VC and Analyst Notes from FinovateFall on the Future of Fintech

On Sep 16, 2022

The FinovateFall conference, held this week in New York City, explored a range of going trends and potential developments in the fintech scene — despite the drubbing the sector faced this summer. A brief visit to the three-day event offered up venture capitalists who discussed where they saw smart investments being made in fintech and an analyst’s insights on curation in banking.

A discussion moderated by Peggy Mangot, head of fintech partnerships for commercial banking with J.P. Morgan, focused on where investors saw smart money going in fintech. The panel consisted of Sarah Hinkfuss, partner with Bain Capital Ventures; Alexa von Tobel, co-founder and managing partner of Inspired Capital; and Julia Huang, founding partner, Company Capital.

Von Tobel, who was previously founder and CEO of LearnVest, said the current confusion and nervousness in the world may be a time for new innovators to emerge. “What we’re looking for are those founders that actually are so committed to what they’re doing, they’re so emboldened that they want to go build,” she said. “This is when the builders really come out.”

Inspired Capital pays attention to categories that may have been unfairly beaten up in the public eye, von Tobel said. “Insurtech is a great example of that.” She also watches how consumers’ wallets and personal assets are evolving. “The way that young people are getting access to advice and information is going to look very different than your typical Schwab, Fidelity, or Vanguard — they’re going to influencers on TikTok.”

As more people live longer, von Tobel sees a need for wealthtech and wealth management to adapt fast. “Retirement is going to look a lot different,” she said. “When you add in inflation … that is a huge problem. How is this country going to retire? What does that look like?”

The rise of the gig economy and creator economy also present new, long-term financial considerations, von Tobel said. “This alternative way of thinking about your income is incredibly interesting and powerful and composed with all sorts of risk for society,” she said, including how to approach health benefits and 401ks.

What happens under the hood of the financial world is of particular interest to Company Capital. Huang, who along with her founding partners at Company Capital were the leadership team at American Express Ventures, said her current firm has six large thesis areas, which include financial services and vertical SaaS embedded with payments. “We have a very big focus on the underlying infrastructure, what we call the institutional trust layer of vendors to financial services,” she said. “We’re talking cybersecurity, data capabilities, and fraud. Things that ensure your transactions are safe and going where they need to go.”

Next Phase of Wealthtech

One area Huang said she is excited about is the next phase of wealthtech. “We’re looking at alternative assets in growth in that category; something that’s been building over the last five years.” When she looks at different categories beneath wealthtech, Huang said she thinks about custody, brokerage, all the implications of what blockchain can do for every tokenization. “There’s a lot that will happen in asset management and wealth management,” she said. “I’m excited to see what comes after sort of Betterment on the wealth front.”

The future of fintech might not be solely driven by media sentiment or memes in response to market turbulence. Hinkfuss, who spent several years in tech helping scale a predictive analytics and SaaS company that was acquired in 2015 by Mastercard, said though there were fintech headlines this summer about declines in funding, such talk should be put into contextual perspective. “Overall, public markets are down, and when you control like for like, fintech is not down anymore,” she said. “It’s just that fintech happens to have more companies that are of the profile that have been more down in the public markets.”

Those traits include being less profitable and seeing higher growth. Things got complex in the private markets in recent times, Hinkfuss said, for companies in real estate or insurance or lending that have large balance sheets, where constant capital has become much more expensive and more difficult to fulfill. “Of course, the delay was more in the private markets, so we didn’t see the drop until this summer,” she said. “If we just look at August in terms of total deals across all sectors, we saw 38% fewer deals in August of this year than we did last year.”

That represented 24% less actual dollars invested overall, Hinkfuss said, in venture companies. “Fintech did see more of a decline,” she said. More than 40% fewer dollars went into fintech this summer compared with summer 2021, Hinkfuss said, with the most impact on pre-seed and growth-stage companies.

The decline in fintech may have been worse than some other sectors and verticals, she said, but pockets of opportunity were emerging. Insurtech was pummeled in the publics markets before the summer slowdown because early companies in the sector focused on distribution methods to compete with incumbents, Hinkfuss said, but it was tough to challenge those companies. “There’s a brilliant, exciting crop of insurtech 2.0s that are focused on innovation in underwriting,” she said. “Leveraging data through different methods or relationships with customers to find better risk and sell into that risk and create a stronger, more profitable customer relationship – -that’s one space where we’re spending a lot of time today.”

Analyst Musings

Closing out a session of analysts who spoke on substantial trends in fintech and financial services, Philip Benton, senior analyst for financial services with Omdia, an analyst firm owned by Informa, said curation and community in the financial world will be significant. He compared this to trends in other arenas where curation is used often. For example, with music curation on Spotify or shows and movies recommended on Netflix. “You expect the same from your banking life,” Benton said. “You expect that to be curated, whether it’s the onboarding experience you receive or the financial products that you’re recommended, or the loyalty offers that you receive.”

Based on Omdia’s retail banking survey, banks saw personalized, curated customer experience as a top factor but in practice, Benton said, that might not be the case. He showed examples of loyalty offers he had personally received from his bank–all with retailers he never shopped with before, nor had plans to. One offer was for a retailer 100 miles from his home. “Americans might like to drive, but for a British person to drive 100 miles to get a 10% discount is not a good deal,” he said.

Benton will detail more of his insights in his own forthcoming story.