What is Fintech & Why You Should Care

Recently, Emily Man, Urvashi Barooah & I decided to go back to the fintech basics. We worked through some questions that seem simple on the surface but that I actually found tough to unpack given the breadth and depth of the category. Below are some of the slides we shared with our colleagues at Redpoint Ventures last quarter* laying out what we believe fintech is, why it’s important, and what the funding landscape has been like.

A few key takeaways:

• There is no one clear answer on how fintech should be defined, even among people who have been deep in the industry. Below is one take
• Traditional FIs have scale and resources but are structurally limited in their ability to innovate. This = opportunity
• The next generation of fintech is in the early innings. There is still significant opportunity to drive consumer adoption and innovate on cost and distribution
• Public and private market investors are excited, and fintech has emerged unequivocally as a standalone category

Some interesting data:

• Financial services is the largest industry by market cap (>$10T) and fintechs represent <$1.5T. I am excited for the next decade of fintech as it continues to grow, both as a share of the overall pie but also as an enabler expanding it
• Despite recent market volatility, fintechs have performed well in the public markets, averaging at 18x EV/NTM. It’s important to note, though, that there is significant variance in multiples across sub-categories
• Investors continue to be excited about the sector’s potential. Venture capital invested $50B across ~1,300 deals in 2021

I’ve learned a lot from meeting hundreds of early stage fintech companies at the earliest stages and watching them grow over time.

Observations on what drives success in fintech:

• Companies start with an initial wedge that can seem narrow. As a result, total addressable markets (TAMs) can look small in the early days but the best companies expand their product offerings over time
• Therefore conviction in the wedge is key — I’ve seen dozens of companies going after the same end vision with wildly different starting points. Building the right initial product for a high need use case earns companies the right to expand their product offering over time
• It can take a long time to “work” — Building in fintech is hard and companies can take awhile to take off. But when they do it happens *fast*
• As a result early signals matter more than in other sectors — Trust is key in the early days for hiring, design partners etc. The early customer logos can determine success

Read on below for more detail and examples!

I also built a fintech market map and shared my POV how I categorize the industry and why. It is a meaty topic to walk through that deserves its own post which I am excited to share in the near future. Look out for it soon!

• While some of the specific valuation data has shifted since we put this together, the directional trends are still relevant and the takeaways remain the same.

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