startups such as Robinhood, Revolut and Coinbase. At the same time, enterprise companies have created the infrastructure that will make finance truly digital, from payments to API-driven integrations and risk assessment.
For users, the benefits of embedded finance include:
Increased convenience.
Faster transactions.
A more accessible interface.
3. Rise of Mobile Centric Banking Services
At Singular Capital, we have been tracking the usage of financial services across demographic factors such as income, occupation, and age between 2013 and 2017, the Federal Deposit Insurance Corporation (FDIC) reported a drop in the use of bank branches and an increase in digital and mobile banking.
Consider this, digital-only offerings such as Square’s Cash App, PayPal’s Venmo, Chime, and other digital wallets are benefiting more than banks from this change. When discussing their “Active Digital Users”, Wells Fargo, JP Morgan Chase and Bank of America disclose the percent of current customers using digital channels, but they do not disclose the extent to which digital is contributing to incremental customer acquisition.
Wells Fargo, for example, has disclosed that its digital active user base increased by 4 million during the last four years but net new checking account customers rose only 800,000, as shown below.
Over the same time period, challenger bank Chime increased its checking account users by 5.5 million, while the number of monthly active users (MAUs) shot up by 32 million on Venmo and 30 million on Cash App. Square also announced that active Cash Card5 users increased 7 million during the same time period. In our view, digital.
We believe the main reason for the explosive growth in digital wallets is lower customer acquisition costs. Compared to the $1,000 on average that traditional financial institutions pay to acquire a new customer, digital wallets invest only $20 thanks to their viral peer-to-peer payment ecosystems, savvy marketing strategies, and dramatically lower cost structures.
At the same time that consumers are abandoning bricks and mortar for on-line channels, occupancy expenses per bank branch have been escalating, hitting a record high of $550,000 as of 2018, as shown in Figure 2. In other words, the cost burden that branches place on traditional banks is increasing while their utility is decreasing.
Would like to learn more about how the above 3 Fintech segments will change how banking in the next 5 years? This Insider Report reveals How Investors can identify Long-Term Growth (10 Baggers) in the Public Markets