The past few months have been a little tough for the fintech industry. Idk if y’all have seen that Sam Bankman-Fried character, checked the stock price of public fintech companies, or heard about something called layoffs but they’ve put a dampener on 2021’s hottest sector.
And yet, I argue that now is one of the best times in recent memory to invest in fintech. As an industry, fintech has more than proven its worth and shown it’s here to stay. There is great fintech talent that was recently let go who will either fuel other startups or create their own. The loss of fintech as VC’s golden child will mean there’s less competition for deals — giving time for comprehensive diligence and less FOMO-driven investing. In short, it’s the time to build and fund solid, category-defining fintechs.
The tl:dr on what I’m excited about this year (or at least for Q1 2023):
- 2023 is the year of B2B fintech: given the spectacular tank of D2C fintech stocks like Robinhood, Affirm, and Coinbase, B2B is the next opportunity. Specifically, I’m excited about verticalized digital payments, cross-border payments, verticalized CFO tools, the fintech x HR tech space, and community-based fintech solutions.
- That’s not to say there isn’t an opportunity in consumer fintech: I’m bullish on B2B2C business models and companies that encourage consumer savings, support debt payoffs, help younger consumers think through retirement/wealth planning, and are building human-centric financial products.
- General fintech predictions: there will be a number of fintech acquisitions, crypto will live on, we’ll see applications of more advanced AI models and generative AI in financial products (and maybe credit scoring), and BNPL will see some big changes. Lastly, I hope VCs will spend more time QA’ing fintech founders’ personalities and management styles.
PS: there’s never been a better time to fund founders of color and women founders in fintech vs the traditional “founder type”!
2022: It’s a Wrap
2022 has been a wild year for fintech. The year started out strong; with record-breaking fundings, valuations, and traction as 2021 wrapped up. Crypto & web3 was everywhere. Robinhood, Affirm, and Coinbase had just gone public. The future of fintech looked bright and it had never been a better time to be a fintech nerd writing thought pieces on your personal Medium blog.
Sure enough, the first half of 2022 was still explosive. Fintechs like Brex, Ramp, and Jeeves raised at crazy step-ups (if interested, check out my deep dive on expense management here). Though the price of bitcoin was down, crypto saw huge raises like ConsenSys’s $450M Series D, Yuga Labs’s $450M, Circle’s $400M, Polygon’s $400M Series D, and of course FTX’s $400M Series C. It was a wild time to own Bored Ape NFTs, some of which were valued at $300K.
The explosivity was short-lived, to say the least. The S&P 500 and Nasdaq fluctuated all year — ultimately ending the year down ~20% and ~34% YTD respectively. Tech stocks tanked, with blue chip companies like Amazon, Apple, Google, and Meta taking a beating (healthcare, utilities, and consumer food companies outperformed instead). 2021’s much-anticipated fintech IPOs lost momentum quickly within the first quarter of 2022. Klarna raised at an 85% slash in valuation. Layoffs after layoffs were announced — from tech giants Meta, Salesforce, and Amazon to fintechs like Robinhood, Coinbase, Plaid, and Stripe. As inflation spun out of control, the Fed hiked rates up to 3.8% in February (with another recent hike at 4.25% — 4.5% — the highest in 15 years). Crypto saw the Luna & Terra coin crashes, bankruptcies from companies like Voyager, BlockFi, and Celsius, and of course the fall of FTX and Sam Bankman-Fried. Fintech ended the year by drastically underperforming vs both financial services and tech. Woof.
To top it all — there’s been some strange management tactics that have come to light within fintech this year (besides SBF of course) — Fast’s shutdown, Bolt’s alleged metrics inflation (+its former CEO Ryan Breslow’s spicy tweets), and the abrupt triple founder resignation at Pipe.
A number of other things also happened this year within fintech that weren’t quite as buzzy but still interesting to note.
- Banks are eyeing fintech acquisitions as valuations fall — e.g. PNC Bank’s acquisition of POS & payments provider Linga and JP Morgan’s purchase of payments company Renovite and POS provider Viva Wallet this year.
- Debt is spiking — driven by pricier mortgages, rising inflation, and a whopping $930B in credit card debt. The 3.5% savings rate of Americans is at its lowest since 2005.
- The CFPB released a detailed report on buy now pay later (BNPL) that was more conciliatory than I personally expected — acknowledging how it had helped consumers while simultaneously calling out its risks.
I’m a firm believer that fintech is a long-term industry and, like every industry, there is a cycle. The interest rate is at its highest in 15 years. All companies (not just startups) need to pivot, and many ideas that worked well in low-rate environments will not work as well in high-rate environments. BUT there are still opportunities and good bets to make. Industry-leading companies will be built in this time — it’s time to double down on fintech.
2023 is the Year of B2B Fintech
B2B companies are looking far more attractive given the beating consumer fintechs have taken since going public. Neobanks are saturated and in a high-rate environment, it’s harder to get consumers to park their money in consumer apps. Customer acquisition is always tough, but these days it’s feeling especially tough for D2C fintech.
B2B fintech has always been a solid space to invest. I predict a much more intentional focus from investors on B2B fintech, and I’m no different. In particular, here are areas I’m excited about:
- Verticalized digital payments: the US’s average annual commercial check volume in the last 5 years is ~$8.3 trillion. Holy smokes! Even in the age of Stripe and Square, there remains a huge opportunity to continue monetizing payments. A lot of this check volume is in unsexy and tough industries like utilities, government, oil & gas, and education. The infrastructure is out there to digitize these payments — go-to-market is key for these companies.
