Fintech in USA is wide and very complex. The industry is made up of online lending platforms, investment platforms, payment platforms, and companies that operate on blockchain technology. This is just a general overview of what fintech in the USA is made up of.
In this article, we will be talking about the various companies in the fintech industry. We will take a lot at their market value and their positions in the market.
We will also address the various trends we should look out for in the next few years, and how these trends are likely to influence how financial institutions operate.
Fintech Companies in USA
The United States of America is a global leader on the fintech front, with 105 Fintech unicorns in the industry. It has managed to remain undefeated by its main rival, China, topping the charts in terms of the number of fintech companies.
- Advertisement -
The continuous growth in the number of fintech unicorns in the US fintech sector can be attributed to extensive funding seen in the region.
Looking at the sector at the nanoscale, we notice that the main fintech unicorns populating the US ecosystem come from sub-sectors like Wealthtech, Payments, and Challenger Banks. This is notable as there is a continuous increase in appetite for digital financial services in this geographical region.
According to Fortune, nearly nine out of ten Americans now use a fintech app to manage their financial lives.
List of few Fintech Companies in the US
|S/N||Name||Market Cap||Net Valuation|
Trends in the US Fintech Industry
Digital banks are banks that offer various digital banking services like peer-to-peer transfers, contactless and free Mastercard transactions, with the ability to buy various cryptocurrencies like Bitcoin, Ethereum, and many others.
Digital banks have garnered immense popularity over the last few years. This is a result of the convenience it offers its customers. Carrying out transactions on digital platforms is seamless, as it reduces the amount of paperwork, the long hours of standing in long queues, and other disadvantages that come with visiting physical banks.
It is expected that digital banks will witness a huge surge in the next few years. And this surge will be caused by the significant drop in the number of people who visit banks physically.
Report shows that there has been a 36% drop between 2017 and 2022 due to the rise of digital banks.
Goldman Sach’s launch of digital bank Marcus is clear evidence of the success of digital banks in the banking sector. Marcus’ unprecedented scale growth is such that no traditional banks in the US have achieved.
Simply put, embedded finance is the integration of financial services into a non-financial product or service.
Embedded finance is the next big thing in the US fintech industry. It is increasingly sought-after because customers are demanding access to products and services that are embedded in one centralized location. This has pushed companies to provide financial services products through partnerships and white-label software.
Customers can now enjoy embedded payments, embedded lending and embedded insurance.
Health care services and technology companies can embed checking accounts, loans, several credit or payment options into their business model and platform.
This presents a potential opportunity for companies that offer customized services, and customized customer experience. It means a large-scale disruption of many players and the possibility of offering distinct groups personalized services specifically tailored to their financial needs.
The use of digital wallets is another trend that is slowly gaining prevalence. Digital wallets like Apple Pay and Google Pay are popular alternatives to cash and card payments.
According to Bloomberg, digital wallets are used for 45% of mobile and online transactions. However, their use accounts for just 26% of physical point-of-sale payments.
By 2024, WorldPay expects the use of cash to fall from 21% to 13%. While the use of digital wallets for in-person payments is expected to rise to 33% globally.
Countries like China, Mexico and the United States are strongly considering issuing digital currencies. This would also drastically reduce the use of cash in these countries.
Blockchain and DeFi
Blockchain technology has totally influenced how the fintech industry works. With this groundbreaking technology, transactions can now be carried out in a safe and secure manner. As a result of this benefit, banks and financial institutions are readily adopting this new technology.
Blockchain ensures that information stored is secured end-with minimum risk. In the blockchain, once data is recorded in the system, it becomes extremely difficult to modulate thus it remains protected.
Blockchain technology has also inspired the development of various P2P financial platforms that enable monetary interactions to occur in a decentralized manner. Banks and financial institutions are already looking to increase their investments in blockchain technology to reduce expenses and enhance internal procedures.
