Fintech+: The Future of Finance

The State of Fintech

Everything you think you know about fintech is likely wrong.  Or at least it needs an update.

When people hear the word “fintech” they think of consumer focused neobanks, card programs, wealth management apps, and point of sale credit products (i.e. BNPL) that have digitized financial services.   The last wave of fintech innovation included successful companies like Chime, SoFi, Affirm and Robinhood that brought financial services products to your desktop and smartphone.  

This was a stark change from the traditional brick and mortar stores that we had become accustomed to using when accessing financial services products. Enter Covid in 2020 which further catalyzed this change while creating a forcing function for consumers to become more comfortable with managing their finances online.  In fact, 59% of Americans say that they use fintech services more frequently as a result of the Covid-19 pandemic.

In 2021 and early 2022 most consumer focused Fintechs continued to thrive by acquiring new customers and pulling market share away from the traditional brick and mortar incumbents.  The mentality shifted from sustainable growth to “growth at all costs”.  

Enter a rising interest rate environment, geopolitical tension, failure of several notable banks, and the retreat of a decade-long bull run in the market quickly created a very different picture for fintech startups.

The market shifted, and had an immediate cooling effect on  the fintech market.

It’s never been easier to launch a consumer focused fintech.  There are lowered barriers of entry to launch a fintech solution given the rise of “Banking-as-a-Service” and tech friendly banks providing access to payments rails, licensing and product infrastructure.  This has created a market that is saturated with fintech solutions focused on almost every consumer group without offering differentiated features.  

It’s also never been more expensive to acquire consumers directly.  Increased competition from emerging and incumbents drive customer acquisition costs up, while creating a “race to the bottom” for both pricing and acquisition costs.  Acquisition channels are largely saturated with companies jockeying for your attention.

So does this mean that fintech is dead?  Not at all.

Financial innovation isn’t a trend, it’s a pillar of our society and civilization.

The use of coins was first introduced in the 7th century BCE in the Kingdom of Lydia as a way of making the buying and selling of goods easier.   Bonds and a bond market were first created in the 12th century allowing for governments to spend on infrastructure. Similarly, the first stock certificates were issued by the Dutch East India Company in the 17th century allowing individuals to share in the success of corporations.  In the 20th century electronic payments, cross border wires, credit cards and early internet banking pushed finance forward.  More recently, the introduction of digital assets, consumer focused fintechs and embedded finance continue to drive innovation forward in the 21st century.

That being said, fintech as we’ve traditionally known it has largely plateaued, especially those with a focus on serving consumers directly  (i.e. neobanks, robo-advisors, BNPL, etc.).  However, despite these large advances, the  financial services space is still ripe with problems and inefficiencies, and is on a collision course with every industry around it.

So if fintech isn’t dead, then what comes next?  Glad you asked.

What’s Next for Fintech

Fintech solutions are no longer just siloed in the financial services space.  The next wave of financial innovation will look much different with companies relying on unique distribution models to reach audiences and less so on new feature sets or digitized products.  

“Growth at all costs” has been replaced by “distribution, distribution, distribution.”

Your favorite brands and rewards programs are fintech solutions.

For example, Starbucks has created one of the most successful rewards programs in history.  Their AI-powered custom rewards platform surpassed 30% of all company transactions at the beginning of the year reaching just under 35 million Americans.  Starbucks is a company that sells coffee and breakfast items, but at the core of their services sits a fintech company that drives better user engagement and a deeper relationship with their customer base.

Is Starbucks a fintech?  Not at first sight.  Does Starbucks utilize fintech solutions to maximize their customers' engagement with their brand and products?  Absolutely. 

The next wave of financial innovation won’t be siloed in traditional finance. It’ll be distributed through the brands, services and products that we already know and love.  

60% of US consumers are comfortable taking out digital financial products including the embedding of solutions within most every industry around us.  This has shifted the way even large incumbent tech companies engage with fintech solutions.  Companies like Apple, Google, Shopify, airlines and other large consumer brands have turned to fintech solutions to expand their revenues and customer relationships.

Finance is at the core of every business unit in almost every industry.  The embedding of financial services isn’t just a trend in retail and consumer applications either.  We're currently seeing large swaths of fintech solutions embedding themselves more natively at the core of adjacent industries.  This is especially prevalent in verticals that have recently become better digitized through customer platforms and the collection and sharing of data.

We see fintech on a collision course and at the intersections with adjacent verticals like healthcare, climate/mobility, vertical SaaS, and eCommerce rewards, for example.  These recently digitized verticals are still ripe with inefficiencies, high costs and limited transparency to consumers.  Founders are now building fintech solutions that provide better products and financial solutions, at the right time and with more personalized data.  

