The fintech sector has been walloped while traditional banking comes back into favor with investors — which is better for the long term?
Feb. 1, 2022
I don’t think any of us saw traditional banks making a comeback while fintech gets pummelled in 2022, but here we are.
Now, the overwhelming predicament is where should you place your chips for exposure to finance?
The shift in finance
Traditional banks own the mortgage and IPO markets, but empty bank branches plague their business model. The value locked into DeFi protocols increased by 1,000% in 2021, but consumers can’t put trust in such a volatile unregulated market. Fintech, on the other hand, shapes up nicely.
Digital wallets, fee-free investing, and banking apps have changed the way we conduct our finances forever. What it really comes down to is who will we be borrowing, saving, investing, and using for transactions in the next ten years? The statistics are pointing in the direction of fintech as well:
- Global digital banking is projected to grow at a 15.7% compound annual growth rate until 2026, valuing the total market at more than $30 billion
- 50% of millennials in the U.S. shopped online for a deposit account in 2020
- 2,927 U.S. bank branches closed on a net basis (closes v.s. openings) in 2021 — that’s a 38% increase from 2020
Legacy players have been fighting an uphill battle for years now; cultural changes, cost-cutting for overheads, and being forced to invest billions in digital infrastructure to remain relevant.
Fintechs, on the other hand, has been entirely predicated on its digital offerings from the get-go. The advantages are that they can focus on customer experience, accessibility, affordability, and user design. There’s no sense in saying big banks will topple overnight, but there’s a good chance we see fintech rebound yet and continue to claim more market share over time.