Fintech Nexus highlights a move toward greater financial access and flexibility

Introduction

Fintech Nexus, formerly known as Lendit, brought together over 4,200 attendees in New York City for its 10th annual financial technology conference. Financial access and flexibility were core initiatives driving nearly every fintech vendor in attendance. The event demonstrated how digital banks are disrupting traditional banking models to make banking more accessible, as well as how fintech providers, both large and small, are finding ways to better serve the underserved and bring more people into the financial system. Furthermore, businesses are harnessing artificial intelligence and machine learning, or AI/ML, to establish new ways of evaluating financial health; transactions are accelerating toward real-time; and fintech firms are racing to address financial challenges and bring offerings to market. In this report, we dive deeper into several themes that emerged throughout the conference.

At Fintech Nexus, spurring financial inclusion via improved financial access, flexibility and affordability was top of mind for banks and fintech vendors large and small. Additionally, the event demonstrated innovative ways that organizations harness data and technology to better predict lending risk, combat fraud and enhance the customer experience. Decentralized finance also emerged as a top theme. While there is still some uncertainty around what Web3 will look like, it is clear that organizations are preparing for a more blockchain-centric future.

Financial access and flexibility

Perhaps the most prominent theme at Fintech Nexus was better serving those underserved by the current financial system by making financial products and services more affordable and accessible. Access to more data is enabling that to happen. Businesses, for example, use AI/ML to enhance lending models and more accurately predict consumer risk, seeking to maximize loan approvals while minimizing added risk to the lender. Conference presenters SolasAI and Zest AI Inc. shared how they are using AI/ML and connecting to more data sources to make lending more equitable. Similarly, in partnership with American Express Co., Nova Credit Inc. launched Credit Passport, a platform that helps standardize international credit data for U.S. underwriters so that immigrants can access credit easier.

In addition to the emphasis on lending, the conference also featured a strong focus on helping individuals and businesses better manage, save and spend their finances. Plaid Inc. has played a major role in powering many fintech platforms and connecting consumers with financial products and services. Plaid users SaverLife, a nonprofit that helps low-income households save money and build financial security, and Padsplit, a company helping low-income households and individuals secure housing, both sat on a panel at the event.

Digital banking

Providing financial flexibility, accessibility and mobility through digital banking was a core theme throughout Fintech Nexus. Neo-banks and traditional banks are developing low-cost financial products and services while helping consumers build credit and better manage their finances. Removing overdraft fees and offering fee-free checking and savings accounts are a few ways banks make financial products more accessible. Banks of all sizes are realizing the opportunity to better serve the underserved and bring more people into the financial system. Below, we highlighted several digital banking fintech firms that spoke at the conference:

* Chime Financial Inc. — Although Chime offers checking and savings accounts, it does not consider itself a bank; it does not have a bank charter but said it may pursue one in the future. Instead, it considers itself a consumer technology vendor that provides financial products via partnerships to make basic banking services easy and free for consumers. Its partners include regional banks. Instead of making money on net interest margin like a traditional bank, Chime structured its business model around earning interchange fees when cardholders use their cards. It focuses on deposits primarily for nondiscretionary spending and offers short-term liquidity. By providing fee-free accounts and zero-overdraft fees (for overdrafts up to $200), the company has been able to serve subprime customers and new/early account holders. It also offers Credit Builder, a Chime-branded Visa card, to help checking account holders build their credit with everyday purchases.

* Nubank — Nu Holdings, better known as Nubank, is a Brazil-based neo-bank that aims to make financial products and services easy, affordable and secure in what historically has been a slow-moving, consolidated market. It has raised an astounding $3.9 billion to date and ranks as one of Brazil's largest fintech banks, with approximately 60 million customers in Brazil, Mexico and Colombia. The vendor offers credit cards, digital accounts and instant payments via Pix, the Brazilian Central Bank's digital payment method.

