Silver2020, in2023
This year’s Money20/20 has just ended. The atmosphere was visibly different from that of past years. Certainly not dark, but it wasn’t exuberant either.
I had the feeling of waiting – waiting to see what the public markets might bring in terms of stock rallies or new IPOs, waiting to see if any of the historically transformative technologies would actually come to fruition (think crypto), waiting to see if traditional venture capital would return. Waiting for.
To give you an idea of what we might expect, I asked leading venture capitalists and fintech CEOs for their thoughts. Here are five.
1. New areas continue to emerge
The last decade in fintech has brought us large-scale digitalization of every major product category – from life insurance to home insurance, from mortgages to buy now, pay later , from checking accounts to robo-advisors and more.
Some ask: what’s next?
Perhaps the area generating the most excitement is integrated fintech. Simon Khalaf, CEO of Marqeta, explained why: “Embedded finance will exceed $7 trillion in total financial transactions in the United States” (up from $2.6 trillion, referring to Bain research).
Many venture capitalists have highlighted the role of vertical software (think Toast for restaurants) as a channel for repackaging financial services into experience. This is becoming an area of focus across all major verticals.
Recent years have seen unprecedented venture capital investment in global fintech. Many of these new geographies have unique needs. Fintech Collective’s Carlos Alonso-Torras highlighted Latin America’s specific fraud and compliance solutions, where “the number of fraud incidents at fintech companies is increasing rapidly.”
2. Realism about the next hot technology
Crypto was present throughout the entire lineup of previous Money2020s. This time it was generative AI.
But how important will this really be?
Like Adam Coccari of Intuit
INTU
Generative AI (like cryptography and all the other fashionable technologies before it) will not be a panacea. And particularly for financial services. Simon Khalaf told me: “AI is raising the bar in financial services. Generative AI typically generates content, but in financial services it must improve the financial well-being of users.
Still, this remains an area where startups will have an advantage when it comes to fintech. Adam adds: “Startups will be more comfortable in gray areas in the short term and will be the first to experiment with using AI for things like financial and investment advice to consumers. They will push the boundaries…Banks will carefully monitor and adopt these features as consumer confidence and regulations adapt.
3. Consensus is up for debate
There is a lot of debate about what is actually successful in the long term.
As interest rates rise, the consensus seems to be that asset-light companies would thrive, particularly in the fintech sector. Yet Clocktower’s Ben Savage expressed the opposite view: “We believe the fintech venture ecosystem will end up relying more on companies with high balance sheets over time. The companies may be less capital efficient than other business models, but the absolute size of the profit pools is large enough to more than offset the upside.
Deluxe’s Barry McCarthy reflected on the isolated point solutions of the last decade and argued that these will disappear in the near future as customers increasingly look for seamless, integrated solutions that deliver a unified and convenient user experience.
Even the new novelty faces reality checks. Dan Rosen of Commerce Ventures explained that blind “GenAI for everything” won’t work. “We are excited about the practical approaches to the FinServ Gen AI opportunity, but the verticalization of LLMs is not trivial.
My take: Fintechs that appreciate the 3Ds of fintech: distribution, data and delivery advantages, will continue to thrive in the long term, regardless of the market (and that’s one of the reasons why I am an active investor in integrated fintech models like vertical software, b2b. Marketplaces and CFO tools).
4. An evaluation close to stability
Valuations have already fallen significantly in 2023 and venture capital funding in the fintech sector has collapsed. It’s clean.
As Steph Choo of Portage explains: “Ultimately, fintechs will be more valued than traditional lending and insurance companies. They will get a premium if they can leverage technology to operate more efficiently.
Yet there is no consensus yet on what valuations should be, nor on the right metrics at each startup stage (eg: what is the right revenue for a Series A fintech?)
We may also see an increase in mergers and acquisitions. As Deluxe’s Barry McCarthy told me: Over the next year, fintech will focus significantly on simplifying and consolidating the multitude of bespoke solutions that exist. International consolidation could also take place. Sarah Biller of Fintech Sandbox noted that “for acquirers with a global outlook, fintechs building for emerging markets – like Latin America, for example – are worth looking at.
5. Waiting to see what happens next
We are waiting – in a way, many are waiting for the next phase of fintech.
The last decade has seen an explosion of fintechs, digitizing all major product categories. The future remains bright. The future may continue to offer changes. Steph Choo concisely summarized the technology cycle: “2020: ZIRP. 2023: new normal (beyond profitability). 2030: new incumbent operators will be disrupted. »
What is certain, in my opinion, is that fintech will focus on sustainable and inclusive business models. This innovation will take place on a global scale. Some topics may be trending, and others may simply be trending right now (e.g. GenAI), but the long-term trend remains strong.