Understanding the Fintech Landscape: Key Players and Market Dynamics

The fintech revolution is reshaping our world, changing how we handle money, pay for goods, and access financial services. From cashless payments to digital-only banks, the fintech landscape is evolving at breakneck speed. A few months ago, we began exploring this exciting sector with a breakdown of Adyen. Now, over the next six weeks, we'll dive deeper into payments and the companies driving these innovations.

In today’s article, we'll explore the fintech landscape, its key players, and market dynamics. If you want to stay updated, sign up below to receive our emails.

A Very Brief History of Fintech

Fintech, short for financial technology, is still relatively new compared to centuries-old banking. Roughly a generation old, fintech has transformed how billions worldwide interact with financial services.

While there's room for debate on fintech's origins, for me it starts with PayPal. PayPal was born in 1998 thanks to the proliferation of personal computers and the internet. It revolutionized online payments, making it easy to transact worldwide without leaving home.

The company survived the dot-com bubble bursting and eventually went public in 2002 before being acquired by eBay. Of course, PayPal was spun out of eBay some years later, which turned out to be a smart move.

In the 2000s, companies like LendingClub and Prosper emerged to democratize access to credit. They allowed individuals like us to buy portions of consumer loans and earn interest. Over time, consumers slowed down their investments on these types of platforms and institutional money has filled its place.

In 2009, Square turned mobile devices into point-of-sale systems, revolutionizing small businesses. It’s also the year that cryptocurrencies started coming into existence with DeFi, or decentralized finance, looking to challenge the traditional financial system.

In 2010, Stripe made an appearance on the scene. Stripe made it easy for software engineers to build applications that accept payments. Rollout of SaaS based software became much easier, subscription services began to proliferate the tech landscape.

Later years brought us neo-banks, allowing consumers to have a digital-first bank without branches. I use a branchless bank myself, and it's been fantastic.

In the late 2010s, buy now, pay later services emerged. While loans have existed for centuries, financing a pizza over six months was a novel idea for this generation. I jest, but you could finance a pizza, although the more likely use case is a clothing shopping spree or electronics buy.

There’s a lot that has happened over the last 30 years, and there’s still a lot to come.

Fintech Segments & Leaders

Fintech itself is a huge umbrella term for a number of segments and use cases. Let’s take a look at the various segments, and highlight some leaders, along with what the future might look like.

Payments

First, and the one we’ll be discussing in more detail over the coming weeks, are payments. This is the largest arm of fintech with trillions of dollars being processed and billions in profits being made.

Names in the space include Adyen, a company we’ve broken down in the past, Stripe, Shift4, PayPal, Block, and so many others. Why so many? Well, they’re competing over a huge pie and there’s room for many participants.

Adyen, for example, got itself established by ensuring customers could accept payments anywhere in the world. Toast got its foot in the door with restaurants. PayPal got there by being one of the internet’s first big businesses, and Square helped small businesses take credit card payments before it was cool.

I mentioned a huge pie, got hungry, but now I’m back. That pie, considering just transactions from Visa and Mastercard is worth trillions of dollars. Visa reliably does north of $3 trillion in payment volume every quarter. Mastercard clears $2 trillion. We’re looking at north of $20 trillion in payments worldwide per year, and we’re only talking about Visa and Mastercard.

Every card swipe in the world incurs some kind of fee (usually 2%), and all these companies are trying to capture their piece of that 2%. Some of the companies listed above will also make money on cash based transactions through point-of-sale systems (usually subscription revenue).

Then, to add, there’s a vast amount of the world’s population that is either unbanked, or underbanked. That $20T that Visa and Mastercard process is just scratching the surface on transactions - there’s plenty more pie in the oven for names in this space.

Of course, there are challenges. Major challenges in the payments space come in the form of regulatory hurdles (“regulatory hurdles” is going to be a rather common theme). Companies typically have to be licensed, and sometimes have operations in countries where they do business. Look at Ayden’s global acquiring map (above). The company is licensed in many countries, but has to rely on partnerships to cover the globe.

Competition is also fierce. It comes from startups and other fintech names, but this space is also full of legacy providers like Chase and Worldpay. As noted in the Adyen article, the fintech names do have a significant advantage over legacy providers due to their agility and much newer code bases.

Getting to a total addressable market for payments, it’s tough. Statista suggests digital payments could be $16.5T by 2028. You’d also have to add in POS subscription revenue, real-world transaction volumes, and growth in transactions worldwide. The best estimate I’ve found comes from JP Morgan which puts the market at north of $50T per year.

Not all this value can be captured by the payments providers, so a conservative 1% still leaves $500B (and growing) on the table for fintechs in the payments space.

