The last couple of days at Fintech Meetup were intense and well worth the time to attend. Like other fintech conferences, innovation was a theme brought out in the keynotes and the engaging discussions across the panels. The aspect of this conference that stands out from any other is its 1:1 meeting program. Conference attendees participate in back-to-back, carefully curated 15-minute meetings with people who want to collaborate. This is a roll-up-your-sleeves conference where attendees come together to make things happen! It was outstanding!
Here are some themes that emerged from the many conversations:
- Fintechs are continuing to modernize small business lending and provide access to capital for underserved businesses that have been traditionally overlooked by the banking system because of the cost to serve. Using technology to automatically access accounting data is not new – but there have been advancements in technology to process disparate data and a wider ability for lenders to access business sales data by tapping into payment systems and ISVs. This continuous and real-time sales data allows lenders to paint a more forward-looking and better picture of the financial health of a business to inform risk and underwriting. The government is leaning in to support technology innovation in small business lending by modernizing SBA lending, including granting the first SBA license to a fintech (Funding Circle). Partnerships and collaboration with fintechs, banks, payfacs, and ISVs will continue at a faster pace. There is a lot of optimism for the future and a sense that we are still early in this journey – there will continue to be many opportunities for banks to work with fintechs to provide capital to small businesses, which will ultimately help small businesses better operate and grow.
- The current investment and funding environment for early-stage Fintechs has improved, while later-stage activity is still quiet while these companies focus on cash flow, profitability, and cash burn. There is wide agreement that companies will be coming out stronger having managed through high and low market environments. VC outlook is selectively optimistic. Many are very excited by embedded finance and vertical SaaS where there is the potential for network and flywheel effects, and with cross-border payments given the size of that market. While wealthtech presents automation opportunities, distribution seems difficult. There are mixed opinions about B2C and crypto. Most VCs believe lending is not attractive, however, Ryan Gilbert refuted those opinions with his statement that “credit is like oxygen and that we need it to live”. He further stated that while valuations are lower due to the interest rate environment, their function is critical and there are exciting opportunities in this space.
- Real-time payments have been slow to gain adoption, but bank implementations are accelerating. Fintech software can be an enabling force to power banks and support bank and consumer adoption. Payment routing (ACH, Same Day ACH, RTP, FedNow) ultimately depends on whichever method makes the most sense for the use case – criteria such as speed, credit push vs. debit pull, weekend settlement, and revocability all factor into the type of payment rail that could be used. The outlook is exciting as we get closer to broad usage and develop new financial service products on the ISO 20022 layer that leverage increased speed, certainty, and availability as part of their value propositions.
- There was a huge focus on best practices for bank and fintech partnerships and associated compliance considerations given recent regulator actions. In this regulated industry, banks need to control their risk management obligations and they are the ones that own the compliance of their fintech partners. Fintechs need to understand they are a service provider to the banks and *not* the other way around. Regulatory controls, due diligence, trust, and ongoing oversight are needed to make it work. As part of the relationship, banks should collaborate with fintechs on the messaging with the regulators, even though it is only the bank at the table. Banks will take time to evaluate new fintech relationships and Fintechs need to get into the list of priorities the bank is working on. Expectations, intentions, and timing should be made clear upfront without stringing anyone along – otherwise, the fintech should move on and search for another bank partner.
- Compliance is a competitive advantage. Data, tools, and technology are being developed to strengthen risk management and compliance functions for financial service providers and to support the compliance function between providers. Financial service providers are not able to be nimble if they are stuck in compliance. These technologies free people out of low-level compliance tasks, so the FIs can redeploy the same resources to understand the data, interpret the data, and work with the data faster. This frees them to focus on product innovation for the benefit of the consumer. For example, FairPlay and Upgrade discussed how FairPlay’s fair lending analytics software enables Upgrade to have customizable, real-time, continuous improvements and tweaks to their models which gives them confidence when there are changes in products, population, customer behavior, or data. The analytics and feedback are iterative and they can adjust their models on the fly for continuous improvements.
- There is rapid adoption of GenAI with companies actively experimenting and deploying this new technology, particularly in services and functions that require lots of reading and writing (insurance, legal). We will likely see case studies on how GenAI is being used in the market and the impact within the next year. The profit pools in retail banking will decline since consumers will be able to rapidly find the highest rates for savings and lowest rates for loans. Retail banks should not rely on customer inertia – they will need to focus on other stickiness beyond price.
The conference was very optimistic and collaborative. There are several reasons for this – we are at the start of a fresh year, the tone from leaders in the industry was positive about the opportunities in front of us *now*, the conference attendees are action-oriented and want to get things done, and the structure of conference absolutely supported meaningful connections and potential collaboration. There will be partnerships and innovation as a direct result of this year’s Fintech Meetup, and I am so looking forward to seeing what is developed and built!