Here are some thoughts and observations: 

• There was and will continue to be much discussion about open banking, open data, and 1033.  1033 will be a massive change requiring the sharing of data historically enjoyed by the largest of banks.  Some benefits seem to be proven, agreed upon, and understood such as the ability to use account cash flow data to improve access to credit for consumers who lack credit bureau history.  In addition, the industry seems most excited about the potential ability to use real-time longitudinal data to create richer, more personalized, and customized products and services in the future.  While it is agreed that consistency and accuracy of data will benefit the industry, some argue that this will come with increased costs for implementation and ongoing compliance – the value should exceed the cost.  Technology will improve and it is expected that consumer adoption will continue, thus increasing benefits to product and service providers.  With 1033 it is now crystal clear that the consumer owns the data – but infrastructure needs to be put in place to hold the data and protect PII.

• There is bumpiness in the regulatory environment.  All eyes – from banks to fintechs – are on regulatory developments and enforcement actions.  Compliance should be at the forefront and serve as the foundation for businesses with constant engagement between business leaders and internal risk/compliance.  Understand the purpose of the regulation and the customer interest it is protecting instead of getting frustrated by its specific requirements. 

• There is an increased emphasis on partnerships – who has a seat at the table with you for mutual benefit such as value creation or enabling infrastructure.  Banks are becoming much more active in working with fintechs and it’s not just testing.  The ability to problem solve and increase performance helps to create a great partnership.  Bank and non-bank partnerships need to be aligned on a solid foundation of compliance. 

• There are significant data and automation opportunities to improve access to products and services in small business banking.   While banks typically provide a bank account, payments, and working capital, others in the market are providing more services that are needed including payroll, marketing, CRM solutions, and others.  Historically relationships with bankers and small businesses were done over a handshake.  This is being replaced with access to new sources of data that enable a holistic view of a business’s past and where they are headed – this includes cash flow and merchant services as a start.  Expanding into utility bills, supplier payments, lease payments, and other transactions is critical. 

• Banks are modernizing, but it is a massive effort that requires investment in time and resources.  A best practice is to integrate legacy system owners and the builders of the new architecture into a cohesive team to drive the change needed to support existing businesses and set up the tech stack to enable innovation. 

• Fintech has entered a new era with the advancements in technology and data used by good and bad actors.  Technology – cloud, the use of APIs, AI – are still rapidly evolving.  There will be continued growth in the areas of infrastructure, frictionless transactions and experiences, fraud, and security.

The industry has certainly been through much this year with bank failures, significant increases in interest rates, a pullback in investments, and more recently a war that has directly impacted families and business leaders across the world.  Despite these challenges, Money 20/20 was instead focused on the opportunities in the future while recognizing the need for solid foundations in business models and compliance.  Crypto was de-emphasized.  Businesses facing significant financial challenges were simply not in attendance.  It felt great to network and learn from others to get back to business and look toward the future. 

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Here are some takeaways from this year’s conference: 

1.      The current environment is tough and one that we have not seen since the dot.com bust. Investor appetite has dramatically slowed since exits are unclear. This is a cycle, and growing companies need to manage their runway to survive and come out the other end. Focus should be on profitability and unit economics while adhering to regulatory compliance. Existing fintechs that come through the cycle will be very strong. Scale in revenues and customers matter—M&A activity is expected and will require creativity to find curated buyers, build relationships, and generate demand. Financial Technology Partners / FT Partners  Current

2.      Despite this, the fintech industry is poised for strong growth with companies that have proven and vetted their value propositions and business models. When our world went digital post-COVID there was a run-up in investor demand and some companies with unproven business models continued to raise funding through multiple rounds. The recent decline is a normalization from this hypergrowth. The outlook for fintech is incredibly promising with strong forecasted growth in revenue and margin—driven by cutting-edge innovation with products that start with the underlying customer problem to be solved. It is expected that venture capital will go back to basics and require proof of business models before further funding rounds—resulting in strong and resilient companies going forward. QED Investors

3.      Fintech lenders see an opportunity to finance small businesses in their time of need as they deal with economic headwinds. Fintech lenders see a great opportunity and responsibility to leverage data and analytics to drive underwriting efficiency, access a broader set of data to assess the financial health of a business at a fairer price, and provide transparency to help small business owners compare their options so they can make decisions that improve their financial standing over time as their business grows. Lendio Funding Circle US Credibly Nav Technologies, Inc. Intuit American Express

4.      Financial products and services for the traditionally underserved need to be built uniquely and meet customers where they are. This requires being customer-obsessed to understand the customer through significant research and feedback loops. There should be no preconceived notions when approaching product design—trust is built by creating true value for customers. Tala Commonwealth Block

