By Theodora Lau and Bradley Leimer

Why do fintech startups exist? And have they accomplished what they set out to do? Depends on who you ask, and which region you are referring to.

2020 did not turn out the way any of us expected. With a tsunami of megadeals being announced in the first few weeks of the year, many predicted that it would be yet another banner year for fintech funding and M&A activities. Then came the pandemic. And the economy came crashing down like a stack of precariously placed Jenga blocks.

The health crisis has laid bare the structural inequalities that we face in our communities, especially for those who are poor, non-white, women, and gig workers. While some may have celebrated that the national unemployment rate in May has fallen to 16.3 percent — from 19.5% in April, Asians and African Americans saw their unemployment rates increase. And overall, unemployment is still at historic levels. Unsurprisingly, 70 percent of the people in line at a food bank had never been in one at any point in their lives, according to Feeding America.

FinTech, Time To Pause To Find Purpose?

It’s now been 12 years since the last financial crisis, which gave birth to a great number of fintechs. But much has happened since then. What started as an unbundling effort has led to a rise of thousands of different startups, focused on everything from savings and investing to lending, insurance, and payments. Entirely new digital economies — such as ride sharing and food delivery — have been created and now flourish, enabling people to work and earn in ways not possible before. But with what impact?

These fintech startups have continued to challenge the status quo of legacy incumbents, and along with that, their business models. Robinhood, for example, started commission-free trading a few years ago, when it was customary in the investment industry for brokers to collect fees when stocks were bought or sold. Charles Schwab and many others followed suit; and the rest, as they say, is history.

Similar scenes could be playing out in the banking space. Chime, for example, is a neobank built on transparency; it does not charge overdraft or maintenance bank fees. Aspiration has gone even a step further by allowing users to pay what they think is fair, with sustainability built into their core DNA. As a point of reference, in 2019, “overdraft fees alone brought in $34.6 billion in revenue for financial companies.” And those who are the most financially vulnerable end up paying the majority of the fees.

In recent years, we have seen many of these fintech startups slowly starting to flex their muscles and rebundle. Transferwise, a fintech startup known for disrupting the remittance industry, will be providing investment services within the next 12 months. Ellevest, initially founded to address the investment needs of women, is introducing day to day banking services. Paypal, which started as an online payments system in 1998, now offers a suite of credit products. Acorns, a micro-investing startup that leverages behavioral economics to nudge users to save, now provides checking account services and retirement IRA products, and now it is launching Acorns Early to help parents save for their children. So what was once unbundled is now bundled again.

Looking forward

With jobless claims still at unprecedented levels and our economy in recession, how will financial services respond and what roles will fintechs play?

Being purposeful is not a slogan or a feel-good campaign; rather, it must become the core DNA of every successful company. While we have made great strides, have we done enough to challenge the status quo — to nudge the incumbents to innovate and change, to create a fairer system — and improve consumer financial well-being?

And shouldn’t the burden be on all of us in the financial services industry, policy makers, incumbents, startups, and VCs, to demand that we do better? If our goal to drive innovation isn’t for the benefit of our society at large, then what is? If our purpose isn’t greater than ourselves, then what is the point of any legacy we may leave behind?

“While the Great Recession changed the banking industry and made it stronger, the past decade saw a very divided impact for its broader stakeholders in society: the individuals, families and small businesses that make up the people and communities that our industry serves” as Bradley wrote in his recent article for International Banker.

This time just has to be different. We have a chance — to make it better.

But will it be? Can it be? Is there still hope?

As Andrei put it succinctly at EMERGE: “The promise is still there, but unfulfilled.”

We must still dare to dream.

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From the $825 million Finicity/Mastercard tie-up to the Wirecard scandal to Lemonade’s plan to raise $286 million in an IPO — there is never a dull moment in the land of fintech. Half a year has gone by and we are in the midst of a pandemic and deepening recession. If we were to give ourselves a grade, has fintech done what the ecosystem has set out to do? Has it challenged the status quo — and make banking better? In this new episode of one vision, Theo and Bradley looked back at the week that was and talked about what should be. You can listen on iTunes, Spotify, and all players.

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Unconventional Ventures helps drive innovation to improve systematic financial wellness. We connect founders to funders, provide mentorship to entrepreneurs, strategic advisory services to a broad set of corporates, and broaden opportunities for diversity within the ecosystem. Our belief is that anyone with great ideas should have a chance to succeed and every voice should be heard. Visit unconventionalventures.com to learn how you can partner with us today.

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