I remember drafting my 2023 fintech predictions at this time last year. I was nervous about my analysis and unsure if anything I said made sense. As I reflected on their accuracy, I’m impressed I wasn’t totally off base! Just goes to show you what obsessively reading fintech newsletters and keeping up with the chatter on Twitter can do. Also goes to show you it doesn’t matter if you’re an investor at the best fintech VC, the founder of the most incredible fintech startup, or a fintech exec — thought leadership can come from anywhere, including a humble aspiring VC.
2023 was a big year for me — I landed an amazing role at Intuit Ventures, moved to San Francisco, and began scaling VC Unleashed, a non-profit I co-founded focused on racial equity in VC. I also wrote angel checks in 4 fintech startups and was named in NYC Fintech Women’s Inspiring Fintech Females. I feel so proud and grateful to be here.
But you’re here to read about fintech, not my professional journey. Onto the fintech thoughts!
2023 In Review
From the regional banking crisis to criminal charges against Sam Bankman-Fried and Changpeng Zhao to the fall of BaaS — a lot has happened in 2023. At the same time, not that much has happened. Consumer fintech stocks have improved but continue to fluctuate. The “hot” fintechs still raised oversubscribed rounds, as expected. Other fintechs quietly folded up shop, raised at down rounds, or stretched their budgets out. M&A consolidation has happened (e.g. Visa’s acquisition of Pismo & Robinhood’s acquisition of X1), but not quite at the pace that was expected or at “sale” pricing. It’s almost as though everyone has been holding their breath this year, waiting to see — will the IPO market open? Will valuations go up? Will VCs start to open up their cheque books?
So, in many ways, 2023 was almost a holding pattern — with everyone adjusting to the new interest rate environment and waiting to see when the shoe drops. It’s hard to say when this metaphorical shoe will drop, or what it will do. In my opinion, the true fintech reckoning will only come with the IPO of hugely valued B2B fintechs like Plaid, Stripe, Deel, and others. It doesn’t seem like any of these fintechs are likely to IPO anytime soon; though Apex’s IPO may set the tone for others.
What’s Coming in 2024
2024 promises to be an exciting year, with the potential of lower interest rates and IPOs. But what does that mean for fintech? Read on for my 2 cents…
Prediction #1: Vertical SaaS becomes the focal point of fintech
This is the prediction I am digging my heels into — I expect vertical SaaS to become a huge focus this year. I know what you’re thinking — why does this belong in a fintech post? Here’s the kicker: fintech is a huge part of monetization. Vertical SaaS companies theoretically build a SaaS product for a particular manual workflow and then layer in payments, loans, insurance, and more to expand their revenue. Figuring out how to direct customers to their tool’s fintech products (i.e. the “take rate”) is a thorny issue that, if done well, will rocket vertical SaaS companies to success.
It’s fascinating to look at vertical SaaS. Besides obviously focusing on different industries, there are a few different approaches that I’ve observed in the past year. I honestly think all 4 of these variants have the potential to be big, and the approach that wins in a particular vertical depends on the specific dynamics of that space.
- The market expander: these are vertical SaaS players whose workflow tool enables higher efficiency for the businesses they serve. As a result, these businesses can process higher volumes and/or service additional customer segments like commercial accounts. This effectively increases the market size for the vertical.
- The workflow digitizer: these vertical SaaS players focus on a very specific workflow that’s currently manual or handled piecemeal across several parties. The workflows in the current state are highly inefficient and tedious, but with the vertical SaaS platform, they become simple.
- The super verticalizer: Certain verticals are so large they’re almost horizontals. This creates space for multiple other “super vertical” platforms that tailor their platform for a specific type of business within that vertical. A great example of this is the restaurant space. Despite the success of Toast, Square, Clover, Lightspeed, and other POS platforms, there continue to be specific niches within the restaurant space that can be better served by a more focused vertical SaaS player.
- The incumbent challenger: there are a few success stories in vertical SaaS we always think of like Mindbody or ServiceTitan. However, how flexible is their tech in the back end? Have they innovated enough to deserve their current market share dominance? Smaller vertical SaaS are popping up that directly compete with these incumbents, oftentimes creating better tech and/or experiences for customers.
