How Is FinTech Evolving? Warren Fisher on FinTech Investing | SALT Talks #209

TL;DR

Fintech is evolving as technology improves established financial processes, from exchanges and digital banks to payment systems and digital wallets. Warren Fisher calls payments the quintessential fintech business because of their predictable, sustainable, recurring-revenue models, while discussing Klarna, Coinbase, mobile payments, and the decline of cash. Read on for his views on the fintech categories and business models shaping investing.

Transcript

hello everyone and welcome back to salt talks my name is john darcy i'm the managing director of salt which is a global thought leadership forum and networking platform at the intersection of finance technology and public policy salt talks are a digital interview series that we started in 2020 with leading investors creators and thinkers and our go... Read More

Key Insights

• 🤖 Fintech is evolving and encompasses various areas such as digital currencies, digital banks, robo-advisors, and payment systems.
• ❓ Cash usage is declining globally, with digital payments becoming more prevalent.
• 💝 Buy now pay later options, like Klarna, are gaining popularity among millennials and Gen Z, offering flexible payment plans.
• 🏪 Mobile payments and digital wallets are the future of transactions, replacing physical wallets and offering convenience and security.
• 🍂 Visa's acquisition of Plaid fell through due to concerns about potential monopolistic practices.
• 🚕 Bitcoin and blockchain have potential in the payments industry, but there are challenges related to volatility, tax implications, and return policies.

Questions & Answers

Q: How does Warren Fisher define fintech?

Fisher defines fintech as anything that uses technology to improve an established process or procedure. He says the category can include digital currencies, digital banks, alternative finance, regtech, insurtech, robo-advisors, financial advisors, exchanges, and payments.

Q: Why does Warren Fisher consider payments the quintessential fintech business?

Fisher highlights the predictability, sustainability, and recurring revenue of payment companies. For his firm, those characteristics make payments the quintessential fintech business.

Q: What fintech sectors does Warren Fisher discuss?

He identifies blockchain, digital currencies, digital banks, alternative finance, regtech, insurtech, robo-advisors, financial advisors, exchanges, and payments. His investing focus particularly emphasizes the payment space.

Q: Why does Warren Fisher compare Coinbase with traditional exchanges?

Fisher views Coinbase as similar to derivative exchanges because it brings together buyers and sellers of assets. He also notes that Coinbase provides storage and custodial work and entered the public market through a direct listing rather than an IPO.

Q: How did Coinbase's valuation compare with established exchanges?

Fisher says Coinbase reached a market capitalization in the $60 billion to $70 billion range. He notes that this was larger than CME, despite CME having operated for over 100 years.

Q: Why is cash usage declining?

The page reports that only about 30% of transactions in the United States involve cash. It attributes the decline to the convenience and security of digital payments, the growth of e-commerce, and the pandemic-driven shift toward contactless methods.

Q: What makes buy now, pay later services such as Klarna appealing?

Buy now, pay later lets consumers divide a purchase into smaller installments at the point of sale. The page identifies Klarna as an example and says the model is growing particularly among millennials and Gen Z.

Q: What does the discussion predict for mobile payments and digital wallets?

Mobile payments and digital wallets could replace physical wallets by allowing consumers to make transactions with smartphones. The page says this shift offers convenience and security while consolidating multiple payment methods into one device.

Summary & Key Takeaways

• Fintech is defined as the use of technology to improve established financial processes and procedures.

• Cash usage is on the decline, with only about 30% of transactions in the US involving cash.

• Buy now pay later, such as Klarna, is a growing trend, particularly among millennials and Gen Z, offering installment-based payments at the point of sale.

• Mobile payments and digital wallets are the future of transactions, with the potential to replace physical wallets.