Fintech Evolves to Face New Pressures

By Peter Johnson

Neobanks Gain Ground with the Underbanked

Government stimulus payments have exposed the difficulties in providing immediate cash assistance to individuals and provided a catalyst for some to open accounts with new banking providers. Neobanks are already gaining ground on the underbanked with cost-effective accounts, and this crisis can accelerate the push. This will be exacerbated if a prolonged downturn leads to a “rolling stimulus” akin to Universal Basic Income. Retailers turning away from accepting cash for sanitary reasons accelerates the push as well – 6.5% of US HH’s are unbanked and wouldn’t be able to transact without opening a bank account.[1]

Unemployed/Underemployed Turn to Technology for Guidance

Record unemployment (and underemployment) will create opportunities to help these individuals navigate government programs, find income, and tap liquidity. Neobanks and technology companies can start by assisting individuals in navigating expanding government programs. Assistance receiving stimulus payments is a logical place to start, but can expand into managing unemployment benefits, food stamps, housing assistance, and other benefits from new and existing government programs. Assistance finding new income sources can also be provided, including helping individuals find gig-economy work, maximize their earnings on these platforms, manage tax compliance, and sign-up for benefits programs (e.g., healthcare and individual retirement savings). Lastly, these companies can help individuals manage the liquidity crunches they will face by providing faster payments for work completed, and helping individuals tap into other sources of liquidity such as easily borrowing against their homes or assets.

Credit Defaults Push New Solutions

The crisis will unfortunately result in massive amounts of consumer debt going unpaid and going into collections processes. To maximize recovery, collections will get smarter not only by improving how customers are contacted and the messaging and cadence of these contacts, but also by integrating with financial guidance (see above) to help people find the income and liquidity they need to repay their debts.

From the consumer perspective, economic downturns like this mean a painful cycle of default given job and savings losses, accompanied by resulting credit score declines in a tightening credit market. The result is a painful lack of access to capital that can drive up usage of predatory vehicles like payday loans. Through the last recession many alternative credit players have already cropped up, as have a variety of layaway and credit counseling models. Demand for these should grow and it would be nice to see some new models lessen the burden for families hurt by this period.

Banking Goes Fully Online

The crisis was also likely the nail in the coffin for many bank branches, as it accelerates the shift to online banking. This is a shift that we were already in the later innings of pre-crisis, but many banks had held out on transitioning higher risk services online such as account opening. These services now must be digital for banks to survive and will require the adoption of streamlined user onboarding as well as remote authentication and digital AML / KYC.

Trading Becomes America’s National Pastime

With sports shut down, people locked in their homes, and markets experiencing record volatility, individuals have increasingly turned to following the financial markets in place of following (and betting on) their favorite sports teams. Barstool Sports’ coverage of the markets is an exemplification of this shift. Somewhat counter-intuitively, brokerages have seen record account openings and inflows during the crisis as individuals turn to the markets for entertainment and to “buy the dips” and “sell the rips”. Longer-term investors are also seeing the crisis as a potential buying opportunity and moving in some of the record amounts of cash that have been on the sidelines in recent years. Interests in the markets could fall if stock prices experience an extended period of declines, but the government’s commitment to extraordinary measures to support the economy have thus far buoyed markets, and may continue to as the monetary expansion invariably flows into financial assets.

Remote Financial Advisory Takes Off

For investors working with financial advisors, the interactions with these advisors will be increasingly digital, and mitigate investors’ desire to have a local advisor they can meet with in-person. Financial advice will increasingly be provided on a national basis, where investors can be matched with the best advisors for their needs and provided access to a team of experts for more complex topics such as tax and estate planning. Estate planning, particularly around life insurance, wills, and trusts will likely see a near-term uptick as COVID leads people to contemplate their mortality. Interactions with financial advisors will increasingly be facilitated by technology that allows advisors and investors to aggregate and analyze their financial positions. Benefits will accrue to large technology-enabled players that can operate on a national scale, and put pressure on smaller, lower-tech local advisory firms, as well as larger legacy players that are unable to utilize technology to adapt to this new environment.

Insurers Develop New Policies

When we came out of the last recession, we asked how insurers were going to cover personal/commercial use vehicles in gig economy. Coming out of this crisis, we are now asking how this looks when that side of things scales dramatically, and when physical space also becomes both live/work and flexible use. Homeowners insurance may be adapted for these live/work arrangements, auto insurance may become increasingly usage based, and new hazards related to COVID will need to be considered. Underwriting and claims may become increasingly remote and leverage data collected from a wide array of sources.

Contactless Payments Limit Privacy

One of the most obvious, but least exciting, outcomes of the crisis is that it will likely be the catalyst to drive adoption of NFC for payments and contactless payments and banking in general. This shift is not exciting from an investment POV as the benefits will largely accrue to Apple and Google, who control phone-based payments.

But the rise of contactless payment, and non-cash payment generally, means less opportunity for anonymity in buying. Most benefits of this move should accrue to Apple and the Apple card, but a number of upstart efforts at burner cards should gain ground.

Bitcoin Goes Mainstream

On the flip side, one of the most exciting and dramatic changes we expect is that Bitcoin will become a mainstream financial asset in investors’ portfolios. As the countries around the world provide massive monetary stimulus to stabilize and prop-up their economies, investors are becoming increasingly aware of the eventual inflation risk of these actions. These investors are now looking for hard assets that act as stores of value and perform well in high inflation rate environments – and are increasingly concluding the Bitcoin fits this bill. Recently, Paul Tudor Jones, one of the greatest macro investors of all-time with a net worth exceeding $5bn, announced that he was allocating part of his fund to Bitcoin to protect against the “Great Monetary Inflation” we are experiencing. This announcement has provided cover for other institutional investors to follow his lead and allocate assets to Bitcoin, and we expect this is a trend that will dramatically accelerate in the coming months and years.

How have the lockdowns impacted your approach to your finances, and have you been day trading for entertainment? Tell us. And check back next week for the final post in our series, highlighting how this crisis also benefits areas like legal tech and fancy takeout.

To see previous posts on education, cities, retail, CPG and entertainment or to read the intro to this series, please go to


[1] “Cash Me if You Can.”, October 2019.

By Peter Johnson

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