Banking

Banking is dominated by legacy names in the United States. Names like Bank of America, or JP Morgan. Outside the U.S. though there are a number of neobanks looking to democratize access to financial markets.

Brazil’s Nubank (NU) is one of the larger fintech names in the space. At the time of writing Nubank is valued at over $100B and just recently surpassed 100 million customers in Brazil, Mexico, and Colombia.

Other names in the space include Chime, Revolut, SoFi and Monaco. The largest is Ant Financial, a Chinese bank one-third-owned by Alibaba. It has 1.3 billion users.

When it comes to growth in the fintech banking market, it’s likely that most of it comes in Asia, Africa, and Latin America. Europe and the United States have a long history of banking, and the legacy firms are very much entrenched. Think about it for a minute... when was the last time you switched bank accounts?

Challenges in the space will largely be regulatory. Neobanks operate without branches, and they try to flex across borders. That latter part, international, is where we could see some names become mega-sized businesses, but regulatory hurdles in different nations could slow them down.

The TAM though is worth it, especially if these companies can get into a “banking-plus” kind of mode. The plus there being brokerages, crypto, insurance. Once you have an established customer base, there’s a lot you can do.

Transaction value in the neobanking market is expected to cross $10T by 2028.

Lending

Lending is, to me, the most interesting category of fintech. It’s interesting because I feel it’s the most “moatless” from the perspective of customers, and incumbents have little power to stop challengers.

First, let’s consider the buy now, pay laters of the world. These services, like Affirm, Klarna, and AfterPay allow consumers to finance everything from a Dominoes pizza all the way up to a complete home cinema. Consumers, especially younger ones, love the idea, but they’re not tied to any one provider.

PayPal started offering buy now pay later (BNPL) options, Shopify also integrated into their offerings. Apple allows you to BNPL on your latest iPhone and the credit card companies (American Express, Chase) allow you to retroactively BNPL on large purchases.

So, a very large market, but lots of competition.

There are a couple of other varieties of lenders though. There’s the likes of Upstart, a company that helps banks make loan decisions using a proprietary machine learning model. There’s also companies like LendingClub which offer crowdsourced loans.

All told, lending is as big as the economy itself. There’s a world where people finance everything, subscribe to everything they “own” without ever actually paying it off. That’s a world where the likes of Affirm and Klarna dominate.

To truly succeed, those in the lending arm of fintech may have to find early success and then branch out to other products. We’ve seen Affirm do this with a credit card, and its own shopping app where businesses accepting Affirm are consolidated.

We will cover lending in much greater detail a few months from now. Again, please do subscribe if you’re interested in that.

Wealth, Property, and Insurance

Finally, an amalgamation of offerings. Wealth, property, and insurance.

Wealth management includes companies like Robinhood and Coinbase, which challenged and changed the investing landscape.

Much like we’re seeing across fintech, the path from here for the likes of a Robinhood is to add on other fintech services. We’ve seen them expand into banking, and a credit card is slowly rolling out.

On the property tech front “proptech” you have companies like Redfin, Opendoor, and Zillow. These names look to break apart the traditional ways of buying real estate, and have succeeded for the most part. Opendoor, for example, allows you to sell your house right now (I’ve sold to them before, it was as wild as it sounds).

Then, the trickiest arm of the fintech world is insurance. There are plenty of opportunities here, but few have taken off and really challenged the incumbents. My off-the-cuff prediction is that the most successful insurance tech businesses will likely support the legacy names.

Insurance is a messy business filled with underwriting, claims, reinsurance, and disasters. A large company could be formed that tackles one of those, assisting the likes of Geico and Progressive along the way.

Fintech As A Whole

As a whole, fintech is and will be a fantastic opportunity for entrepreneurs and investors. While there is still a lot of juice left in the squeeze in developed markets, it’s the emerging markets where mega fintechs are likely to arise.

Regardless of where they emerge or their niche, all fintechs face similar challenges. Customer acquisition, especially from incumbents, rising interest rates, depressed economies and the big one, regulation.

They all also get to benefit from advancements in technology. Generative AI will allow for hyper personalization of financial products and services. APIs will bring an openness to banking that has not been seen before. Even blockchains can get involved and help facilitate worldwide transactional settlement and more seamless know your customer (KYC).

Future tech could also find its way to fintech. Quantum computing, while seemingly full of hot air at the moment, could come to fruition. The speed at which calculations could be done might open up an entirely new world of business optimization and asset allocation.

All told, fintech is a fascinating and growing landscape. It’s changing fast, and there’s a lot to keep up with. We’re going to break down some of the publicly traded names in the space over the next couple of weeks on TechBreakdowns.com and over on YouTube if you’re interested in diving deeper into this space.