When the U.S. government first pursued its massive Covid stimulus package in the spring of 2020, they likely had little idea their actions would have such a big impact on the trajectory of consumer fintech. 

The government allowed digital banking to become a key consumer access point for their money-printing and benefits disbursement. Consumers were already seeking out digitally native solutions following the closing of thousands of retail bank branches, and word of mouth and referral awareness for “get your government payouts faster” created a flood of consumer demand for fintech apps in particular. As a proxy for fintech account openings, app downloads averaged nearly 50% year-over-year growth in the months from April 2020 to July 2021, compared to average declines for incumbent banks during the same time period. And once activated, these new digital users largely spent and invested their newfound liquidity. This in turn translated into higher revenue for consumer fintech businesses, whether in the form of interchange, ATM fees, trading fees, payment for order flow, or otherwise. It’s an understatement that consumer fintech was a Covid beneficiary.

Given this higher revenue and more organic distribution, consumer fintech customer acquisition economics appeared exceedingly attractive in the moment. Accordingly, venture capital poured in, with 2021 fintech funding reaching $138 billion, growing 180% year over year. And then, fintech companies spent more aggressively on marketing; in their Q3 2021 earnings, Twitter reported fintech companies grew their spend 200% year over year with them. However, these unit economics soon changed. Free money from the government to consumers had inflated revenue and eased acquisition. Looking to maintain growth, these same companies pushed more into traditional paid marketing channels, notably Facebook, Instagram, and Google, and we saw customer acquisition costs rise as high as 4-6x, as revenue per user moderated.

Recognizing unit economics were inflated and worried about a possible recession, consumer fintech companies have since cut back marketing spend. As such, downloads and new accounts have declined year over year during recent months. Certain companies may be struggling, but as we look beyond the idiosyncrasies of the last two years, the longer-term sector trend remains favorable. Download growth on a three-year CAGR basis (compounded growth since before the pandemic) remains between 15-20% and appears to have returned to the pre-Covid trend line. 

When the U.S. government first pursued its massive Covid stimulus package in the spring of 2020, they likely had little idea their actions would have such a big impact on the trajectory of consumer fintech. 

The government allowed digital banking to become a key consumer access point for their money-printing and benefits disbursement. Consumers were already seeking out digitally native solutions following the closing of thousands of retail bank branches, and word of mouth and referral awareness for “get your government payouts faster” created a flood of consumer demand for fintech apps in particular. As a proxy for fintech account openings, app downloads averaged nearly 50% year-over-year growth in the months from April 2020 to July 2021, compared to average declines for incumbent banks during the same time period. And once activated, these new digital users largely spent and invested their newfound liquidity. This in turn translated into higher revenue for consumer fintech businesses, whether in the form of interchange, ATM fees, trading fees, payment for order flow, or otherwise. It’s an understatement that consumer fintech was a Covid beneficiary.

Given this higher revenue and more organic distribution, consumer fintech customer acquisition economics appeared exceedingly attractive in the moment. Accordingly, venture capital poured in, with 2021 fintech funding reaching $138 billion, growing 180% year over year. And then, fintech companies spent more aggressively on marketing; in their Q3 2021 earnings, Twitter reported fintech companies grew their spend 200% year over year with them. However, these unit economics soon changed. Free money from the government to consumers had inflated revenue and eased acquisition. Looking to maintain growth, these same companies pushed more into traditional paid marketing channels, notably Facebook, Instagram, and Google, and we saw customer acquisition costs rise as high as 4-6x, as revenue per user moderated.

Recognizing unit economics were inflated and worried about a possible recession, consumer fintech companies have since cut back marketing spend. As such, downloads and new accounts have declined year over year during recent months. Certain companies may be struggling, but as we look beyond the idiosyncrasies of the last two years, the longer-term sector trend remains favorable. Download growth on a three-year CAGR basis (compounded growth since before the pandemic) remains between 15-20% and appears to have returned to the pre-Covid trend line.