Earlier this spring, the U.S. Consumer Financial Protection Bureau (CFPB) announced a new effort to promote competition and innovation in consumer finance. Backing this effort, the CFPB is opening a new office, The Office of Competition and Innovation.

The Office of Competition and Innovation will replace the Office of Innovation, which relied on an application-based process to grant companies special regulatory treatment. The new office takes a much broader approach, and will consider obstructions hindering open markets and learn how large players make it difficult for small companies to operate. Ultimately, The Office of Competition and Innovation aims to make it easier for end consumers to switch among financial providers.

In order to pursue its mission to increase competition, the Office of Competition and Innovation will pursue the following four goals:

1. Make it easy for consumers to switch providers
   When users can switch among financial services providers, there is more pressure on incumbents to offer better services, and new players have a better opportunity to acquire customers.
2. Research structural problems blocking successes 
   The new office will have access to resources to examine what is creating obstacles to innovation. This could impact, for example, the payment networks market or the credit reporting system, both of which are considered oligopolies.
3. Understand the advantages big players have over smaller players 
   Larger players have built-in advantages over small newcomers. As an example, big companies benefit from a large marketing reach, multi-faceted teams, and a built-in customer base. As the CFPB points out, this may threaten new competition.
4. Identify ways around obstacles 
   Obstacles for smaller players include lack of access to talent, capital, or even to customer data. The CFPB is addressing the latter issue via a future open finance rule under Section 1033 of the Consumer Financial Protection Act that will give consumers access to their own data.
5. Host events to explore barriers to entry and other obstacles 
   The new office will organize events such as open houses, sprints, hackathons, tabletop exercises, and war games to help entrepreneurs, small business owners, and technology professionals to collaborate, explore obstacles, and share frustrations with government regulators.

“Competition is one of the best forms of motivation. It can help companies innovate and make their products better, and their customers happier,” said CFPB Director Rohit Chopra. “We will be looking at ways to clear obstacles and pave the path to help people have more options and more easily make choices that are best for their needs.”

In financial services, open finance may be one of the best ways to promote competition. But because the U.S. does not have formal regulation around open banking or open finance, there isn’t enough incentive (yet) for financial services players and third party providers to cooperate when it comes to data sharing. In late 2020, however, the CFPB issued a notice of proposed rulemaking that solicited opinions from stakeholders on how customers’ data should be regulated. This was only a very early step in the process, and industry players still lack a standardized approach to open finance.

Photo by Monstera

You’ve likely heard by now that Apple has taken the veil off of its BNPL tool, Apple Pay Later. The tech giant announced Apple Pay Later at its World Wide Developer Conference on Monday.

If you haven’t read coverage of the announcement yet, here’s the gist– the new tool will enable Apple Pay users to split any purchase made where Apple Pay is accepted into four installments, paid out over the course of six weeks (check out the video announcement at the bottom of this post for more details).

Apple is coming in late to an already over-saturated BNPL market and faces a lot of competition from well-established players. However, the company is not showing up to compete empty handed. Apple Pay Later has a handful of advantages over other contenders.

Advantages

Acceptance at physical retailers
As mentioned earlier, users can pay with Apple Pay Later anywhere Apple Pay is accepted. This includes many physical retailers. And because 90% of retail purchases are made in-store as opposed to online, Apple already covers a lot of territory that other players haven’t been able to access yet. BNPL giant Klarna currently offers in-store services at just over 60,000 retail locations. As a comparison, Apple Pay is accepted at more than 250,000 retail locations.

Underwriting
The success of a BNPL tool not only hinges on retailer acceptance, but also on underwriting. After all, if your users aren’t paying you back, what’s the point?

While Apple is working with Goldman Sachs as the issuer for the Apple Card, the bank will only be involved in offering access to the Mastercard network and won’t facilitate underwriting. However, Apple’s advantage comes in the form of Credit Kudos, a U.K. startup the tech giant bought last year that enables businesses to leverage open banking to assess affordability and risk.

Physical and virtual card
Some BNPL players already offer both physical and virtual payment cards. However, Apple having both will be a leg up for the company. Having both a physical and virtual presence takes up space consumers’ digital and physical wallets, making it more likely to be top-of-mind (and top-of-wallet).

Brand trust and recognition
According to Statista, Apple has the second most valuable brand in the world at $612 billion. This value is driven by having a brand that consumers trust, recognize, and value. It is widely believed that when Apple releases a hardware product, it will be top-notch. Consumers will expect the same from Apple Pay Later, and will therefore be less hesitant to trust the new tool.

What’s missing?

Apple has thought of almost everything when it comes to Apple Pay Later. One thing I’d love to see is a retroactive payment-switching feature similar to Curve’s Go Back in Time. The tool allows users to free up cash by switching payments from one card to another up to 30 days after the purchase was made.

