Fika Ventures’ TX Zhuo talks about consumer fintech

Fika Ventures general partner TX Zhuo tells Axios There is a massive shift in the consumer fintech market due to rising interest rates, both in terms of the type of products consumers want and those in which VCs want to invest.

Why he is important: Zhuo leads fintech investments at the seed stage firm, which has backed startups such as PolicyGenius, Noyo, Papaya and MinervaAI.

This conversation has been edited for brevity and clarity.

How does the macro environment affect the types of fintech startups investors are willing to invest in?

• In this new environment, investors are more aware of unit economics and ensure that every marginal dollar spent has a good return.
• With interest rates rising, many investors are now worried that the basic unit economics of many of these fintech startups won’t work — especially those that either rely on lending or rely on origination products that were interesting in a low-interest rate environment, like mortgages.
• There are growing fears that the cost of capital, as well as lower consumer demand, will affect the growth of these startups.

How do you see interest rates affecting lending startups already in the market – especially those that raised money before the economy changed?

• The cohorts of consumers of [these new lending] companies are still relatively young and look very attractive in the first 12 to 18 months.
• But especially for those who rely on variable interest rates, our prediction is that these businesses and consumers will have an increasingly difficult time meeting their monthly payments.
• So we believe that crime and default will continue to rise. We started to see a bit of that in late 2022, but the trend is likely to continue into the latter half of this year as well.

How has this changed consumer demand, or what types of fintech products are people looking for?

• In a healthy market, many consumers were looking to maximize their investment dollars. They weren’t worried about job security, so instead of consolidation, they looked at expanding credit.
• Now consumers are a bit concerned about what’s going to happen in the next 12 to 14 months, so they’re more concerned about savings opportunities.
• The other alarming signal is that consumer credit card debt is rising rapidly right now and is pushing to pre-pandemic levels, suggesting that consumers may be drained in terms of incremental dollars they are willing to spend.