Prediction #2: We will see more tech around fixed income & treasury management
2023’s high interest rate environment and the regional banking crisis showed us all the importance of fixed income and treasury management. As I’ve learned, tech for these financial instruments needs to account for nuances based on the type of fixed income (bonds, treasuries, and T-bills oh my), resale value, and coupon payments. Fintech so far has been focused on equities — but after this year I expect to see a higher focus on fixed income from both a consumer and business perspective. If the Fed does indeed cut rates, it’s going to be interesting to see how demand for fixed income-focused fintech products performs vs equities-focused fintech products. I’d expect a lag in customer interest for equities even if rates increase.
Prediction #3: Generative AI will still not find a knockout use case in fintech
2023 was certainly the year of AI, and much more is expected this year. However, I am still struggling with how generative AI will shift the game in fintech. There are certainly strong use cases for AI and ML in fintech, but so far the useful generative AI use cases I’ve seen include drafting emails, proposals, and reports. While these require some amount of fintech-specific data sets, existing generative AI tools create reasonably high-quality outputs like this already.
Prediction #4: Personal finance management (PFM) apps make a comeback
With the shutdown of Mint, I expect to see a surge of new startups in the PFM space. The PFM space could be a potential value-add use case for generative AI, which theoretically creates and executes a personalized financial plan for you across retirement savings, equities investments, and more. Indeed, I am seeing startups focused on automating the work for consumers vs. educating them enough to manage it themselves.
At a high level, this sounds cool and I’m intrigued. Consumers are increasingly willing to pay subscription fees for financial services so monetizing these apps could play out. At the same time, PFM apps have always struggled to appeal to the broad consumer base vs simply those who are financially savvy and want to optimize their finances. I don’t see generative AI solving this and am curious how this new wave of PFM apps tackle this problem.
Prediction #5: The AI co-pilot multiples within CFO tools (did you catch my math pun there)
The other area where generative AI seems to be gaining traction is within the office of the CFO. Many startups are trying to automate fractional CFOs by creating insights through generative AI that help businesses make more informed decisions in real time. There are many products here and all are slightly different: they integrate with different data sources, have a plan to create proprietary models, add different product wedges to attract customers, etc. There’s clearly a customer pain point here and I predict many more startups jumping in to solve it. I’m intrigued but also a tad skeptical. Intuit Assist theoretically will provide a lot of this functionality already; but it remains to be seen where customers want to see these insights (within their accounting platform, bank, FP&A tool, etc.) as well as what combination of data is right.
What I’m Looking for in 2024
As an investor, I try to balance the hype with areas I like and a few contrarian bets. Here are areas I’m interested in and will spend time on this year. If you’re building in any of these spaces (or just want to nerd out together) — please reach out, I’d love to chat!
- Vertical SaaS: this is an area I expect hype in but am also excited about. I look forward to discovering more underserved vertical niches and learning about the unique ways founders are expanding the market size, hyper-focusing, digitizing, or taking on an incumbent.
- Embedded Products for Fintech & Vertical SaaS: As vertical SaaS starts to gain momentum, companies will need certain embedded products to build out their full vision & potential. I’m looking for embedded solutions that will be there to meet their need, as well as serve other fintech customers.
- HR Tech x Fintech: I said it last year (and before that too) — the HR tech x fintech crossover is a huge opportunity. Payroll, time tracking, benefits, and compensation are thorny, complicated, and hard (having worked in this space pre-VC I can attest). I had a ton of fun digging into earned wage access and employer of record last year and am on the hunt for what’s next.
- Consumer Fintech: while I expect consumer fintech to remain muted this year, I am interested in and excited about what’s next here. In particular, I’m looking for startups who have cracked some kind of proprietary way to acquire customers that only they have access to — whether it’s an incredible TikTok strategy, data advantage, or more.
That’s all folks — thank you for taking a look! If you have any thoughts or comments, I’d love to hear them. And if you liked this post, don’t forget to follow me on LinkedIn & Twitter!