Startups I’m tracking: Lunch Payments (helping vendors who work with educational clients get paid faster) - Commercial cross-border payments: this is a thorny issue that’s been on the fintech radar for a while — and what’s interesting to me are the different ways B2B startups have addressed this; from Jeeves’ spend management platform to Deel’s remote hiring platform. I’m curious how else cross-border payments can be solved from a B2B lens, and where they can be baked into other financial tools.
Startups I’m tracking: Verto Payments (API to power cross-border payments) - Verticalized CFO tools: many different approaches and customer wedges have proven to succeed — just as there are different types of CFOs so too are there different tools that appeal to them. In particular, I’m excited about verticalized expense management platforms (more on my post last year here), FP&A tools, and products focused on MENA, LatAm, and Africa.
Startups I’m tracking: Sotira (a financial tracking and expense management tool for e-commerce businesses), Cashboard (FP&A tool focused on SMBs), Sava (African expense management platform ), and Mendel (LatAm expense management platform) - Fintech x HR Tech: this is a space I’ve been bullish on for the last 1.5 years from compensation and benefits to earned wage access and I continue to believe there’s a lot of untapped opportunity here. The compensation, benefits, and payroll spaces have not fundamentally been rethought in decades, and with the added complexity of remote work — I continue to be bullish.
Startups I’m tracking: Sorbet (PTO cashout solution for companies), Compt (employee perks payments platform) - Fintech built for specific B2B communities: financial services look and feel very different to different communities — and we are just scratching the surface of what fintech can do here. In the past, we’ve seen this applied to a number of consumer communities (Greenwood, Suma Wealth, Cheese, Sequin) but there’s an untapped B2B angle which can lead to innovative and differntiated products. I want to see more of this in sticky and highly-engaged B2B communities.
Startups I’m tracking: Cashdrop (POS & payments platform targeting LatinX business owners) and Camino Financial (loan provider to minority-owned businesses).
Consumer Fintech Opportunities
This is all not to say that consumer fintech companies are DOA or that they can’t do well. Consumer fintech can be successful in 2023, but it will need a different business model. D2C fintech is a tough sell, but B2B2C fintech I’d argue is a very attractive model for the year. There are still a number of consumer problems that need fintech solutions — and as long as there’s a consumer problem there’s an opportunity.
- Retirement, financial planning, and financial optimization: I’m drawing from my own personal experience here of wanting to start planning for retirement but feeling like a financial planner is too expensive given I’m decades away from retirement. There doesn’t seem to be a good tool out there for the millennial+ generation to actively plan for retirement and optimize their finances. I’d love to see what generative AI and more advanced AI models can do here — personalized retirement plans, wealth management suggestions, etc.
- Savings & debt payoffs: personal finance management apps (PFMs) that typically have savings & debt payoff features are hard to monetize. I’ve thought long and hard about debt payoffs — for the sheer volume of debt that’s out there, I haven’t seen a D2C debt payoff company that has found the sweet spot of helping consumers and driving outsized returns. But debt, and specifically credit card debt, is out of control these days and the pandemic-era savings rate is long gone. As the economy continues to seesaw consumers are far more likely to use their disposable income for safer financial use cases like savings. I wonder how much space there is for a truly differentiated product here but think B2B2C solutions have the possibility for strong traction and returns.
- Human-centric financial products: financial products feel in general like someone wiping their hands clean and saying “well, I did my job and told you what to do” without any acknowledgment of a problem everyone who uses the product faces. More eloquently, in Alex Johnson’s words, I’m referring to “software products [attacking] money-adjacent problems that traditional bank products don’t solve”. As Alex calls out, Daylight is a fantastic example — their family planning tool for queer parents provides financial products but also a workflow, tool, and community to manage the emotionally draining and challenging experience that queer families face when they decide to have children. I’d love to see more of such products that specifically target the needs of an underserved community (I wrote more about this last year and you can read Alex’s full blog post here).
General Fintech Predictions
For fun — and because I couldn’t fit these blurbs into my above structure — I’m also sharing general thoughts on the state of fintech going forward:
- Fintech goes on sale: with fintech valuations beginning to drop around the Series A level, I’d expect to see a lot of fintech acquisitions next year (likely from banks, but really from anywhere).
- Crypto is here to stay (but way less buzzy and hyped-up): FTX’s demise was caused by bad management and business decisions, not an underlying flaw in the crypto institution. With investor morale at an all-time low, I’d expect crypto infrastructure and fundamentals to attract the most investment.
- Fintech will get an AI makeover: I expect fintechs to start taking advantage of the more advanced AI models and in particular generative AI this year, though my honest opinion is that AI may need a couple more iterations to fundamentally change the fintech game.
- BNPL will continue to weather the storm: I’ve generally been skeptical of BNPL providers but am impressed they’re still alive and kicking. I was also pleasantly surprised by the positive impacts the CFPB shared in their report. I expect they’ll stick around, and am interested to see how business models may or may not shift.
Thoughts or comments? I’d love to hear them — please comment or reach me on Twitter!
BONUS: thanks for making it to the end of my post! As a little treat, here’s what Chat GPT had to say when I asked for an introductory paragraph summarizing key fintech trends from 2022 with a fun tone. I couldn’t have said it better myself.
