Hey all, Jason here.
Well, I made it — Las Vegas for Money20/20 (full recap below), Hawaii for a quick work meeting, and NYC. Later today, I’ll be headed back to the Netherlands for some much needed rest.
To everyone I had the chance to catch up with this week, thank you for the time. For those I wasn’t able to see, let’s find a time to “coffee Zoom” soon!
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Money20/20 Recap: Fintech Forced to Grow Up
Despite what everyone acknowledged is a challenging operating and fundraising environment, the vibes at Money20/20 were surprisingly upbeat. I suppose fintech in general and the event specifically tend to attract optimists.
Attending the event is like drinking from a firehose — it’s impossible to see every session, make every meeting you’re invited to, or visit every booth on the show floor. Still, discrete themes have a way of emerging.
Here are my eight key themes from this year’s Money20/20.
Markedly Reduced Crypto Presence
At last year’s show, when crypto was still riding high, it was stunning the extent that crypto companies dominated the exhibit hall floor. It felt like at least a quarter of the booths were crypto companies or had some kind of crypto-related angle.
That was decidedly not the case this year. With “crypto winter” putting the market in a deep freeze, crypto felt like it was a bit in retreat. Still, there were true believers to be found, both on the exhibit floor as well as on stage. I caught several of Sunday’s sessions that were focused on “Web3,” and the oft-repeated sentiment was that down markets are the best time to double down, stay focused, and keep building.
A Tougher (but improving?) Fundraising Environment
Unit economics, burn rate, and runway were the obvious buzzwords when it came to discussing a significantly more difficult fundraising environment.
The general wisdom was that the mega-sized, late stage rounds we saw so much of in the past few years will remain relatively rare for the foreseeable future.
There was more optimism when it came to earlier stage deals — a sense that there has been a thaw, and seed- and Series A-stage deals are getting done. But gone is the FOMO-driven environment that drove frenzied deal making that often lacked adequate — and sometimes any — due diligence.
Instead, investor protections are back. “Dirty” term sheets featuring ratchets, anti-dilution measures, liquidation preferences, etc. are showing up with greater frequency.
The upshot? A renewed sense of financial discipline. As companies run short on cash and struggle to raise new funds, expect fintech layoffs to continue and M&A activity to pick up.
Embedded Financial Experiences
This one should come as no surprise. Particularly with the recent announcement of a Goldman Sachs-powered Apple savings product, the opportunity for embedded finance is more clear than ever.
With the explosion of fintech “infrastructure,” like banking-as-a-service providers, modern card issuers, and KYC/AML platforms, it has never been easier to add financial capabilities to products and services.
Mobile and commerce as distribution points for financial services was top of mind. We’ve already seen this to some extent with Apple, Google, and BNPL, and I only expect this trend to accelerate.
Banking-as-a-Service
Inextricably intertwined with embedded finance is banking-as-a-service, which was also top of mind at the show. While banks partnering with non-banks to create, distribute, and service financial products isn’t itself new — players like Bancorp and MetaBank have been doing this for years — the rise of “middleware” players like Unit, Synapse, and Treasury Prime is driving innovation in the space.
The two benefits of middleware layers most commonly cited include faster speed to market and lower cost to get to market. And while that can be true, the more significant impact, longer term, may lie in how middleware layers create and leverage networks of banks. While the recent Blue Ridge decision makes clear one reason why this is important, there are broader implications.
Taken to its logical conclusion, a consumer-facing fintech could leverage a single middleware player to create various products powered by multiple underlying bank partners.
Open Banking
It also shouldn’t be a shock that “open banking” was a prevalent theme — particularly given CFPB Director Rohit Chopra’s appearance on Tuesday morning.
Chopra used his speaking slot to announce that the CFPB is progressing with rulemaking to govern consumers’ data portability rights called for by Section 1033 of Dodd-Frank.
Chopra’s remarks make clear his belief that the data portability provided for by open banking is key to promoting competition in financial services. He began his remarks by saying (emphasis added):
“Around the world and here at home, financial services are slowly moving toward open banking and open finance. A more decentralized and neutral consumer financial market structure has the potential to reshape how companies compete in the sphere.
This week, the CFPB will launch the process to activate a dormant authority under Section 1033 of the Consumer Financial Protection Act that I expect will accelerate this shift.
The provisions provide for personal financial data rights for Americans, but would only have teeth after the CFPB defined the specifics through rules.
While not explicitly an open banking or open finance rule, the rule will move us closer to it, by obligating financial institutions to share consumer data upon consumer request, empowering people to break up with banks that provide bad service, and unleashing more market competition.”
Compliance As A Competitive Advantage
With a stronger presence from current and former regulators at the conference than I noticed last year, compliance was also a recurring theme from the stage sessions to expo floor and happy hours.
In the wake of Blue Ridge’s OCC agreement, there is immensely heightened attention to compliance — particularly BSA/AML-related — from partner banks, middleware players, and the fintechs that partner with them.
While some will attempt to address compliance issues with increased staffing alone, the savvier players are exploring new approaches to streamlining and automating aspects of compliance processes.
Meetings with companies like Performline, which helps companies manage marketing compliance, and Cable, which helps automate second line audits, were in high demand.
With Blue Ridge almost certainly not the last regulatory action in the BaaS space, companies are rushing to invest in compliance.
What has often been seen as a cost center now has the potential to be a critical differentiator and competitive advantage in the face of increased regulatory scrutiny.
Product Innovation
Earlier waves of fintech primarily focused on taking longstanding products and making them available online or making them available to traditionally underserved customers: think categories like personal loans or small business lending.
Later waves tended to focus more on design, UX, and customer segmentation than actual product innovation — neobanks are a prime example of this.
But with much of the “low hanging fruit” gone, more recently founded companies are focusing on more difficult challenges.
Novel capabilities are helping to drive a new wave of experimentation and innovation in consumer product design. Think capabilities like payroll APIs and services like earned wage access and payroll-linked lending.
Companies like Nirvana Money, which officially launched during Money20/20, are challenging the typical siloed, account-based product structure. Instead, it offers a “hybrid” that combines debit and credit capabilities in order to simplify how users manage their financial resources.
Climate: Missing In Action
I’m including climate in this list as I was surprised by how little of an appearance it made at the show. On the rare occasion climate was mentioned, it was usually in the context of ESG.
But I increasingly am of the opinion that climate will be a major force shaping consumers’ financial lives. You need look no further than areas of Arizona that are already losing access to water or Florida’s homeowners insurance market teetering on the brink of collapse.
Climate change is going to drive new and evolving financial needs, and that equals opportunity for the companies that can identify and meet them.
Other Good Reads
Observations from Money20/20 (Fintech Takes)
Back to the Future: The Revival of Credit Suisse First Boston (Net Interest)
Debunking the narratives about cryptocurrency and financial inclusion (Brookings)
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