Fintech providers have experienced a massive uptick in demand as the coronavirus sparks unprecedented levels of growth in the eCommerce sector, according to a new report.
The State of Fintech Q2 2020 report, produced by CBInsights, estimates that eCommerce could represent 27% of U.S. retail sales in 2020—two-thirds higher than in 2019.
According to the report’s authors, reducing friction in payments will be crucial as levels of online spending remain heightened.
This could pose an irresistible opportunity for blockchain and crypto-focused companies who are looking to challenge the dominance of credit card giants such as Visa and Mastercard, not to mention the notion of fiat payments in general.
A case study
One success story mentioned in the report is that of Shopify, which generated revenue of $714.3m in the second quarter of 2020—97% higher than the same period in 2019.
Over this three-month period, the number of new stores on Shopify rose by 71% as brick-and-mortar retailers aimed to speedily build an online presence.
Interestingly, Shopify is one of the few eCommerce platforms that allows merchants to receive crypto payments. Online store orders can add the likes of Coinbase and BitPay as payment providers on their sites, and subsequently accept more than 300 digital assets including Bitcoin, Ethereum, and Litecoin.
Even though Shopify is a minnow when compared with industry behemoths such as Amazon and Walmart, all of this could help raise awareness and adoption of crypto among everyday consumers—meaning these assets can be used for more than speculation.
The Bitcoin rewards application Lolli was also given an honorable mention in the report. It secured $3 million in seed funding over the course of Q2 2020, and enables consumers to earn crypto when they shop online. According to CBInsights, it is just one of the checkout conversion solutions that is “poised to capitalize on accelerating global eCommerce.”
COVID hits funding
Somewhat unsurprisingly, coronavirus had a negative impact on fintech funding in Q2 2020. CBInsights estimated that VC-backed financing in this industry hit $9.29 billion over the quarter. Although this is 17% higher than Q1 2020, it’s still substantially lower than the levels seen in the second half of 2019.
There may be reasons for optimism. The number of deals to VC-backed fintech companies hit 141 in June 2020—in what CBInsights describes as a potential rebound from lows of 127 in April. Nonetheless, this is still markedly lower than the usual levels seen before COVID-19 hit.
Overall, the analytics company says there are currently 66 fintech unicorns worldwide with an aggregate valuation of $248 billion. A handful of crypto-focused companies do appear in the list—most of them in North America. They include Ripple with a private market valuation of $10 billion, Coinbase at $8 billion, and Circle at $3 billion.
Opportunities
CBInsights said one of the biggest trends right now is mobile money. In Sub-Saharan Africa, 144 such services are now live—slightly less than Asia, the Middle East, Europe and the Americas combined.
One glaring omission in the report came in the alternative lending section, where the booming decentralized finance space failed to get a look in. That’s despite the fact that, according to DeFi Pulse, the total value of funds locked in such protocols surged by 203% in Q2 2020 to $1.98 billion. This figure doubled again in July alone to reach $4 billion, to the point that some critics are now expressing fears that a bubble may be forming in the market.
It’s also interesting to note that the retail trading platform Robinhood, which has become a popular destination for millennials who want to trade stocks and crypto, had a particularly successful funding round in Q2. It managed to raise almost $1.4 billion in this quarter—giving it an overall valuation of $8.6 billion. The only fintech platform to raise more money than this was the payment processing platform Stripe, which secured $1.95 billion in funding to secure a valuation of $36 billion.
What’s next?
There were few mentions of crypto or blockchain in the CBInsights report. That raises this question: are they ignoring developments in the digital assets space, or is this industry failing to get the momentum it needs to seep into the public consciousness?
It’s long been true that one of crypto’s biggest challenges is stripping away technical hurdles so it’s easy to understand and use for the masses—and addressing scalability concerns.
Another theory is that it’s still early days for digital assets, not least because Bitcoin is barely 10 years old. As reported by Modern Consensus earlier this week, a Fidelity Digital Assets report said millennial investors prefer Bitcoin over established stores of value such as gold—and that could prove decisive when it comes to future demand.
Disclosure: Modern Consensus founder Ken Kurson sits on the board of Ripple.
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