All of the interest in financial services at the moment has gone to the newest kids on the block: cryptocurrencies. With bitcoin now eclipsing $15,000 and Coinbase adding over 300,000 users in one week alone, it’s easy to understand why.
While cryptocurrencies stole the spotlight, a clutch of companies were discreetly working behind the scenes to gradually bring the financial services establishment to its knees. It may turn out that these startup entrants of the last many years will end up being the greater relevant disruptors.
Earlier this season the “fintechs” hit an enormous milestone, one which not many people noticed but which must easily be keeping senior execs at banks, credit card banks as well as other institutions up during the night. In June of 2017, the very first time of all time, the very best 10 publicly traded U.S. fintechs surpassed $100 billion altogether market capitalization.
Since number has ended $130 billion, there are another dozen privately owned fintechs within the U.S. collectively priced at almost $35 billion. Together this really is nearly $175 billion of worth that didn’t exist two decades ago. Other recent artifacts that has to surely be unsettling for your incumbent banking institutions include: PayPal’s market cap surging past those of Amex and Robinhood quickly closing in on E*Trade when it comes to total quantity of accounts opened – in only 3 years.
Definition: Matrix considers “FinTechs” to become (a) technology-first businesses that leverage software to contend with traditional financial services institutions (e.g. banks, charge card networks, insurers, etc.) within the delivery of traditional financial services (e.g. lending, payments, investing, etc.) or (b) software tools that better enable traditional finance functions (e.g. accounting, point-of-sales systems, payments, etc.)
Introducing the Matrix U.S. FinTech Index
Having an eye toward tracking the progress of disruption within the financial services space, we’re excited to discharge the Matrix U.S. FinTech Index. This index is really a market-cap weighted index that tracks the progress of the portfolio from the 10 leading public fintech companies in the above list during the period of the final year (starting in December of 2016). For comparison, we included another portfolio from the 10 largest financial services incumbents (businesses like JP Morgan, Visa and American Express), along with the S&P 500 index.
As seen under, the Matrix FinTech Index shows a specific win for your fintechs. For their credit, following a rough year in 2016, the incumbents rallied in 2017 to execute slightly much better than the S&P 500 Index – yielding 29 percent returns on the one-year period (when compared to 20 % returns from the S&P 500 Index).
The fintechs, however, have blown with this, delivering 89 percent returns and easily beating the incumbents by 60 percentage points. If you have committed to the Matrix FinTech Index last year, you will have almost doubled your hard earned money in only 1 year.
This is simply the start
Regrettably for the incumbents, the outlook only declines from this point. The “old-guard” has always been struggling with rigid back-end systems, antiquated methods for serving customers and human intensive processes. They’re also increasingly vulnerable to losing trust with consumers due to very public failures such as the Wells Fargo scandal as well as the Equifax data breach.
Within the next ten years, we predict the incumbent’s portfolio returns (shown above in red) will drop well beneath the S&P 500 because they still disappoint end consumers and cede ground to the fintechs.
At the same time, the fintech takeover recently begun – financial services recently has been 7-9 percent of U.S. GDP (i.e. trillions of dollars). In the era to come, we will have the Matrix FinTech Index keep go up to new levels because the existing fintechs boost in value and as we include a lot more fintechs to the Index. Actually, the nearly 100 % increase we’ve observed in the last year is definitely the bottom end of the hockey-stick, just striking the inflection point. By 2027, while we accelerate up the hockey stick, every part of financial services, from payments to lending to investing, will be covered with fintechs.