5. More work is needed in the industry to address the root causes of disparities in the treatment of marginalized segments of the population. Segments of the population are not reflected in credit bureau data; housing appraisal values can differ between white and people of color; the number of black or women-owned banks has declined through the years. These issues need to be addressed and remediated since access to credit and homeownership are paths to prosperity. Experian FairPlay AI Ready Life

6.      Fintechs and banks are embracing collaboration to create win-win opportunities. Fintechs focus on cutting-edge product innovation and customer experience while benefiting from a bank’s compliance systems and lower cost of capital. A fintech can create a network of banks to manage asset/liability management, and banks can gain access to digital channels to grow deposits, loans, and customers. Embedded finance will create many opportunities with new kinds of providers, but execution will be very complex since significant cross-functional (marketing, loyalty, IT, product, strategy) coordination will be required at the partner with people who may not understand the complexities of payments and/or lending. Other requirements include top management buy-in, skill to navigate a large company, and strong due diligence at the beginning of the relationship. QED Investors  Upgrade Inc. Netspend  CardFree  Mastercard  Jifiti  LiftForward

7.      Many stakeholders are excited about the power of open banking, including the regulators. Open banking can enable financial service providers to see a more holistic view of the customer. The automated use of such data creates a better customer experience and reduces errors. These advancements could make it easier for a customer to switch providers leading to an increase in competition. The CFPB expects rules to be completed next year and is seeking engagement from market participants including fintechs and intermediaries. Privacy remains a concern as is the risk that detailed transaction data could be used for other purposes. Codat  Lili  Consumer Financial Protection Bureau

As we get through this rough patch, we will emerge stronger. I’m looking forward to seeing what is created and participating in Fintech Nexus again next year!

Fintech Nexus

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The inaugural in-person Fintech Meetup conference took place this week (March 19 – 22) in Las Vegas and is positioned to be a key event in financial services, banking, and Fintech. The gathering brought thought-provoking discussions and a slew of impactful 1:1 meetings for attendees.  Despite market volatility, there was still an air of excitement over opportunities and resilience that can be created in times of industry stress.      

Here are some takeaways related to Fintech Meetup from this week:

• There is a flight to safety, given market volatility and fragility.  Newer Fintech providers need to look inward, focus on themselves, and continue to innovate.  Larger Fintechs need to figure out how to leverage their scale to position to grow.  All need to refocus and figure out who they are and what they are good at so they can focus on these core strengths.

• Open banking is exciting but there is uncertainty as to its governance.  There is an increased willingness of customers to share their data, but the industry needs to deliver security, real-time functionality, and trust.  Ground rules are needed over furnishers, ownership of data, transparency, and use of data.

• Sponsor bank and Fintech partnerships drive innovation and are growing — as is regulatory scrutiny over these relationships.  Fintechs excel at customer acquisition and product innovation.  Sponsor banks excel at operations and regulatory compliance.  BaaS providers allow players to enter quickly but add complexity.  As the industry continues to evolve:
  • Executive leadership commitment is essential.
  • Partners need to formalize relationships the correct way up-front, with robust due diligence, ongoing relationship management, and a compliance management program to govern the relationship. 
  • Sponsor banks need to view Fintech partners as customers of the bank. 
  • Fintechs should have a deep understanding of compliance requirements (KYC/AML, customer protections) expected by regulators. 
  • Partners need to evaluate their product roadmap and assess whether the potential partner can scale and align.
  • Collaboration is critical for ongoing success and day-to-day operations.

• SMB lending is the next frontier for innovation and inclusion.  For consumer lending, alternative data outside of traditional credit bureaus has been instrumental in helping some lenders better understand risk, extend credit, and improve the fairness of credit decisions – but more work needs to be done in the industry.  Traditional data sources for SMB lending have been limited and out of date – but today lenders are able to tap into accounting, banking, commerce, and payments software through APIs.  This allows for a streamlined and richer view of the business beyond traditional credit bureau data and increases access to credit for traditionally underserved business owners.

• Globalization and digitization create opportunities for Fintechs to innovate and enable all form factors and in real-time.  Legacy payment systems do not effectively address these needs and as a result, the software market is very fragmented with many Fintech players.  Orchestration enables choice but creates complexity and risk when there are issues with a payment.  Accuracy and reliability are critical — if you lose your customer, they are not coming back.

• Significant opportunities exist to modernize B2B payments, but the transformation will continue to dramatically lag behind consumer payments.  B2B payment digitization lags consumer payments given legacy processes and systems and the complexity of B2B payment flows (multiple suppliers, multiple currencies, approval processes, etc.).  Automating AP/AR is compelling.  Real-time payments could become ubiquitous with the roll-out of FedNow.  However, B2B payment modernization requires significant effort and requires change across the entire workflow beyond the payment itself.  Providers support industry adoption by making it easier for small businesses to integrate.  For enterprises, providers crystalize the benefits, drive simplicity, and create a path with discrete milestones.  There will always be multiple methods of payment that need to co-exist; it is not the rail, but the user experience. 

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