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In recent years, working with a traditional financial institution or bank has been less than ideal. Far Cooler was working for, or working for, one of the many fintech startups that seem to be thumbing their noses at established banking brands.
Then the Federal Reserve raised interest rates, stocks rallied, and many fintech outfits that seemed to be doing well began to look stronger and stronger. The question now is whether fintech as a theme has lost its mojo.
According to VCs Lightspeed Venture Partners, Felicity Victoria Treger and Jillian Williams of Cowboy Ventures, the answer is a resounding “no.” At a panel discussion hosted by this editor last weekend in San Francisco, however, the investors didn’t wrap things up. In moderator Reid Albergotti – editor of technology news platform Semaphore – all three acknowledged the various challenges in the industry today, although they also highlighted opportunities.
In the face of challenges, startups and their backers have clearly gotten ahead of themselves during the pandemic, Albergotti pointed out, noting that fintech is “while everyone is working from home” and “using lending apps and payment apps.” As Covid fades into the background, it becomes “stronger”.
“Sophie is down,” he said. “PayPal is down.” In the year By the end of 2021, the financial services giant leveraged Frank, a college funding platform acquired by JPMorgan, to leverage its user base. “They don’t really have 4 million customers,” Albergotti said.
Williams agreed, but there are positives and negatives to fintech at the moment. On the positive side, she says, “it’s still early days from a consumer perspective” for fintech startups. According to the information she saw, “from the needs and wants of the user” there are still new and better options than traditional financial institutions.
More problematic, says Williams, “many of these companies need to adjust their business models, and many that have gone public probably haven’t.” Many uses still exist, but some fundamentals need to change. (Many outfits, for example, have spent too much to market, or are now incurring the costs of conviction by using relatively lax underwriting standards compared to some of their more traditional counterparts.)
Williams also added, “The banks are not dumb. I think they’ve woken up and continued to wake up to things they could do better.
Treiger also voiced concerns. “Some financial services sectors will have a rough year ahead,” she said, “particularly lending.” We see huge losses in loans. . . Because unfortunately, it’s like a triple: consumers lose their jobs, interest rates [rise] And the cost of capital is high.
It’s a challenge for many players, including big outfits, says Treiger: “Even the biggest banks have announced they’re doubling their loan loss reserves.” Still, she said it could be worse for young fintechs, many of which “didn’t survive the crash – they started lending in the last six years or so” and she expects to “see the worst hit”.
Meanwhile, Bent, who leads many of Lightspeed’s Latin American investments and sits on the boards of two Mexico-based fintech startups, said that while US fintech may be facing headwinds, fintech outfits outside the US continue to perform well, perhaps because there were fewer options to begin with.
“It just depends on which country you’re in,” he said, adding that the United States “has one of the highest adoption rates for fintech and wealth management services, but in Asia they have the most for credit and consumer fintech services.” “
All three said that this is not all doom and gloom. Before becoming a VC, Treiger says, for example, when she was part of the founding team at SMB lender Cabbage. There, “Once a month we meet with the new innovation arm set up at Bank XYZ,” she said with a laugh. And they want to learn how to get ideas and drive innovation.
“What happens in a recession is that CEOs and CFOs cut back in non-critical positions,” Traeger continued, “and I think what’s going to happen is, all these creative arms are going to be cut.”
When they are, she said, “it creates a huge opportunity for fintechs that build products that basically add to the bottom line.” CFOs, after all, are “all about profitability. So how do you reduce fraud rates? How to improve payment reconciliation? In the year That’s where I think there’s a lot of opportunity in 2023.
If you’re a fintech founder, investor, or regulator, you might want to catch up on the full discussion — which touches on regulation, talent in the industry, and crypto — below.
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