VC and analyst notes from FinovateFall on the future of Fintech

The FinovateFall conference, held this week in New York City, explored a number of ongoing trends and potential developments in the fintech scene – despite the noise the sector faced this summer. A brief visit to the three-day event featured venture capitalists discussing where they saw smart investments in fintech and an analyst’s insights on banking curation.

A discussion moderated by Peggy Mangot, head of fintech partnerships for commercial banking with JP 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, founder of Company Capital.

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

Inspired Capital takes into account categories that may have been unfairly beaten up in the public eye, von Tobel said. “Insurtech is a good example of that.” She also follows how consumers’ wallets and personal belongings develop. “The way young people access advice and information is going to look very different than your typical Schwab, Fidelity or Vanguard — they’re going to influence influencers on TikTok.”

As more people are living longer, von Tobel sees a need for asset technology and asset management to be adapted quickly. “Retirement is going to look a lot different,” she said. “When you add inflation … it’s a big problem. How is this country going to retire? How does it look?”

The rise of the gig economy and the creative economy also present new, long-term economic considerations, said von Tobel. “This alternative way of thinking about your income is incredibly interesting and powerful and complex with all kinds of risks 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 was the executive team at American Express Ventures, said her current firm has six major 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 financial services providers,” she said. “We’re talking cyber security, data capabilities and fraud. Things that make sure your transactions are safe and going where they’re going.”

Next phase of Wealthtech

One area Huang said she is excited about is the next phase of wealth technology. “We are looking at growth alternative assets in that category; something that has built up over the past five years.” When looking at different categories under wealth technology, Huang said she thinks about custody, brokerage, all the implications of what blockchain can do for each tokenization. “There’s a lot that will happen in asset management and asset management,” she said. “I’m excited to see what comes after some kind of improvement on the wealth front.”

The future of fintech may not be solely driven by media sentiment or memes in response to market turbulence. Hinkfuss, who spent several years in technology helping to scale a predictive analytics and SaaS company that was acquired in 2015 by Mastercard, said that while there were fintech headlines this summer about a decline in funding, such talk is put into contextual perspective. “In general, 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.”

These characteristics include being less profitable and seeing higher growth. Things got complicated in the private markets recently, 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 harder to meet. “Obviously 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 this year than we did last year.”

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

The decline in fintech may have been worse than some other sectors and verticals, she said, but pockets of opportunity emerged. Insurtech was beaten in the public markets before the summer downturn because early companies in the sector focused on distribution methods to compete with incumbents, Hinkfuss said, but it was difficult to challenge those companies. “It’s a brilliant, exciting crop of insurtech 2.0s 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 an area where we spend a lot of time today.”

Analyst Musings

Concluding a session with analysts talking about significant trends in fintech and financial services, Philip Benton, senior financial services analyst with Omdia, an analyst firm owned by Informa, said that curation and community in the financial world will be significant. He compared this to trends in other arenas where curation is often used. For example, with music curation on Spotify or series and films recommended on Netflix. “You expect the same from your banking life,” Benton said. “You expect it to be curated, whether it’s the onboarding experience you receive or the financial products you’re recommended or the loyalty offers 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 may not be the case. He showed examples of loyalty offers he had personally received from his bank – all with retailers he had never dealt with before, nor had any plans to. One offer was for a dealer 100 miles from his home. “Americans may enjoy driving, 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 upcoming story.

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