Fintech Infrastructure

I’m not alone in my bullishness on fintech industry. Excitement and innovation in the market has continued to build rapidly.

Fintechs globally attracted ~$5 billion in total venture funding in 2010. By 2020 that number was $45 billion, and tripled to $142B in 2021!

But despite the explosion of fintech companies and the billions of investment dollars flowing into the ecosystem, why is it still so hard to get a fintech company off the ground?

Founders have to jump through so many hoops and invest serious time and resources to get their products up and running. Given the complexity and regulation inherent in financial services, “move fast and break things” is not a viable option.

Even after companies move mountains to go live, this challenge doesn’t disappear. Operating a fintech effectively, scalably, and compliantly continues to be a huge lift that takes significant product, engineering and ops resources.

Just as the cost and time to launch new software products have evolved to the point where arguably you do not even need to write code to launch a company, so too will the hurdles to build a fintech continue to lessen.

Don’t get me wrong — we are a far cry from being able to launch financial services with the click of a button (I’m not sure that will ever be possible — nor would we want it to be), but it’s definitely time that we get closer to that reality than where we are today!

Categories of Fintech Infrastructure:

1. Identity & risk — fraud, KYC, AML, compliance
2. Lending — underwriting, servicing, loan management software
3. Insurance — underwriting, agent enablement, distribution enablement
4. Banking — banking as a service (BaaS)
5. Data aggregation & normalization — bank accounts, investments, accounting, payroll, data normalization
6. Payments — processors, payment facilitators, payouts
7. Card issuing — debit and credit cards, virtual cards
8. Brokerage — custody, clearing
9. Income verification & payroll — direct deposit switching, payroll-based lending, underwriting
10. Crypto — enabling infrastructure for traditional FIs

Within each category there are many subcategories. In practice, these are not mutually exclusive or comprehensive but follow how potential buyers think about the competencies of enabling technologies.

It is important to point out that many of these categories themselves are not new — modern fintech companies are disrupting the traditional players with some combination of lower costs, better experiences and innovative distribution.

So, these infrastructure-level products follow 2 themes ➖

1. Launch →

The process of launching a fintech product is complex and time-consuming. There are many layers of partnerships, regulatory hurdles and technical integrations that are often required to even launch a fibrillar product. The Banking as service was innovation which saved cost and time to market for companies who want to provide cards or savings accounts but some components are still extremely cumbersome.

2. Operational Requirements & Workflows

Even when fintechs are live there are huge operational requirements to stay afloat and compliant onboarding, customer service, regulatory compliance, and many other manual workflows that are abstracted to the user but often require a human in the loop. Some examples include large teams to reconcile payments, verify consumer and business identity when opening accounts, and to onboard users onto more complex products.

There can be more sub-themes but I can think only these 2 at the moment.

I believe we will quickly see a next gen fintech infrastructure ecosystem emerge to enable the creation of more sophisticated financial products as well as to drive efficiency and margin in operations as these companies scale.

Reference -> https://ftpartners.docsend.com/view/xnk2caf246ruw9nt