FinTechs are the new bank around, but big financials are fighting back


By Paul R. La Monica, CNN Business

Fintech giants Square and PayPal are storming Main Street. More and more consumers, especially younger ones, are using services like Square’s Cash app and PayPal’s Venmo for mobile payments.

But banks and other traditional financial services firms are fighting back – and investors have taken note.

Goldman Sachs is the best performing stock in the Dow Jones this year, rising 55%. American Express is not far behind, up 45%. Both companies have started to embrace digital banking as a way to attract new customers.

Goldman Sachs, for example, has grown beyond its roots as a leading investment bank and wealth manager for the rich, thanks to its online bank Marcus. The platform, launched in 2016, does not have an agency and offers personal loans at no cost.

“There is no doubt that the businesses we are involved in are digitizing rapidly,” Goldman Sachs CEO David Solomon said on a conference call with analysts earlier this month. “I think there is a significant acceleration in the disruption that the digitization of financial services is taking place.”

American Express is also refreshing its slightly heavy image. The company announced new digital control and savings plans for small and medium-sized businesses on Thursday. As part of the rollout, AmEx even launched its very first debit card.

“It’s part of a multi-year strategy to go beyond the credit card. This is the latest manifestation of that, ”said Dean Henry, executive vice president of global corporate finance, payments and digital experiences at AmEx, in an interview with CNN Business.

“We have an obligation to go where customers transact,” he added. “A debit card is new to AmEx. We are modernizing the network and keeping pace with the payment types that are popular. “

Large financial firms also recognize that partnering with fintechs can be extremely lucrative.

“Fintechs have also fueled our growth,” Visa CEO Al Kelly said on a earnings conference call on Tuesday. “In the past year, almost 30% more fintechs have issued Visa IDs, and they have more than doubled their payment volume. “

Buying now and paying later is all the rage

The initiatives of Goldman Sachs, AmEx, Visa and others are a sign that traditional financial firms are realizing they need to keep pace with Square, PayPal and other leading fintechs that are getting bigger by the day. Stripe, a private payments company, is now valued at $ 95 billion, and the fintech ‘buy now, pay later’ (BNPL) Affirm, recently associated with Amazon, Walmart, Target and other retail giants in the world. detail.

Affirm, which allows customers to pay for their purchases in monthly installments, went public earlier this year and shares have more than tripled since then.

Claim rival Klarna to be another prominent private ‘unicorn’ valued at $ 45.6 billion. And Square bought Australian startup BNPL Afterpay this summer for $ 29 billion.

Visa’s competitor, Mastercard, also recently unveiled its own BNPL program, dubbed Mastercard Payments.

The trend to buy now and pay later is clearly not going to go away anytime soon.

“Everyone’s talking about it,” Jeremy Barnum, CFO of JPMorgan Chase, said in a conference call with analysts earlier this month.

“We are at a time when we take all types of potential disruptions very seriously, especially fintech-type disruptions. And in the case of BNPL, that’s obviously particularly noticeable because of the growth we’ve seen, ”Barnum added.

And JPMorgan Chase CEO Jamie Dimon has vowed the bank will also keep pace with its emerging fintech rivals.

“We’ll spend whatever we have to spend to compete with all of these people in our space,” Dimon said during the call for results.

Still, big banks will need to be cautious about how the fintech world evolves. Washington regulators are keeping a close watch on financial giants.

To that end, Visa was forced earlier this year to abandon its plan to buy start-up Fintech Plaid due to antitrust scrutiny.

And the Wall Street Journal reported Thursday that the Justice Department is now reviewing Visa’s relationship with Square, PayPal and Stripe as part of a larger investigation that Visa first disclosed to investors in March.

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