Financial technology startups will enter the next decade with a little more street cred than the last time around.

Nearly 60 upstarts focusing on financial services - from Stripe Inc to Chime Inc to Plaid Inc - have garnered valuations of more than US$1bil in recent years, according to CB Insights. Personal loans - a category popularised by fintechs like GreenSky Inc or Affirm Inc - are now the fastest growing form of debt in the US, Experian data says. And Robinhood sparked a movement toward free stock trading that has shaken the business models of the likes of Charles Schwab Corp and E*Trade Financial Corp.

Still, analysts and experts say there’s more to come. Sweeping mergers and acquisitions have transformed some of the industry’s largest incumbents in payments, who are gearing up for a bigger fight for market share with newcomers. And regulators are looking to have more say over how technology companies venture into financial services.

Here’s our annual list of the most important trends, challenges and companies to watch in the New Year.

Exit strategies

Mergers and acquisitions have historically been small and rare in the fintech space, but that changed in a big way in 2019. Fiserv Inc, Fidelity National Information Services Inc and Global Payments Inc did a series of deals that transformed payment processing in the US. More recently, PayPal Holdings Inc made its largest acquisition ever and Charles Schwab announced it would buy TD Ameritrade Holding Corp for about US$26bil . That frenzied pace of deal-making might continue through (at least some of) 2020.

Lindsay Davis, senior intelligence analyst, CB Insights: "Wealth management will likely see more consolidation from incumbents, who are under pressure to compete for next-gen customers and an army of virally growing fintech apps who have abstracted the client relationship away from the old guard. Charles Schwab buying TD Ameritrade is just the beginning of more strategic consolidation to come.”

Matt Harris, partner, Bain Capital Ventures: "I think there is a window during the first half of the year for IPOs, but once summer hits people will be fundamentally distracted by the election. I certainly don’t think it will be fast and furious.”

Regulatory scrutiny

Memorably, in 2019 Mark Zuckerberg defended Facebook Inc’s plan to overhaul the world banking system in front of Congress. (Legislators were not amused.) Our experts think there’s plenty more government scrutiny ahead for financial technology players. That’s even though regulators including the Federal Reserve and the Federal Deposit Insurance Corp have sought to encourage banks to work with newer technologies like alternative data in their underwriting in an attempt to bring more people into the financial services ecosystem. Companies will need to adjust their strategies accordingly.

Alyson Clarke, principal analyst, Forrester: "Regulators are going to start taking a closer look and scrutinising artificial intelligence. The whole Apple Card and the supposed gender bias - I think we’ll see more things like this surface. Transparency in AI is critical and ethics in AI is critical and it needs regulatory oversight.”

Vanessa Colella, Chief Innovation Officer, Citigroup Inc: "We want to make sure the people who are transacting are who they say they are. As we get to 40 billion devices online, you can see it’s not just about KYC, or Know Your Customer, it’s KYM, or Know Your Machine - and being sure that, as these transactions are happening at the edge, that you’re able to validate what the machine is, and whether the machine has the permission and the capability to make that transaction.”

The rise of digital banks

Chime, the leading US digital bank, is now valued at US$5.8bil . That makes it more valuable than some of the country’s largest banks, including New York Community Bancorp, CIT Group Inc or Synovus Financial Corp. It’s part of a new class of entrants, known as "challenger banks” or "neo-banks,” that’s raised more than US$3bil in venture funding in the first three quarters of this year. With that has come millions of customers. Will they remain loyal? Or will traditional lenders be able to win them back?

Frank Rotman, founding partner, QED Investors: "While these neo-banks can’t yet match the complete suite of banking products that a traditional branch-based bank can, this doesn’t matter to the typical consumer because they rarely, if ever, use any of the hundreds of products that are in a bank’s arsenal. So we’ll be talking about challenger banks in 2020 and in 2021 and in 2022 and eventually the ‘challenger’ title will be dropped because they’ll be major players in the ecosystem.”

Mitch Siegel, principal, KPMG: "I do believe 2020 is an arms race: You’re going to see a lot of people launching digital banking initiatives. Personalisation is what’s changed that game. Cross-selling without personalisation seems sleazy but if you can personalise offers, and give me things that are high probability that I actually want them, I’m okay with you trying to sell me other products and services. Make it easy. Know me. Value me. Protect me.”

The Bank of Apple? Big Tech moves in

If you’ve read this annual post before, you’ll be no stranger to predictions that the technology giants of the world will move deeper in to finance. The pace of those moves accelerated this year, however, with Apple launching a credit card with Goldman Sachs Group Inc, Alphabet Inc announcing a checking product with Citigroup, and Facebook attempting to make a new global currency.

Matt Harris: "I think this is inevitable. Tech companies, large and small, will be looking to incorporate payments, lending and insurance in their business models in the coming years, and the smartest and most capable banks will want to be part of that movement. I do think this raises the stakes for pure fintech startups.”

Frank Rotman: "The trend is broader than ‘tech getting into finance.’ It should be seen as ‘customer-facing organisations’ offering their customers banking products. Many customer-facing organisations have built up trust with their customers - as evidenced by high engagement and high net promoter scores - but don’t want to, nor see the need for, officially becoming a bank. Instead, they can partner with banks that are willing to co-brand or white label their services and offer great banking products to their loyal customers.”

Lindsay Davis: "Netflix could also leverage financial services to compete and enable gig-economy workers and freelancers in the film and TV industry, which have been traditionally too niche to serve, and have a unique set of pain points.”

 - Bloomberg