Again, the next wave of fintech winners will succeed through distribution, not through features.

On the other hand, consumers are also more comfortable taking out financial products with non-financial services organizations.  89% of Americans use some form of fintech app with 56% relying on these tools on a day-to-day basis to navigate their financial lives.  Moving forward, we will see consumers not just finding comfort with financial products outside of their traditional banks, but within applications that aren’t fintech solutions at all (e.g. the Starbucks example).

The foundations are being laid for a new golden age for finance in a trend we refer to as “Fintech+”.  In short, it is the collision of financial services in almost every industry, coupled with the comfort of consumers to utilize financial products in non-traditional settings. 

Fintech+ will drive the next wave of financial innovation and it’s gaining momentum.

What Are Some Examples of Fintech+?

To really get an understanding of what’s coming next, it’s important to spend some time understanding the industries and companies leading the next wave.  This trend is certainly not siloed in these four examples, but they do provide some of the most exciting interactions that we see in the market today.

Blending of Healthcare and Fintech 

One of the fastest growing sub-verticals in fintech is at the intersection of healthcare market and financial services.  Historically, healthcare as an industry has been slow to change due to heavy regulation and data protection laws. Today however, technology advancements are disrupting the space by digitizing traditional mechanisms that operate within the industry, and creating space for services, like fintech, to thrive.

Over the past decade an increasing number of carriers and healthcare providers have updated their systems, introducing new forms of underwriting and embedded financial solutions. The healthcare services and technology sector is projected to grow to an $81 billion market by 2026 given the accelerated rate of technology adoption by providers and bill payers.

High growth in this sector is also driven by rising costs and continued inefficiencies with current systems, especially in the US market. A recent Gallup poll showed that 38% of people surveyed said that they or a family member postponed medical treatment in 2022 due to prohibitive cost, the highest mark in 22 years. This represents an opportunity for new fintech operators  to make financing for healthcare needs accessible and affordable for Americans.

Given the breadth and complexity of challenges facing US consumers, there is a wave of founders who are focused on tackling every aspect of inefficiencies within healthcare.  The following are a few examples of early stage (Seed, Series A) companies that are leading the charge.

A first example is Sunfish, a startup focused on providing better lending solutions and guidance for families seeking fertility treatments. The company is also the first to offer a “guarantee” for aspiring families so that they’re able to recoup some of their finances if treatments aren’t successful.

The U.S. market for fertility clinic services was estimated at $7.9 billion in 2022 and is forecasted to reach $16.8 billion by the end of 2028. A recent study in lower-income countries found that a single cycle costs between 50% and 200% of people’s average annual income. In the past decade, the birth rate resulting from assisted reproductive therapy (ART) grew around 6% annually as more aspiring families seek alternative treatments for building their families.

By providing modern fintech solutions, not only does Sunfish provide access to fertility treatments that would otherwise be unavailable, but the company is also developing unique datasets and paving the way for more financial tools to be developed using ML/AI. And, as these families grow, Sunfish can continue supporting their growing financial needs. 

Another example is Sheer Health, a New York based startup that strives at improving the broken financial relationship between individuals and the complex healthcare system. The team has built a personalized tool to help consumers better navigate the broken processes between providers, clinics and insurance carriers.  The team has developed a platform to provide transparency throughout healthcare processes and hands on support to secure the best benefits, care and financing for healthcare services. 

Sheer Health allows their customers the ability to verify bills before they’re paid, navigate benefits, assist with historical claims review, save on prescriptions and more through their mobile app.  The product they’ve designed helps consumers, clinics and insurance providers by equipping all parties with transparency throughout a healthcare journey.

A final example is Brellium who are focused on helping clinics automatically audit 100% of their charts utilizing AI technology. This provides clinics with audit speeds at 13x+ when compared to manual processes reducing chart review costs by 98%.  US healthcare payers and providers spend ~$496 billion on billing and insurance-related (BIR) costs annually, an excess of $248 billion due to administrative complexities.  

The Brellium team has now reviewed over 1.5m+ charts utilizing this technology saving meaningful time and capital on claim submissions, reimbursements and payment reconciliations.  By utilizing emerging AI technologies, Brellium is able to help providers and clinics save time and money before payments are initiated.

Financial Innovation within Vertical SaaS

Another rapidly growing trend is the embedding of fintech solutions into vertical software-as-a-service (SaaS) systems.  Verticals like entertainment, education, equipment financing and manufacturing  have recently been digitized with vertical SaaS solutions, but without native financial operating services (OS).  

The vertical SaaS market was estimated to reach $123 billion in 2022 and is expected to reach $402 billion by 2032. 70% of respondents to a recent EY survey believe that more than half of financial services will be offered via non financial services platforms in the near future.  SaaS platforms are ripe with the opportunity to embed financial products and services.

