When there’s a pandemic raging with no end in sight, the sudden abundance of contactless credit card readers is the last thing people tend to stop and take stock of. Now that COVID-19 is slowly subsiding in the United States, it’s easier to appreciate just how big 2020 was for the fintech industry.
Prior to 2020, tap-to-pay was something of a rarity in the U.S. Many local governments took a massive leap forward and began offering online payments for the first time. Meanwhile, technology companies started to make real inroads in the remittances industry, which has long been dominated by in-person transactions.
While fintech had a big year, the future is even more exciting as consumer and business demand is finally aligned with the industry’s appetite for innovation. We recently sat down with five Chicago fintech companies to learn more about what’s on the horizon and the tech they’re developing to lead the shift.
E-commerce and contactless payments exploded in 2020 as people searched for ways to stay out of stores and reduce physical contact. This shift happened so quickly in part because companies like Discover doubled down on payments technology, security and customer experience. In addition to causing a seismic shift in payment technology, Edwards, director of application development for digital payments, shared with Built In how last year changed the financial services industry.
What changed for your business in 2020, and how much of that was driven by the pandemic and the impacts that had on consumer behavior?
The move to contactless and digital payments accelerated exponentially, and we also saw a change in the profile of consumers who adopted these new ways of paying. My parents — who previously used cash wherever possible — developed an expectation of paying using their phones. That is a gigantic leap in understanding for them and also shows their trust in a technology that seems “alien.” You couldn’t explain to my mom why digital payments are technically safe. Instead, you’d have to leverage your existing brand of trust and integrity. Operational excellence and our ability to prevent fraud has never been so important.
The other massive change was the way we worked together. We normally do our best work in person. We ideate together in rooms with coffee and cakes and develop together through pair programming. But suddenly, we had to shift our way of working. We allowed for human interaction as much as possible, even if it meant mailing marshmallows to our teams for a virtual campfire.
The industry overall, down to the people who create within it, are more open to change.”
How did you adapt your product to address these shifting trends?
With a change in consumer behavior comes a change in merchant need. Long-standing brick-and-mortar stores, which relied on personal interaction, had to find different ways to do things — quickly. We were already well placed to support the “what.” However, we had to ensure we were there to partner with them on the “how.” To support this growth in demand, we needed to support the technologies that allowed merchants to transition to digital as quickly as possible.
We increased our effort in functionality, which allowed us to onboard people quicker, provided simplified integration into our solutions and supported a more self-service-orientated approach. As our transaction profile moved to be more digital, we also put a greater emphasis on new fraud prevention capabilities in this area. Finally, we had to ensure we continued to be at the forefront of the biggest new ways of paying. This led to changing the way we worked as an organization, emphasizing automation to decrease time to market and strengthening our partnerships with major digital brands to collaborate on new ideas.
Looking ahead, what lasting effects do you think 2020 will have on your business and/or industry? And how do you plan to be part of this next wave of fintech innovation?
For me, 2020 has shown how adaptable we can be and how the appetite and capacity for change has increased now that we’ve seen what’s actually possible. I believe this now means the industry overall, down to the people who create within it, are more open to change. We’ve personally seen this sentiment with the adoption of our new way of working across our entire technology organization.
Most fundamentally to innovation, we need to appreciate that technology doesn’t innovate, people innovate. And people innovate within a culture, not just one day every three months during a hackathon. We ensure that we continue to be part of the next wave of innovation by giving great people the platform, opportunity and inspiration to do what they’re brilliant at.
DRW Venture Capital is the VC arm of global trading firm DRW and invests primarily in financial and enterprise tech companies. Needless to say, 2020 was a big year for its portfolio companies. In a year filled with lessons learned, Kim T, head of DRW VC, said that one of the biggest was a reminder to founders that, while long-term planning is good, it’s also important to stay nimble and recognize and seize opportunities as quickly as they arise.
What changed for your business in 2020, and how much of that was driven by the pandemic and the impacts that had on consumer behavior?
DRW Venture Capital invests primarily in financial and enterprise technology and where we can add value beyond just capital. In 2020, much of our work was focused on helping our existing portfolio companies capture opportunities in the market as we saw a surge in retail trading and activity. For example, “Trading View,” a charts and analysis tool designed to help investors spot opportunity in global markets, became one of the top 100 websites globally due to the significant demand for data and insights that were easy to engage with.
It’s really important for early-stage companies to be opportunistic and nimble.”
How did you adapt your product to address these shifting trends?
