The Rise, Fall & Reset of The Fintech Industry
Timestamps are as accurate as they can be but may be slightly off. We encourage you to listen to the full context.
Podcast Summary
This episode of the a16z podcast explores the dramatic evolution of fintech from 2018 to present day with David Haber (a16z General Partner) and Zach Perret (Plaid Co-founder and CEO). (00:25) The conversation traces fintech's journey from late spring growth through the explosive summer of 2020-2021 when 25% of all venture dollars flowed into the sector, followed by the brutal winter of 2022-2023, and now back to spring conditions in 2024. (02:38) The hosts examine how AI is reshaping the industry, particularly in fraud detection and underwriting, while discussing the maturation of fintech from a startup sector into mainstream financial services infrastructure.
• Main Theme: Fintech has evolved from a collection of digital banking alternatives into the foundational infrastructure of modern financial services, with AI emergence creating both new opportunities and significant fraud challenges.Speakers
David Haber
David Haber is a General Partner at Andreessen Horowitz (a16z), focusing on fintech investments. He previously worked at Goldman Sachs and was an early investor at Spark Capital, where he sourced and led Plaid's seed round as an associate. He has been a longtime supporter of Plaid throughout his career transitions and is credited with helping create important industry terminology in fintech.
Zach Perret
Zach Perret is the co-founder and CEO of Plaid, the financial infrastructure company that enables applications to connect with users' bank accounts. He has led Plaid since its pivot in 2012-2013, growing it from a bank account linking service to a comprehensive financial data and services platform. Under his leadership, Plaid navigated a failed $5.3 billion acquisition by Visa in 2020 and has evolved to serve hundreds of millions of connected accounts across the fintech ecosystem.
Key Takeaways
Focus on Solving Endemic Problems Rather Than Just Digitizing Services
The fintech industry has successfully solved the "access problem" by digitizing traditional banking services, but the next horizon involves addressing fundamental issues like credit scoring and fraud. (07:05) Perret explains that while consumers can now get 30 mortgage offers in an hour online, the industry hasn't necessarily made financial services "excellent" - just digital. The focus should shift to solving long-standing problems like making credit scores more logical and reflective of actual financial capacity, such as incorporating real-time income and expense data rather than relying solely on historical repayment patterns.
AI's Biggest Impact Is Currently Fraud, Not Innovation
Counterintuitively, fraudsters are currently the most sophisticated users of AI in financial services, with financial fraud growing 18-20% annually. (27:05) Perret observed at a recent dinner that "the biggest use case for AI is fraudsters committing fraud against financial services companies." Traditional fraud operations like pig butchering scams have evolved from human-operated factories to AI-powered systems that can conduct sophisticated social engineering at scale. This creates an urgent need for financial institutions to accelerate their own AI adoption for defensive purposes.
Incumbents Are Finally Embracing External Software Solutions
Large financial institutions have fundamentally shifted from building everything in-house to adopting best-in-class external software. (15:00) Haber describes how institutions like Goldman Sachs previously created their own email clients rather than using standard solutions, but now there's "bottoms up momentum and top down pressure" driving cultural change. The key difference with AI adoption is that senior executives can intuitively understand its impact by using tools like ChatGPT themselves, making enterprise sales cycles faster than ever before.
Full-Stack Financial Products Are the New Standard
Successful fintech companies have evolved from single-product solutions to comprehensive financial service providers, often acquiring banking licenses to capture deposit revenue. (15:15) Companies like SoFi, Robinhood, and Mercury generate significant revenue from deposit flows as interest rates rose, demonstrating the importance of owning the entire customer relationship. The companies that survived the 2022-2023 downturn did so by expanding their product offerings and becoming full-fledged financial institutions rather than remaining point solutions.
Embedded Finance Is Expanding Beyond Traditional Banking
Financial services are becoming embedded in unexpected industries, with companies like Ford and John Deere now being Plaid customers. (06:15) This represents the evolution from "every company is a fintech company" to practical implementation of financial services across diverse sectors. The trend extends beyond traditional financial contexts, with buy-now-pay-later appearing "on everything" and card issuance and wallet functionality becoming standard across various industries and use cases.
Statistics & Facts
- At the peak of the fintech boom in 2020-2021, approximately 25% of all venture dollars were flowing into fintech companies. (04:05) This massive influx was followed by a dramatic collapse to nearly 0% of venture funding in 2022, representing one of the most severe boom-bust cycles in venture capital history.
- Financial fraud is currently growing at 18-20% annually, representing a massive and accelerating market that's being fueled by AI-powered fraud techniques. (27:28) This growth rate is particularly concerning given that fraud was already a huge market before AI amplification.
- Plaid has grown to serve hundreds of millions of connected accounts across the fintech ecosystem, providing the infrastructure that powers most major fintech applications and enabling the analysis of user behavior patterns across multiple financial institutions for fraud detection.
