Every year, Mary Meeker, the co-founder of Bond Capital (and long-time Kleiner Perkins partner) and her team publish the vaunted “Internet Trends” report.
The report’s key focus is the state of the internet, and this year, covered trends in subscription models, advertising spend and encryption. It also offered some interesting insights on the future of fintech.
Here are the top three takeaways:
- We still have a long way to go in driving internet access, and thus an onramp to digital financial services
According to the report, we have 3.8 billion internet users worldwide, accounting for slightly over 50% of global internet penetration. This is both a challenge, and an opportunity.
First, the bad news: 50% penetration means we still have 50% to go. The second half will be tougher to bring online than the first with growth of new internet users slowing from over 10% between 2010 and 2013, to 7% today. Smartphones represent the easiest area of entrance to the online world for underserved populations but for the second year in a row, new smartphone shipments have seen negative growth.
Internet user growth
However, there remains terrific opportunity. Asia Pacific particularly looks promising for future growth, having 53% of global internet users, and only 48% internet penetration in the region. For context, China accounts for 21% of total internet users, 2.5x more than the United States, which is still only two-thirds online.
- A number of new channels beyond incumbents are scaling rapidly to offer a range of financial products and services
Of course, when we think about next generation digital financial services, we think of traditional fintech startups. Indeed, platforms like Nubank and Revolut are seeing near meteoric growth demonstrated by the charts below from the presentation. Today, Nubank has over nine million users, doubling in size in a year, and Revolut over four million, doubling in size in just 10 months. Both companies scaling rapidly.
However, many have argued (including me) that other models will provide unique channels for financial services distribution. This is playing out.
For example, ecommerce companies, particularly in emerging markets are becoming major players. Just look at the rise of Mercado Libre and Ant (Alibaba’s payment affiliate) respective payment revenue. Ant has over 1 billion users, double what it had two years ago. MercadoPago, MercadoLibre’s payment arm had nearly 400 million transactions itself, double what it was two years ago.
Perhaps most exciting is to see Super Apps continue to scale. GrabPay, Singapore-based ride-share driven digital payments, for instance has quadrupled its transaction value in the last year. Uber announced a push in the financial sector as well last week. Over time, through channel like this, superapps can offer a range of new financial products.
How this will all shake out still remains unclear, and will likely vary by local market. However, what is certain is that new channels are emerging to reach customers affordably, and a range of companies are thinking about providing financial products and services (either directly or as a channel partner). Of course, a channel and a single financial product is a far cry from broad financial access, but things are certainly moving in the right direction.
- Like in consumer internet more broadly, trends like freemium subscription models, personalization and privacy will shape products to come
The report digs into freemium subscription business models, which can drive user testing and onboarding in fintech and have widely gone from fringe to standard on the internet. This allows users to onboard and test the product, with a more limited feature set, or a lower quality usage experience (e.g., with ads). However, it is a huge driver for access. The report profiles the use of freemium in games (e.g., Fortnite), enterprise software (e.g., Zoom, Slack, Dropbox) and consumer (e.g., Spotify, Amazon Prime). In fintech, these models are being experimented with and provide a huge opportunity for innovation.
Personalization is another major trend that provides a great opportunity toimprove the quality of the product interaction and better reflect the uniqueness of an individual’s financial life. This is what customers increasingly demand. The data suggests that over 90% of customers prefer brands with personalized offers, with over 80% willing to passively share data for personalized experiences and over 70% willing to actively share data for the same purpose. This will likely continue given the explosion of data being captured, created and replicated.
At the same time, security and privacy concerns remain important, with over 50% of people being concerned about privacy (interestingly these are moderating, down from 64% in 2014). Perhaps one driver is the increase in regulation (e.g., GDPR in the EU) and the rise of encryption. Today, nearly 90% of web traffic is encrypted.
New Data Captured
Parting thoughts: what this means for fintech
In summary, a growing pool of internet users, new players offering unique channels to reach customers, and the growing prevalence of personalization and privacy are all major factors and opportunities for new businesses to shake up the fintech landscape. Which companies will adapt to market demands or fall? We’ll have to wait and see what 2020 has in store.