Our goal was to be a partner to our portfolio companies in thinking through opportunities created by the pandemic and in how best to manage their resources to ensure they had a long runway of capital available. One of our portfolio companies, Cuebiq, leveraged its unique data set and analytics to help governments and civilians track the success of social distancing measures and vaccination campaign reach, a great example of how companies were able to pivot in game-changing ways. For our team, COVID-19 also created a new wave of startups solving novel challenges, and the opportunity to meet with those founders and think about how we could support them has been energizing.
Looking ahead, what lasting effects do you think 2020 will have on your business? And how do you plan to be part of this next wave of fintech innovation?
The pandemic has reminded companies that while it’s good to plan for the long-term, it’s also really important for early-stage companies to be opportunistic and nimble and to ensure they have a robust board of advisors to help successfully navigate pivots. At DRW Venture Capital, we will continue to actively seek investment opportunities that fit our unique mission in the market.
The volatility of the markets and some of the recent events with Robinhood have been a reminder that much of the legacy infrastructure is clunky, suboptimal and in need of a significant upgrade. We believe blockchain and digitized assets, a focus of many of our portfolio companies, have a lot to offer. Seeing those technologies now at the core of solving problems that traditional markets face is a really exciting evolution.
Personal finance and stock trading apps saw major growth in 2020 as millennials rushed to take advantage of wild swings in the stock market. However, Spradlin, VP of Product at personal finance app M1 Finance, noted that many first-time investors were interested less in meme stocks and more in building long-term wealth. While the intense interest in day trading may end up being a product of the pandemic, Spradlin believes the desire for customizable, automated and mobile investing platforms is here to stay.
What changed for your business in 2020, and how much of that was driven by the pandemic and the impacts that had on consumer behavior?
The biggest trend our industry saw was a surge of new interest in investing, particularly by millennials. Lockdown led many to decrease their spending, while an uncertain future increased the appetite to build wealth for the long-term through investing. M1 experienced this firsthand. We quadrupled our assets under management since the start of the pandemic last March, and the surge of interest has continued. For example, we saw a 3x increase in signups in January 2021 compared to the month prior.
2020 greatly expanded the pool of people who are actively engaged in their personal finances.”
How did you adapt your product to address these shifting trends?
We prioritized improvements to our onboarding experience and scaled our customer success operation tremendously. This surge of interest also gave us the chance to reinforce our product as a personal finance platform built for long-term investing, not day trading. From honing our messaging and copy to publishing thoughtful content, we seized on the chance to differentiate M1 from other fintechs, double down on our long-term investing ethos and help educate our clients on the value of a long-term mindset. We also expanded our platform with a new feature called Smart Transfers, which fully automates savings plans.
Looking ahead, what lasting effects do you think 2020 will have on your business? And how do you plan to be part of this next wave of fintech innovation?
2020 greatly expanded the pool of people who are actively engaged in their personal finances, and it accelerated the demand for financial services that work for them wherever they are. People want things digitally accessible and all in one place. We think that’s a good thing, and we aim to provide a tool that allows them to do just that: actively manage and grow their money through one single smart, customizable and automated platform. We feel fortunate to have been at the forefront of this wave already, and we will continue innovating and adding new capabilities to our product so it’s truly a no-compromises “finance super app.”
Many city governments found themselves fast-tracking plans to roll out digital service and payment portals in 2020. CityBase, which provides technology designed to make accessing and paying for government services easier, helped facilitate this digitalization in cities across the country. Fischer, chief customer officer, told Built In about the work required to bring local government departments online and how the pandemic helped spur innovation within CityBase.
What changed for your business in 2020, and how much of that was driven by the pandemic and the impacts that had on consumer behavior?
The landscape of government payments has historically been fragmented. In a city or county, there may be dozens of departments that accept payments, and these departments often have their own way of administering revenue operations. Many use manual, in-person services for the complex processes surrounding government payments, which are often tied to certification, regulation or enforcement.
When the pandemic hit, we saw increased demand for online services and self-services and a greater willingness to embrace change. Many government departments brought payments and services online for the very first time. We also had a big spike in demand for self-service payment kiosks because they offer a way to take cash without requiring person-to-person interactions and offer 24/7 service without requiring buildings to be open.
When the pandemic hit, we saw a greater willingness to embrace change.”
How did you adapt your product to address these shifting trends?
In addition to launching solutions for new clients virtually, we’re also upgrading our in-person tech remotely. CityBase kiosks are powered by 4G wireless, and during the pandemic we began leveraging this connectivity to remotely and automatically perform platform upgrades during off-peak hours. We’ve also introduced net new solutions for clients who had relied on in-person service.
