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Three Trends Coming Out Of Money20/20

three-trends-coming-out-of-money20/20

Trends in fintech out of Money 20/20

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We are well past 2020, but fintech’s iconic conference, M20/20 is still humming with possibility and the future.

Coming out of the event, after 100+ conversations, three themes stood out.

1. A search for underserved categories

As Adam Nash told me: “in fintech, we’ve handled everything from spend to save to lend. Yet, there are many other needs the same disruptive forces can unlock”.

In many ways, the first wave of fintech digitized individual product lines and unbundled the bank. The second, rebundled it. Yet, many pieces of the ecosystem still remain largely offline.

Adam’s new company Daffy.org (short for the Donor-Advised Fund for You) focuses on making giving a habit, helping members set money aside for charity, one such undisrupted category.

Even within subsectors where much venture capital has flowed, there is white space. Alex Tong, an investor with Information Venture Partners shared that within the crowded insuretech space “there are only a handful of vendors tackling Life & Health.”

Of course, it is not only certain verticals that are underserved, but also certain customer segments. For example, “99% of international students in the US are left out of traditional lending options due to lack of a U.S. citizen co-signer. By tapping into new sources of data, and reducing cost to serve customers via digital platforms (vs physical branches for instance), FinTechs are able to address previously unserved or underserved customer segments”, says Manu Smadja, CEO of MPOWER Financing, a LendTech to high-promise international students in North America.

Some new categories are emerging as well. Climate change is causing pain points across the spectrum – insurers trying to better understand their risks, and lenders their exposure for instance. Cyber risk is similarly changing risk exposure for insurance companies. New categories are emerging to service this space.

2. Localizing a global story

Fintech has become a global startup category, with unicorns around the world. In certain markets, fintech is the dominant startup category. For example, I previously wrote that the majority of unicorns in Sub Saharan Africa were in fintech.

Yet, despite the industry’s global importance, winners remain largely local.

As João Del Valle, the CEO and co-founder of Brazilian fintech unicorn EBANX remarked, “it is a continuous climb to maintain multi-regional payment platforms. To support multiple card schemes and alternative payment methods in Chile, to do tax management in Argentina, while keeping up with regulation changes in Colombia, Brazil, Mexico and so on, all at once. There are many local specificities you need to consider to offer consistent services. Some pillars are a must: deep ever-evolving knowledge, strong local teams and genuine relationships with local partners. This is our model, it’s what we live by.”

If anything, fintech complexity may be increasing. In payments for instance, we are rapidly expanding from a world of Mastercard and Visa. Brazil has launched PIX, a real time payment network. Others are following, for instance in Colombia with Minka. India has pioneered the universal ID scheme Aadhaar with a set of APIs, including in fintech, built atop.

This globalization increases complexity.

“Local expertise is incredibly important in fintech platforms especially when it comes to accurate identity verification. There are vast differences within identity verification data as it is created and stored locally within the different phone, credit header, and public record data sources by country,” said Johnny Ayers, founder and CEO of Socure. “Data usage, storage, retention, and regulatory and privacy requirements vary by country, which adds to the complexity. Region by region and country by country, local expertise is required to ensure organizations are not only meeting legal, regulatory and privacy requirements, but also maximizing the performance of customer conversions and fraud capture within that specific country or region’s framework.”

3. Putting fintech into embedded

Everyone in fintech is speaking about embedded-this and embedded-that. Seemingly, your future bank account might be with your gardener or your dentist.

This is of course hyperbole. Greg Cohen, CEO of Fortis, says the rise in embedded payments comes not only from the emphasis on customer experience, but also the digital transformation movement. Previously, software companies were the only ones able to take advantage of embedded payments, but as more companies become digital first, more will be able to take advantage. Embedded payments will help drive this movement, helping companies rethink their business.”

Where embedded fintech will succeed will be when it is part of an existing customer experience, and adds value to it. As Chris Dean, the CEO of Treasury Prime, an embedded fintech provider explained it to me, “Imagine construction vertical software. All of a sudden a contractor can have a bank account integrated with their supply chain needs and subcontractor portal. All of the transactions, lending and insurance powered by the same fintech engine. The same approach works in multiple verticals.”

While not all financial services will be embedded, it will have an important role to play when it is additive to the ecosystem and convenient to use.

Bonus theme: Returning to camelnomics

In recent years, the fintech focus was hyper-growth. But sustainability matters more than ever.

We’ve seen it in the headlines. Even the largest fintech players have had layoffs. Stripe laid off 14% of its workforce and Chime (a company I invested in at a previous firm) laid off 12%.

While the underlying models are strong, the world has changed. Greg Cohen of Fortis explained it: “We are moving past the era of growth for growth’s sake and into an environment that must be hyper-focused on meeting customer needs. In other words, it is more vital than ever that companies are solving real world problems.”

An observable shift is a conversation that moved squarely in the camel’s camp: focusing on sustainable unit economics, managed burn and a long term outlook. Joao Del Valle told me: “Unit economics have always been crucial, but companies were trumping reality by raising more capital to maintain revenue growth and postponing this vital discussion of business sustainability. Now, growth capital is scarce and investor talks will be focused on that exact topic that was previously underrated: unit economics.”

In this year’s M20/20, the story wasn’t about growth at all costs. It was about managing costs and planning for a long-term bright, sustainable and resilient future.

Onwards

Ultimately, the existence of continued undeserved segments and categories, a growth in complexity in multiple local markets, and the rise of embedded will create opportunities for the segment. Camelnomics will mean the innovations will be enduring.

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