Yesterday I had the pleasure of hosting a conversation with Allen Miller, Yonatan Mandelbaum, and Vivek Krishnamurthy, all coming with unique Fintech knowledge. We covered a lot of ground — from payments to neobanks, vertical banks, crypto, POS lending, and COVID-19. Here are 9 takeaways.
Fintech market maturity depends on the use case: Payments have a 20+ year history of VC funding, while API-infrastructure and POS eCommerce lending are solutions we wouldn’t have imagined being worth $10b+ even as early as 2015. Be careful to generalize on “where we are in the fintech cycle”.
Second and third generation Fintech Founders emerging: In Silicon Valley especially, but also in Israel, founders are spinning out of well established fintech brands rather than old-school financial institutions, suggesting a maturing of founder commercial understanding and specialization of coming solutions.
Niche over Mass Market: Unit economics for mass market offerings are becoming more difficult to crack. For niche offerings / verticalized financial services, quick scaling depends more on distribution advantages than product specifics. Many demographic & commercial clusters are underserved by today’s financial services and to date have attracted less start-up competition.
COVID-19 Impact: TAM for fintech in certain verticals such as eCommerce & healthcare grew substantially. Impact of digital transformation is that many technologies finally got a chance, but not all will succeed. Outside of a small number of blue chip companies, it remains unclear how many enterprises are serious about digital transformation. Pre-product, pre-revenue Enterprise Fintech deals are getting done at valuations that assume fast adoption and may be mispriced given the real preferences of customers.
Neobanks: 2020 was the best year to be a neobank because the existing banks couldn’t offer interest / meet in person and their value proposition sucked. Furthermore, a zero interest rate environment where you can borrow $500m is a perfect environment in which to build a neobank. Neobank Chime differentiated itself from traditional banks by factoring delayed PPP loans to their customers from their own balance sheet. Neobanks are proving they can create more compelling user experiences than older banks, and the market leaders are getting stronger.
The Future of Fees: Financial services is a truly global TAM — there will be punitive fees that get wiped by tech, but new income streams & business models are emerging, such as tipping for value. Underserved demographics — Instagram / Snapchat / Tiktok have created new TAMs because they can be used for business. Shopify & Square were able to address customers no one would have predicted at IPO. Interchange fees need to be explored in more depth but seem to have
Not Particularly Bullish: Insurtech’s (Lemonade, Root) loss ratio and underwriting methods compared to traditional full-stack carriers. Stripe’s valuation given the threat of new specialized entrants in non-core areas that Stripe has developed new products. Crypto’s current pricing given its fundamental progress and value proposition. (I argued against which I will get into in more detail in a future crypto panel).
The Future of Bank Branches: In 2019, more millennials visited branches than their parents. This could indicate younger people don’t fully trust internet banks quite yet. The future of the bank branch remains a big question. Technology & creativity that keeps bank branches profitable is an interesting & significant opportunity. Yet after COVID, unclear how much of an uphill battle it will be.
Craziest idea in Fintech
- Vertical bank for ex-convicts by an ex-convict
2. Reverse ATM — uber drivers delivering cash to consumers at their homes
3. Last-mile payment collection across emerging markets
My next conversation will be this Monday at 10am PST / 8pm IL with Saar Safra , CEO of lool portfolio company Beewise which recently raised an oversubscribed $22m B round from Corner Ventures.
Topic: The future of the most important living being on earth. Bees. Register Here!