As an end of year wrap-up, I thought I’d devote a few words to what the past year held for financial technology trends; a retrospective. Without further ado, some thoughts on how 2014 panned out.
Alternative lending: Hit
Lending Club is going public. Ondeck has filed. Prosper is rumored not to be too far behind. Yes, 2014 is the year that alternative lending proved itself in the market. Although these companies only make up a small portion of the trillion dollar-plus lending market, they are effectively chipping away at the incumbents. Models and revenue streams historically controlled by banks are now being attacked by new players. Fintech innovation has made it and all the big, fat, lazy Fintech companies of the past should be afraid. Very afraid - the innovators aren’t stopping at lending.
Chalk this up to the biggest surprise of the payments world in the last 12 months. After a lifetime of denying that a separate PayPal and eBay made sense, in September they made the cut official. More value for the two companies as separate businesses than one with the synergistic benefit of a single PayPal+eBay long gone, they said. And they’re right: with PayPal volumes from the auction site falling to sub 30%, eBay was more of an anchor to PayPal than a family member. There’s an uncertain road ahead for PayPal but they have all the assets to make 2015 another hit year for them.
2014 was to be the year of bitcoin. Ending last year at $1000 and gathering the support of brand names like Overstock, the market was enthralled with where bitcoin was going. We had the unveiling (or not so much) of Satoshi. Bitcoin startups were going to raise hundreds of millions of dollars. So what did we get for all that excitement? A currency that now trades at $350 with transaction volumes lower than they were a year ago and a conversation that has shifted from “how bitcoin is going to be the currency of the world” to “how the blockchain is going to revolutionize computing.” 2014 was not the year of bitcoin and it’s unclear what happens in 2015 to change this.
I know what you are thinking. I’m crazy to call NFC a miss. After all, 2014 was the year that Apple *finally* put NFC in their phones, a bellwether moment for all NFC advocates. Well the early data is out and the early data isn’t so good. As David Evans recently wrote, Apple Pay isn’t off to the sort of start that suggests changes are afoot. There are just not enough retail locations and, more importantly, not enough of a consumer value proposition to change behavior. Unless Apple does something different, expect Apple Pay to look like Google Wallet in a year.
The Fintech darling of 2013 isn’t looking so shiny in the light of 2014. Once rumored to be on the path to public in 2014, instead Square found itself raising $250M in debt/structured equity. Why? Product whiffs for one. Remember the original Square Cash? The thing that let you send money via email? I doubt it. How about Square Wallet? That product was shuttered in May. While uptake of the Square reader has gone according to plan, with hundreds of thousands of merchants using the product, transaction volume has struggled to grow. Add to this that making money in processing is hard, especially at 2.75% fixed in a relatively undifferentiated market. Square needs to figure out a way to capture consumer attention or 2015 will be more of the same.