One city required customers to apply and pay for permits in person, and the city needed to continue providing the service even with government buildings closed. We launched an MVP that expedited the shift to digital, marrying the high-touch, manual process with a digital payment. Now, customers call the city and go through the permit registration process via phone. Once permits are approved, city staff input information like the permit number and amount due and email a link to customers to finish the transaction online.
Looking ahead, what lasting effects do you think 2020 will have on your industry? And how do you plan to be part of this next wave of fintech innovation?
The pandemic accelerated the ongoing shift to digital, but consumer expectations for digital services were already ahead of what government organizations typically offered. Governments were aware of that and moving in the right direction. The pandemic created a period of high innovation out of necessity. Even in-person services have had to digitize.
In our example, payment kiosks are run on cloud-based software, leveraging real-time integrations. This allows public sector staff to manage all transactions in the same place, even remotely. It also gives their in-person customers a clear picture of how much they owe and when it’s due, and the peace of mind that they’ve satisfied an obligation because they receive immediate confirmation. We’ve bet our business that governments want to provide an omnichannel experience where people can choose from various methods of payment and customer service. And all channels reconcile back to the same data structures, source systems and reporting tools.
One fintech trend that flew under the radar in 2020 was the rise of digital remittances, as people turned to technology to send money to family members abroad as legacy money transfer storefronts shuttered. Joel Binder, senior product manager at Pangea, a digital remittance platform, believes the shift from brick-and-mortar to digital is a lasting one. For Binder and his team, the focus going forward is twofold: ensuring users can share more money home and providing financial services to help its unbanked user base.
What changed for your business in 2020, and how much of that was driven by the pandemic and the impacts that had on consumer behavior?
In 2020, we had a front-row seat to a beautiful and global display of love and resiliency. When the pandemic hit, the economy fundamentally changed and it was unclear exactly how it would impact our customers. Very quickly, our customers proved to be incredibly resilient. Amid plummeting employment rates and skyrocketing infection rates, our users generously sent unprecedented sums of money to their families abroad.
In March 2020, we saw more customers send more money to their families abroad than ever before. As the economy started to recover here in the United States, the virus spread through Mexico, Latin America and Asia, worsening conditions for our customers’ families. They responded by sending record amounts to care for their families in need. We’re honored that our customers have trusted us with their money when the stakes have been so high and have emerged with an even deeper and more profound respect for them.
Amid plummeting employment rates and skyrocketing infection rates, our users sent unprecedented sums of money to their families abroad.”
How did you adapt your product to address these shifting trends?
Even under the best of circumstances, sending money abroad to take care of family can come with a lot of anxiety. Add the uncertainty and fear of a pandemic and it can be overwhelming. We wanted to ease that anxiety as much as we could, so we invested in safety and trust. First, we made it easier for customers to deposit money directly into their receivers’ foreign bank accounts, saving their family members a bus trip to pick up cash.
Then, to improve the customer experience, we tackled the biggest causes for canceled transactions and successfully dropped our cancellation rate by 50 percent. Next, we made it easy to leave app store reviews. As a result, our customers made us a top-rated international money transfer app, making us more trustworthy to the influx of customers new to digital remittances.
Additionally, many remittance senders are underserved by existing financial services. In response, we accelerated our push to provide a banking option tailor-made for their needs. In 2020 we fully rolled out Pangea Card, a bank account with no monthly fees, no minimum balance and free international money transfers. Users can sign up in English or Spanish using their SSN, ITIN or Mexican ID, then send money abroad for free. Crucially, this offers cash-only users an on-ramp to digital banking that didn’t exist before. It lets them safely bank and send money while minimizing their health risks.
Looking ahead, what lasting effects do you think 2020 will have on your business? And how do you plan to be part of this next wave of fintech innovation?
Prior to the pandemic, many of our users went to a physical storefront to send cash to their family abroad. The pandemic caused many senders to change their behavior and experience the benefits of sending money from their phones. As the pandemic recedes here in the U.S., we continue to see strong retention rates. Though COVID-19 cases fortunately continue to trend downward here in the U.S., it remains a huge issue in many of our customers’ home countries. The changes in sending behavior we observed at the beginning of the pandemic continue to hold: More customers are sending more money abroad to support their families.
We talked with many of our customers throughout the pandemic to better understand their evolving needs. Very consistently and through many channels, our customers have told us how committed they are to sending as much money as they can to their families. Our customers are proud of how much they’re able to send but also frustrated they can’t send more. Moving forward, Pangea is deeply committed to investing in our product and infrastructure to ensure our customers can send more home.
