Although what fintech trends come to fruition in 2021 are yet to be seen, FICO Vice President Tim VanTassel said he thinks that markets are running off a sugar high because of the stimulus flowing through the economy.
From stimulus checks to loan deferrals, VanTassel says that this has created an artificial environment that has a far reaching effect on sectors within fintech. For instance, he thinks this concept will have an effect on the buy now, pay later (BNPL) segment, and BNPL firms are bringing in more risk than they’re aware of “because of the market being on a sugar high.”
On the flipside, he does think that the BNPL sector is inherently a compelling offer to customers and that it’ll continue to grow in 2021.
VanTassel spoke with FinLedger about the various fintech trends he thinks will occur this year, such as his thoughts on BNPL and how smaller banks will grow into more niche sectors.
You said earlier you think markets are on a sugar high right now, do you think we’ll see another dip in markets in the coming months, and how will this affect BNPL companies?
VanTassel: Affirm and those that are like Affirm, they’ve got another wonderful thing coming up — which is tax season. In the world of finance, the amount of tax rebates that occur, the amount of reimbursement that comes back to the Earned Income Tax Credit creates the primary artificial high of the year. That will carry them through quite nicely through this calendar quarter and into the next calendar quarter. We’re talking about something that’s a bit further out than in the next few months.
Where do you see BNPL companies in the long-term?
VanTassel: In the long term, they’re going to stay where they are. They’re going to keep growing, it’s not going to be as wildly profitable as it is right now. Because the equipment side of it, [meaning] the partners that they’re working with, is going to have to chip in some more to be able to make it work…
I know earlier you said you think vertical SaaS companies will embed financial services into their apps and offerings, why do you think this fintech trend has momentum?
VanTassel: [Because of] the convenience of it, think about how many times that you’ve gone to Amazon and bought something quickly because it was a one click through capability and [it was] easy…
Take it another level, if you’re on an Android and I’m on my iPhone, my vendor can look and say, ‘Well, do I want to provide the same offering to either of them?’ That embedding allows you to essentially use that knowledge that you have and make it a more personalized offering. And in some cases give somebody a better price, a worse price, a better service or a different service based on those things that you know about them.
What are your thoughts on regional banks and their business models?
VanTassel: Small banks, regional banks [and] credit unions certainly have a hometown flavor, which is a significant benefit when it comes to commercial banking. Having commercial bankers that are associated with doing deals where they know the business in your area. But, when it comes to gathering [and] retaining deposits, and then having consumer credit-related solutions that are interesting, they need to have something they can use to differentiate — a credit union can differentiate off of — fee and rate to some extent, because the way the market is set up…
More and more, you’ll see that these regional consumer banking models will be tuned in to niches and areas where they can compete and if they look at it and say, ‘I can’t really compete on the credit card,’ they won’t hold a credit card. Because, it doesn’t make sense if it’s not differentiated in some way.
For more coverage of fintech trends and embedded fintech, check out this article by Sar Haribhakti about how fintech captured the imagination of a generation of builders and investors.