I’ve read quite a few articles in the wake of this week’s Money20/20 event contemplating themes, trends, winners, losers, and of course, how egregiously expensive the event has become, from event pass to hotel. And for all the thoughtful commentary, much of which I agree with, my takeaway was slightly different from the typical, “which financial technologies are hot, which are not, and which are just phony vaporware.” I was profoundly taken aback by the breadth of new fintech companies and products borne out of the pandemic years, from startups founded between late 2019 and mid-2022.
To my mind, this period of unprecedented proliferation of innovative financial technologies hearkens back to my premed college studies, and a period of time that evolutionary biologists refer to as the Cambrian Explosion: a geological era roughly 600 million years ago, when for reasons unknown, the fossil record shows an epic expansion and diversification of complex animal life forms, matched only in its breadth by its speed (10 million years, which in geological time is but a second).
Reining in this analogy, my experience at Money20/20 was defined by being exposed to an extremely broad spectrum of new fintech species. And contrary to the putative ethos of “gloom and doom” for earlier stage fintechs (no product fit, no go-to-market strategy, running out of money), many of these innovative startups were either bootstrapped, or had taken in only very small amounts of outside funding. Further, many of their products are already being used in the marketplace and generating revenue.
The cause of this “Fintech” Cambrian Explosion is quite clear. The pandemic set into motion two powerful forces that drove innovation and diversification in fintech: the need to digitize every segment of commerce (a demand side force), and truckloads of free capital (its supply side counterpart). Add to these dynamics meaningful advances in blockchain technology, real-time payment rails, biometrics, tokenization, and machine learning, all against a backdrop of banks needing to digitize and find new revenue generating business lines and the ubiquity of extraordinarily powerful mobile devices, and it’s really no mystery why I saw what I saw.
And what are these new fintechs solving for? Well, that’s a question whose answer is pretty clear as well:
The democratization of banking and payments –
– making it easy for anyone, anywhere, at any time, to move value anywhere in the world, with less friction, less cost, less fraud, in less time, and with greater security over the store of value and transaction participant’s PII (personal identifying information).
Now, for all my excitement over these new fintech species, my assessment should be contextualized as being but a snapshot in time, and is in no way predictive of any specific type of fintech’s success. However, it is indicative of a robust marketplace of highly differentiated, early-cycle fintech solutions, and this presages a lot of deal activity at the lower end of the market for capital raising, partnerships, and ultimately, mergers and/or acquisitions.
As to which fintech species might be winners, I have a few ideas and don’t mind sharing a clue. See, in the biological Cambrian, it was natural selection working against unpredictable and uncontrollable environmental changes that determined winners and losers. In the “Fintech” Cambrian, winners and losers will be determined by something a lot less random, and a lot more scrutable…market demand.