According to Business Insider Intelligence, around 48% of banking representatives think that Blockchain technology will have the biggest impact on banking in 2022 and beyond.
One imperative thing about blockchain is that asides from the cutting-edge technology, it also presents a new philosophy of decentralized finance which focuses on minimizing centralized procedures. Decentralized finance (DeFi) as we see, is the future of finance. North America is now the world’s second-largest crypto market, as a result of the growth of DeFi in that region.
Artificial Intelligence (AI)
Modern fintech companies are looking to incorporate artificial intelligence into their daily operations to increase efficiency. The use of AI in fintech will bring about improvised precision levels, and high-speed query resolution.
Artificial Intelligence will help fintech companies automate daily tasks. In general, it will improve the quality of service in these companies.
AI can be used to manage financial crimes by identifying financial threats and preventing fraud
AI also helps fintech predict users’ behaviours with the use of APIs. This can be leveraged by digital banks and fintech companies to provide a better and more personalized financial advice and user experience.
According to Autonomous Research, artificial intelligence will reduce 22% of the bank’s operational expenses by the year 2030. In other words, banks and financial institutions can save as much as $ 1 trillion by using AI.
AI has already shown how useful it can be in managing customers through groundbreaking client service solutions like Chatbots. It’s only a matter of time before banks and financial institutions will adopt this technology for the same.
Two examples of the incorporation of AI in fintech in USA include: Know Your Customer (KYC) and Anti Money Laundering (AML).
Key Market Trends
Booming Digital Payments sector
In 2018, the total transaction value in the digital payment segment amounted to $884,506 million.
By 2024, the total transaction value is expected to show an annual growth rate (CAGR 2019-2024) of 8.6%.
In 2018, the market’s largest segment is digital commerce with a total transaction value of $820,360 million.
Growing Personal Finance sector
In 2018, the total transaction value in the personal finance segment amounted to $440,934 million.
By the end of 2024, the total transaction value is expected to show an annual growth rate (CAGR 2019-2024) of 23.1%.
In 2018, the market’s largest segment is Robo-Advisors with a total transaction value of $425,795 million.
Regulation of Fintech in USA
Fintech in the US is regulated by a number of regulatory bodies. And companies offering financial products and services in this industry must ensure operational compliance with these regulations at both federal and state levels.
Some of these agencies include:
- Consumer Financial Protection Bureau – regulates fair lending practices
- Federal Deposit Insurance Corporation – ensures consumer protection and insurance of deposits
- The Office of the Comptroller of Currency – national bank charters
- The Security and Exchange Commission (SEC) – securities, investment advisors, broker-dealers, funds and digital assets exchanges
- The Federal Trade Commission – protects consumers from unfair or deceptive activities
- The Financial Crimes Enforcement Network – regulates money-laundering
- The Commodities Future Trading Commission – controls futures trading markets and exchanges
Fintech companies in the USA that handle cryptocurrency or digital assets may be subject to regulation depending on the type of digital asset and the nature of the business.
Some states regulate cryptocurrencies under already existing money transmitter rules. However, specific cryptocurrency laws vary from state to state.
Initial Coin Offerings (ICOs) are regulated by SEC. Under this regulation, ICOs are considered securities, and in some cases, the issuer may be required to register the offering with the SEC. Whether a digital asset constitutes a security is often difficult to determine conclusively.
Regulations for Fintech Companies Outside of the US
Fintech companies outside of the US are subject to various regulatory limitations when offering financial products and services to customers in the US. Such companies need to ensure compliance with all applicable federal licensing and regulatory requirements.
They must guarantee payment of tax liabilities arising from US operations and reporting of certain information to applicable regulatory authorities.
Fintech in USA has come a long way over the last few years. The industry has experienced massive growth, with its crypto market ranking second largest in the world.
Due to the number of financial threats, the activities of fintech companies and their customers are regulated by specific regulatory bodies. In the next few years, and with the rate of technological advancements, we’re expecting to see tremendous innovations in the fintech industry.