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Who will the winners be in the future of fintech?

Nik Milanovic
Contributor

Nik Milanovic is a fintech and financial inclusion enthusiast, with a decade of work across mobile payments, online lending, credit and microfinance.

So what happens when fintech ‘brings it all together’? In a world where people access their financial services through one universal hub, which companies are the best-positioned to win? When open data and protocols become the norm, what business models are set to capitalize on the resulting rush of innovation, and which will become the key back-end and front-end products underpinning finance in the 2020s?

It’s hard to make forward-looking predictions that weather a decade well when talking about the fortunes of individual companies. Still, even if these companies run into operating headwinds, the rationale for their success will be a theme we see play out over the next ten years.

Here are five companies positioned to win the 2020s in fintech:

1. Plaid

In 2014, I met Zach Perret and Carl Tremblay when they reached out to pitch Funding Circle on using Plaid to underwrite small and medium businesses with banking data. At the time, I couldn’t understand how a bank account API was a valuable business.

Plaid’s Series C round in 2018 came with a valuation of $2.65 billion, which caught a lot of people in fintech off-guard. The company, which had been modestly building financial services APIs since 2012, recently crossed the threshold of 10 billion transactions processed since inception.

For those unfamiliar with Plaid’s business model, it operates as the data exchange and API layer that ties financial products together. If you’ve ever paid someone on Venmo or opened a Coinbase account, chances are you linked your bank account through Plaid. It’s possible in 2020 to build a range of powerful financial products because fintechs can pull in robust data through aggregator services like Plaid, so a bet on the fintech industry is, in a sense, a derivative bet on Plaid.

Those 10 billion transactions, meanwhile, have helped Plaid understand the people on its’ clients fintech platforms. This gives it the data to build more value-added services on top of its transactions conduit, such as identity verification, underwriting, brokerage, digital wallets… the company has also grown at a breakneck pace, announcing recent expansions into the UK, France, Spain, and Ireland.

As banks, entrepreneurs, and everyone in-between build more tailored financial products on top of open data, those products will operate on top of secure, high-fidelity aggregators like Plaid.

The biggest unknown for aggregators like Plaid is whether any county debuts a universal, open-source financial services API that puts pricing pressure on a private version. However, this looks like a vanishingly remote possibility given high consumer standards for data security and Plaid’s value-added services.

2. Stripe

Predicting Stripe’s success is the equivalent of ‘buying high,’ but it is hard to argue against Stripe’s pole position over the next fintech decade. Stripe is a global payments processor that creates infrastructure for online financial transactions. What that means is: Stripe enables anyone to accept and make payments online. The payment protocol is so efficient that it’s won over the purchase processing business of companies like Target, Shopify, Salesforce, Lyft, and Oxfam.

Processing the world’s payments is a lucrative business, and one that benefits from the joint tailwinds of the growth of ecommerce and the growth of card networks like Visa and Mastercard. As long as more companies look to accept payment for services in some digital form, whether online or by phone, Stripe is well-positioned to be the intermediary.

The company’s success has allowed Stripe to branch into other services like Stripe Capital to lend directly to ecommerce companies based off their cashflow, or the Stripe Atlas turnkey tool for forming a new business entirely. Similar to Plaid, Stripe has a data network effects business, which means that as it collects more data by virtue of its transaction-processing business, it can leverage this core competency to launch more products associated with that data.

The biggest unknown for Stripe’s prospects is whether open-source payment processing technology gets developed in a way that puts price pressure on Stripe’s margins. Proponents of crypto as a medium of exchange predict that decentralized currencies could have such low costs that vendors are incentivized to switch to them to save on the fees of payment networks. However, in such an event Stripe could easily be a mercenary, and convert its processing business into a free product that underpins many other more lucrative services layered on-top (similar to the free trading transition brought about by Robinhood).

Pumpkin Spice Lattes may be back at Starbucks earlier than ever

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Hot Girl Summer is nearly over, and Basic Girl Autumn is just around the corner. We know this because pumpkin spice season may be arriving earlier than it ever has before.

A report from Business Insider cites Starbucks employees (and otherwise uncorroborated social media posts) as saying that the 2019 launch date for the Pumpkin Spice Latte will be Aug. 27 — a day earlier than last year’s official launch.

Giant jugs of pumpkin spice flavor-sauce arrived in stores at the beginning of August, as documented on r/starbucks (note the June 2019 batch date printed above the label):

On Aug. 7, Starbucks’ Facebook account posted a semi-cryptic clip of a pumpkin converted into a bootleg Magic 8-Ball to official pumpkin-spice fan group Leaf Rakers Society, suggesting the eighth month of the year. (The group is closed, but anyone can join.) The caption promises one clue a week, meaning the next is due on or around Aug. 14.  Read more…

More about Starbucks, Fall, Pumpkin Spice Latte, Culture, and Food

Starbucks partners with Alibaba on coffee delivery to boost China business

Starbucks is palling up with Alibaba as it seeks to rediscover growth for its business in China.

China has been a bright spot for some time for the U.S. coffee giant, but lately it has struggled to maintain growth — its China business dragged on its Q3 financials — and it is up against some ambitious new rivals, including billion-dollar startup Luckin Coffee.

One-year-old Luckin recently raised $200 million from investors and it has already built quite a presence. It claims over 500 outlets across China and it taps into the country’s mobile trends, with mobile payments and orders and delivery, too. Then there are some deep discounts aimed at getting new users, as is common with food, cars and other on-demand services.

In response, Starbucks is injecting some of that ‘New Retail’ strategy into its own China presence — and it is doing so with none other than Alibaba, the company that coined the phrase, which signifies a marriage between online and offline commerce.

The partnership between Alibaba and Starbucks is wide-ranging and it will cover delivery, a virtual store and collaboration on Alibaba’s “new retail” Hema stores.

The delivery piece is perhaps most obvious, and it’ll see Starbucks work with Ele.me, the $9.5 billion food delivery platform owned by Alibaba, to allow customers to order and receive coffee without visiting a store. The service will start in September in Beijing and Shanghai, with plans to expand to 30 cities and over 2,000 stores by the end of this year.

Starbucks is also building its app into Alibaba’s array of e-commerce sites, including its Tmall brand e-mall and Taobao marketplace. That’s a move that Starbucks President and CEO Kevin Johnson told CNBC would operate “similar to the mobile app embedded right into that experience” and open Starbucks up to Alibaba’s 500 million-plus users.

Finally, Starbucks is bringing its own “Starbucks Delivery Kitchens” to Alibaba’s Hema stores, which feature robots and mobile-based orders, that will combine Starbucks stores to boost its delivery capacity and speed.

Starbucks, as mentioned, needed a boost in China but the deal is also a major coup for Alibaba, which is battling JD.com on the new retail front as well as ambitious on-demand service Meituan. The latter is reported to have recently filed for an IPO in Hong Kong that could raise it $4 billion.

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Microsoft CEO Satya Nadella is joining the Starbucks board

satya nadella Satya Nadella is set to join the board of Starbucks. The Microsoft CEO was announced as one of a trio of nominees who, if approved by shareholders, will increase the size of the coffee brand’s board to 14 people. Starbucks said Nadella was put forward for his “invaluable insight in international operations and distribution” and, of course, his potential to strengthen… Read More

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