The Silicon Valley mantra of "move fast and break things" rarely works very well in the big, bureaucratic, highly regulated financial system. The traditional industry is "very clunky," as David Sica of fintech-focused investment firm Nyca Partners puts it. Yet over the past decade, ambitious startups have attacked, streamlined, and modernized several parts of the financial industry--and for those with a little more patience, these cutting-edge trends could eventually reshape the future of our wallets.
More Loans to Go Around
Ten years ago, the financial crisis choked off credit for almost everyone--especially lower-income Americans and business owners deemed too risky by banks and traditional lenders. But it also ignited efforts to provide more access to credit, and to replace payday loans with better products--like those created by FS Card, which Marla Blow (above) founded in 2014 after stints at Capital One and the Consumer Financial Protection Bureau. The company's Build card charges an APR of about 30 percent--higher than credit cards; far lower than payday loans--and comes with a chatbot that nudges customers to pay bills early. The company has extended $50 million of credit to over 100,000 Americans, and is seeing big banks tiptoe back into the arena. Blow isn't worried. "This is a space that's still intensely underserved," she says.
Digital Currency Grows Up
There's an awful lot of froth, fraud, and sheer inanity surrounding bitcoins, blockchain, and everything cryptocurrency. But there's also an awful lot of funding and talent working on new kinds of digital money: In June, Andreessen Horowitz launched a $300 million cryptocurrency-focused fund, and hired its first-ever female partner, Kathryn Haun, as its co-lead. Joseph Lubin, who co-founded the Ethereum platform and founded related software developer ConsenSys, is now trying to bring blockchain to industries including journalism and film production; and in Washington, D.C., high-profile crypto startups Coinbase and Circle have helped launch a lobbying group to teach lawmakers all about the industry. Circle, valued at $3 billion and led by co-founder and CEO Jeremy Allaire, is a platform that allows users to buy, trade, and send one another all sorts of money, from traditional dollars and euros to the newer-minted bitcoins, ethereum, and U.S. dollar "stablecoins" (don't ask). "Money should work the way the rest of the internet works, for data and content and communications," says Allaire, a serial entrepreneur who's raised $246 million for his company. "We have open global networks where we can connect our devices and share information freely and instantly all around the world, and we want the same thing for money and economic relationships."
$161 billion: What Americans are expected to pay each year, via point-and-tap smartphone payments, by 2022. Source: eMarketer
The Dream of Your Phone Serving as Your Credit Card
Here's the thing about mobile wallets: Americans don't really need them. Plastic cards still work, after all; they're universally accepted and almost as easy to use as your phone. That may be why, four years after Apple Pay debuted to great fanfare, only about 7 percent of Americans use it, according to eMarketer--and only about 25 percent of smartphone users use mobile payments to buy anything. Compare that with China: 78 percent of smartphone users pay by phone, and WeChat and Alipay have turned sending money into a social activity. These wildly popular apps are backed, respectively, by tech giants Tencent and Alibaba. WeChat, with a billion users, and Alipay, with 500 million, are runaway success stories and pure catnip for Apple, Facebook, Square, PayPal, and all the big banks and smaller startups plumbing American payments. Experts, though, urge patience--a lot of it. As Reetika Grewal, head of payments strategy and solutions at Silicon Valley Bank, puts it: "The thing about financial services is, a lot of things slow-brew."
In the next decade, your customers will pay for goods and services in ways that sidestep traditional currencies: with tokens, blockchain-enabled and distributed units of value that businesses can issue to transact with customers. A current example is Civil, a decentralized network for news with for-profit and nonprofit arms that's raising capital through token sales to fund some of its work. Those who own Civil's tokens can use them to start their own newsroom on Civil's platform. And they can also use those tokens to barter with others on Civil's platform to, for instance, build out adjacent services and apps.
The value of tokens is set by their issuer, but that value won't rise unless there's market demand for them. Think of them as a privately issued currency that skirts traditional issuers, so what was once controlled by governments will soon be available to all, thanks to blockchain technology and clever cryptocurrency entrepreneurs. In the near future, we'll see new token-based business models, which could revolutionize not only how payments are made but also pricing. That's because blockchain technology can facilitate micropayments with no transaction costs: No smart merchant should accept a two-cent credit card charge, because that cost is higher than the price. But future businesses might charge tiny amounts for certain goods and services--all facilitated through tokenomics. --Amy Webb