* Marcus by Goldman Sachs – The Goldman Sachs Group Inc. launched its online-only bank, Marcus by Goldman Sachs, in 2016, offering lending, high-yield savings accounts, and financial tools and trackers through Marcus Insights to help consumers better manage their finances. Moving forward, Goldman Sachs reports that checking will be available soon and is also looking to better serve the seller ecosystem. The firm plans to continue building its "buy now, pay later" offering, via its acquisition of GreenSky Inc. in 2021, targeting higher-ticket verticals like home improvement.

Fraud prevention

Balancing fraud prevention and the customer experience is an ongoing battle, with fraud prevention all too often coming at the expense of the customer experience. Consider that over three in five (61%) merchants sometimes or often prioritize fraud prevention over the user experience, according to 451 Research's 2022 Merchant Study. Fintech Nexus demonstrated how technology is making fraud prevention and the customer experience less of a zero-sum game and how fintech firms are finding more innovative ways to prevent fraud while minimizing friction for the customer.

Similarly, our research indicates that organizations harness AI/ML to enhance the customer experience beyond fraud prevention. More than one in three (34%) financial services organizations indicated that evaluating new AI/ML capabilities was one of their main technology-led priorities for improving the customer experience, according to our Voice of the Enterprise: Customer Experience & Commerce, Budgets & Organizational Dynamics 2022 survey. We also found that over one in three (34.5%) plan to use AI/ML for fraud prevention in the next 24 months, according to our 2022 Merchant Study. Fraud prevention is expanding beyond multifactor authentication to more behind-the-scenes digital identity-based verification.

Prove Identity Inc., Arkose Labs Inc. and Datavisor Inc. discussed ways to reduce fraud risk by deploying AI and looking at behavioral patterns like purchase history (e.g., dollar amount and time of purchase) and digital footprint (e.g., devices previously used to log in) to prevent account takeovers and fraudulent transactions without adding friction to the customer experience. These companies noted that while analyzing behavioral information is an important component in fraud prevention, a combination of technologies and processes is necessary to combat fraud, particularly in an emerging Web3 environment where personal information and behavior may be more difficult to acquire and predict due to decentralization and enhanced data privacy.

Decentralized finance and Web3

There is still some uncertainty over what Web3 will look like or how it will come to pass, but many organizations are already preparing for it. Over half (51%) of merchants strongly agreed that Web3 will play a strategic role in meeting their organization's e-commerce needs, according to our 2022 Merchant Study. However, only one in three merchants (33%) has a formal Web3 strategy. Although Web3 is still in its infancy, organizations are beginning to plan for a broader decentralized future where information lives on blockchains. There is still strong interest in cryptocurrency, but the event highlighted numerous use cases for blockchain beyond cryptocurrency.

For example, blockchain tokenization can be used to transfer not just currency also but ownership titles in a fraction of the amount of time it traditionally would take to transfer a title. Smart contracts, or self-executing digital contracts on a blockchain, can eliminate third parties and execute nearly any contract instantaneously. Decentralized autonomous organizations built with smart contracts on a blockchain can sustain business without top-down management. Each of these use cases points to greater agility and efficiency. However, integrating and using cryptocurrency and other blockchain applications with current technology remains a challenge.

Fintech firms are finding ways to help bridge the gap between traditional finance and decentralized finance via application programming interfaces and blockchain technology. Interoperability platforms like Polkadot are enabling interactions between blockchains. Stablecoins such as Acala's aUSD and Dai are combining the freedom and decentralization of cryptocurrency with the stability of the U.S. dollar. Simplifying the user experience for cryptocurrency and making decentralized finance more mainstream are top initiatives for many fintech firms looking to accelerate Web3. While Web3 as it has been pitched may not come to full fruition, blockchains will undoubtedly become more commonplace for a variety of use cases in the financial services segment.

^{This article was published by S&P Global Market Intelligence and not by S&P Global Ratings, which is a separately managed division of S&P Global.}

^{451 Research is part of S&P Global Market Intelligence. For more about 451 Research, please contact 451ClientServices@spglobal.com.}