Everywhere we look it seems like the world is in chaos, 5% of California is burning, a global health pandemic has become political and we are seeing racial divisions widen the already cracked foundation of our country. And yet, among the chaos — fintech has the wind at its back. Regardless of who wins the election, the power of fintech is here to stay.
Globally there are over 66 fintech unicorns valued at over $248 billion. Consumers and SMBs benefit from the transparency, democratization, cheaper, and more efficient products, reducing friction in their lives. We’re seeing massive acceleration for the disrupters facilitating the transformation from analog to digital —
a trend that began long before COVID and has accelerated dramatically since. We have seen this firsthand in our portfolio. Remitly, Current, Albert, AvidXchange, among many others, are all on fire.
Despite the rapid gains of the tech-enabled economy during COVID — we often hear companies say they have experienced a decade of digital transformation in four months — the Trump administration’s financial services agenda has seen some positives for large incumbents and innovators alike. Congress passed legislation focused on the priorities of large regional banks, the Federal Reserve loosened capital standards for the money-center banks, and large banks are beneficiaries of the corporate tax cut windfall.
On the innovation side of financial services, Square achieved an ILC charter, Varo Money received a national bank charter, and we saw an ambitious but unrealized innovation agenda outlined by the FDIC and OCC.
Typically, industry analysis of potential election results highlights the narrow regulatory wins or losses that could be expected from a new administration. When it comes to Nov. 3, I’m optimistic that fintech will keep the wind at its back regardless of who wins. But in these uncertain times, it’s worth examining how much stock the fintech industry should put in a continued deregulatory push versus the broader innovation landscape of growth, talent, and competition.
Talent recruiting has been a roadblock for many fintechs. A Biden presidency may make it easier to attract high-skilled foreign talent to America’s tech hubs. Many in fintech, including our own portfolio companies, would welcome this change. Talent is a key component to growth.
It’s trite to say a blue ticket means more regulation and stronger antitrust and a red ticket the contrary. Certainly, the past four years have seen large M&A transactions, but it's not so black and white. Just in the past few weeks, we’ve seen the Department of Justice sue Google under the antitrust laws and scrutinize Visa’s acquisition of Plaid.
One thing that we repeatedly learn in venture capital is the truth of Clay Christensen’s framework that disruption happens from below. If Trump wins, there’s no reason to believe the winds will shift against fintechs, as we have seen from the past four years. If Biden wins, there’s also reason to believe fintech will continue its upward trajectory. His agenda includes a focus on more and larger stimulus, rural broadband, investment in financial inclusion and low-income and minority communities. A Biden presidency would promote inclusion, not to mention a higher minimum wage. These efforts don’t have any direct bearing on fintech, but they hold the promise of restoring economic dynamism to hard-hit communities and creating fertile ground for new and innovative approaches to financial services.
A problem we will continue to grapple with is fintech’s role in reducing inequality. Income inequality in 2018 reached the highest level since the U.S. Census Bureau began measuring it five decades ago. Sixty million Americans have a hard time qualifying for credit cards and other loans. There is fear of what our dear friend Mark Zandi calls a “K-shaped recovery” — the wealthiest Americans recovering quite quickly, while those who are traditionally lower, middle income and more often underserved by financial services, get left behind. In 2017, the number of unbanked households in the U.S. was 8.4 million, with an additional 24.2 million households considered unbanked.
With NPS scores consistently higher than their peers, many fintechs are well positioned to serve these consumers. Fintechs offer fair, transparent, and customer-first services to traditionally underserved populations, in a low-cost digital manner. One sector doing this well is income-streaming. Income-streaming gives employees access to their earned wages through an employee offering. Companies such as Wagestream, Rain, minu and Xerpa have stepped up to the plate to allow consumers to empower their financial lives.
A constant refrain for us as fintech investors and advisers is that the only thing we know about the next six months is that it won't go according to plan. Managing uncertainty at this scale is an exercise in jiu jitsu — identifying the threats and leaning into the opportunities. There are powerful trends pushing financial services to be more digital, more creative, more accessible, and more fair. We encourage our companies to keep their eye on those trends as they prepare for choppy waters heading into Election Day.
Our team, and the entire financial services industry, has spent loads of time talking about the upcoming election. The reality is whoever occupies 1600 Pennsylvania Avenue in January has no choice but to embrace fintech. Fintechs have come of age and either administration should support the innovations these companies produce. Why? Innovation of financial services is good for consumers and SMBs alike. It can help close the inequality gaps that exacerbate the polarization of our society. Fintech is coming of age to the great benefit of consumers and SMBs, and it needs continued support and encouragement.