Apple could allow customers to choose to use Apple Pay Later even after a transaction has been completed in order to free up emergency cash flow. While I wouldn’t advise this as a personal finance strategy, it would offer Apple an even greater leg up on BNPL competitors (including Curve’s when it becomes more widely available in the U.S.).

We’ve seen some bad news in the tech sector lately. YCombinator is asking its portfolio founders to “plan for the worst” and prepare for a downturn and Klarna is laying off 10% of its employees. Headlines such as, “Tech’s High-Flying Startup Scene Gets a Crushing Reality Check” aren’t helping consumer or investor sentiment, either. It can be tough to remain optimistic.

The good news is that the fintech industry is resilient. So amid the recent onslaught of disheartening news, here are four reasons you can be optimistic about fintech right now.

DeFi is promising

Fintech’s future is bright, and one shining light is decentralized finance (DeFi). It’s hard to know the exact implications DeFi will have on banks, fintechs, and other traditional financial (TradFi) organizations.

However, it’s clear that decentralizing traditional operations such as money transfers and loans will make a more efficient financial system. What’s more, DeFi is poised to help the 1.7 billion unbanked individuals across the globe benefit from financial services they’ve previously never had access to.

The best innovations are born when times get tough

It’s true that necessity is the mother of invention. Whether it’s an economic downturn, a pandemic, or a crisis in a different form, difficult times have proven to motivate people to develop creative solutions. This can be seen in countless examples from the COVID Recession of 2020. After the COVID pandemic hit, businesses were forced to figure out a way to convert their offering or service into the digital channel. In fact, many fintech companies grew while firms in other sectors were forced to make major cuts.

With new crises come new issues, and new problems that businesses and consumers need help solving. A bear market or an economic downturn would be no different; the best innovations are yet to come.

Still room for improvement

Because the fintech industry is relatively nascent, many of the problems the industry set out to solve still exist. In a piece we published earlier this month titled, “Has Fintech Failed?” we took a look at all of the ways fintech is failing to help consumers and businesses. As a few examples, underbanked populations are still lacking quality financial solutions, there are no open banking mandates in the U.S., fraud is rampant, and digital identity is flawed. The good news is that this leaves a lot of room for improvement, and therefore a lot of room for new competitors.

Fintech is here for a reason

When all is said and done, fintech is made to help individuals and businesses better manage their finances and more easily access financial services. Because money is not an optional tool for survival in the modern economy, financial services companies have a unique ability to help others through a recession or slowdown in their own industry. This pervasiveness makes for endless opportunities for banks, fintechs, and DeFi alike.

The fintech industry is not just here to serve financial services organizations, but rather to help people in this world that need financial services the most. That’s why we’re here, and it’s certainly something to be optimistic about.

Photo by Marija Zaric on Unsplash

You’ve no doubt heard of the three largest buy now, pay later (BNPL) players, Klarna, Afterpay, and Affirm. The oldest of these, Klarna, has been around since 2005. But after the BNPL boom exploded in 2020, dozens of new players (and even some consolidation) emerged in the BNPL arena.

With so much competition– especially competition from large incumbents such as Chase–it can be difficult for BNPL companies to stand out and attract frequent customer spend. That is why some firms have found it advantageous to tailor their offering to a more specific audience. By targeting niche consumer groups, companies can provide a better user experience by tailoring each aspect of their offering to the specific group.

We’ve identified four niche players, each of which uses specificity to its advantage.

Study now, pay later

Australia-based ZeeFi recently launched its platform that helps education providers maintain cashflow and offers students a flexible, interest-free payment solution. The education provider receives payment upfront, while students can spread out the cost of their course for up to 36 months. ZeeFi was founded in 2016 under the name Study Loans. The company has raised $88.5 million.

Travel now, pay later

Uplift was founded in 2014 to allow users to pay for their travel experiences over time. The San Francisco-based company partners with travel brands, including hotel, airline, cruise, travel agencies, and more, and offers a point-of-sale financing option that lets customers spread their purchase out over time. Depending on factors such as purchase details and the traveler’s credit history, Uplift offers no-interest and simple interest loans that users can pay back over time, even after their trip.

Healthcare now, pay later

medZero‘s tool allows businesses to offer their employees a way to spread out the cost of their out-of-pocket healthcare expenses. The company provides users on-demand access to funds to pay up-front for the fraction of their healthcare bill that their insurance doesn’t cover, and pay the balance back over time. medZero doesn’t run credit checks, is fee-free, and charges no interest. The Missouri-based company has raised $5.7 million since it was founded in 2015.

Housing now, pay later

New York-based Flex helps renters pay their landlord on a schedule that works with their cashflow. Flex automatically connects to major rent payment companies and sends rent money on the user’s behalf to their landlord on the first of the month. As an added bonus, the company can help users build their credit scores, too. Flex, not to be confused with challenger bank Chime’s in-house BNPL tool with the same name, was founded in 2019 and has raised $5.8 million.

Photo by ROMBO from Pexels