The world has experienced a seismic shift over the last year and a bit, and the effects are about to become evident as we start to move into a post-pandemic future. Financial services are one sector where we are seeing major changes, especially in the role that fintechs play in the world of money.
In the Deloitte study ‘Fintech 2021’ a ‘second wave’ of fintech activity is predicted and the authors write: “Despite the Covid-19 pandemic we appear to have entered a new phase in the evolution of the financial technology sector.”
To start with the traditional financial institutions are pursuing partnerships with fintechs, or those identifying as technology companies, so that they can access new markets. The fact that more of these institutions are now engaging with digital assets is a clear sign of this. Visa’s CEO Al Kelly recently stated why his company is moving in this direction: “We’re trying to do two things. One is to enable the purchase of bitcoin on Visa credentials. And secondly, working with bitcoin wallets to allow the bitcoin to be translated into a fiat currency and therefore immediately be able to be used at any of the 70 million places around the world where Visa is accepted.”
Morgan Stanley is another giant that is moving in a crypto direction. It is “eyeing up a $441m play for a stake in South Korea’s largest digital asset exchange, Bithumb,” writes Maxim Bederov, who then points out that Bithumb’s exchange volume “recently exceeded mainstream equity stock market volume.”
Morgan Stanley’s move came only days after its analysts published a report: “The Case for Cryptocurrency as an Investable Asset Class in a Diversified Portfolio” arguing for a 2.5% allocation for sophisticated investors. It also noted that cryptocurrencies as an asset class, “has crossed the critical thresholds of market liquidity, regulatory scrutiny and institutional acceptance.”
Who else is buying? Paypal has confirmed it is buying crypto-security firm, Curv, on top of providing a crypto buying service to its users. And we are likely to see many more mergers and acquisitions in this space “as power consolidates upwards from crypto-asset startups to institutional giants.” Bederov says.
And, after the Covid crisis we are also seeing a major shift to cashless societies: an outcome of the fear surrounding touching coins and bank notes which were seen as a source of spreading the virus. As a result, there was massive growth in the use of contactless payments. In the UK, the limit for contactless payments was elevated twice in the past year. The limit increased from £30 to £45 in March 2020 (a modest 50% hike) then by over 120% in March 2021 to £100.
Consumers are moving away from cash at record speed, according to a major new report by FIS Worldpay. The annual 2021 Global Payment Survey found that e-commerce exploded in 2020. The use of cash has declined by 42% since 2019, and the report says cash will be the least-used traditional payment method within four years. It also states, “by 2024, digital wallets, credit and debit cards will account for 84.5% of e-commerce spend.”
Bederov concludes by saying, “Whatever results in the near term, this powerbase tussle between cryptocurrency, cash and central banks will be the defining fintech battle of 2021 and beyond.” The signs are good for a fintech victory.