These operating systems allow these vertical SaaS industries to operate more efficiently, but still lack native financial applications to work seamlessly within their platforms.  As a result, many solutions still rely on financial operations largely governed by Excel sheets, manual reconciliation, and oversight from those using the systems.  This creates a lot of overhead for these organizations, and are prone to errors since external spreadsheets aren’t able to sync with operating systems in real time.

Several founders are now focused on building fintech solutions natively within these operating systems to provide better solutions for invoicing, invoice tracking, payments reconciliation, accounting, payroll, SMB lending and other financial products.

For example, Lunch has built an automated payments tool for school districts and their network of thousands of vendors.  This embedded solution serves both sides of their marketplace by digitizing physical checks while reducing vendor payment periods from 120 days down to mere minutes.  Innovation in payments isn’t just limited to legacy verticals like education either, the volume of payments through embedded channels reached $2.5 trillion in 2021 and is expected to reach $6.5 trillion by 2025.  The team is able to use the same payments solution to improve other verticals like state and local government, mining, manufacturing and energy. 

Another example is Conduiit who has built a financial operating system for the film and entertainment industry.  Although we think of the entertainment space as cutting edge, the back end systems are still largely governed by Excel sheets and broken systems. 

The Conduiit platform allows production management and finance teams to work more seamlessly together.  Teams can manage tax credits, purchase orders and payment requests that are unique to the entertainment and production industry, all through one simple operating system.  These tax credits and local incentives can be used as collateral to provide loans to producers while shooting their films, greatly increasing budgets and reducing overhead.

RollFi is another fintech that has developed an embedded payroll and benefits solution so that banks, fintechs, vertical SaaS and financial services can easily offer these products within their platforms.  They’ve built customizable products that can easily be adapted to whatever needs their customers have, and provide access via an easy to integrate and update API.  This solution provides the ability for even non-technical organizations to now launch payroll and benefits offerings, and build deeper relationships with the customers that they serve.

A final example is Arkra who are providing modern financial solutions for the equipment financing industry that largely uses manual processes for lending and underwriting.  By automating these services, the company is able to save their customers time and money while providing them with opportunities to secure new forms of capital for equipment financing.  This largely helps incumbents offload equipment to a larger audience or buyers who can access better financing at the point of sale.

The Intersection of Climate, Mobility and Finance

It’s been widely documented that temperatures around the world continue to increase, having short and long term impacts on our day to day lives.  The average global temperature has increased by at least 1.9 Fahrenheit with the majority taking place since 1975.  Rising temperatures lead to climate changes that impact all of our lives today and in the coming decades.

There is an emerging wave of entrepreneurs who look to build companies addressing these issues,  and investors who look to back these founders.  Even in a constrained funding market, climate tech is increasing relative to all start-up investment, and is one of the hottest fundraising markets outside of AI.

A large amount of these investments have been focused on alternative forms of transportation including electric vehicles (EV) and micro mobility solutions.  About 71 percent of Americans live in communities with a population of 50,000 or greater. In high-density urban environments, people seek out diverse mobility options based on differences in convenience, cost, and environmental impact.

There are also several Federal tailwinds driving this accelerated innovation including the Bipartisan Infrastructure Law signed on November 15, 2021 by President Biden. The bill referred to as the Infrastructure Investment and Jobs Act, contains up to $7.5 billion in new funding for EV charging stations, making EV charging infrastructure eligible for additional Federal funding programs.

Startups like Tempo are building at the intersection of mobility, climate and fintech by offering a “AAA for e-bikes” solution.   The e-bike market is expected to reach over $150 billion by 2033 with one million e-bikes sold in the US in 2023 alone.  With a rapid rise in ownership also comes maintenance, loss prevention and repairs.  Tempo provides all of the above through a single platform and app.

Other companies like Bluedot simplify EV charging payments by providing an app to find, pay and access thousands of charging stations.  They are also able to aggregate benefits for consumers and for electric fleets who are looking for additional economic advantages for using electric vehicles.

Another example is Dorothy, an emerging fintech who is building at the intersection of natural disasters, fintech and insurance.  The company provides consumers faster case management, service offerings and rewards following natural disasters.  As extreme weather events become more frequent, many Americans struggle to receive insurance benefits in a timely manner following these events.  Dorothy works with insurance companies to streamline the process and help those affected to get back on their feet more quickly.

Other companies are more focused on helping governments and corporations keep track of their own impacts and regulatory requirements.  Epoch, for example, is a London based company that utilizes earth observation via satellite imagery along with trustless web3 infrastructure to make it easy, cheap, and accessible for corporations and governments to monitor and incentivize the reduction of emissions from land use and land management.  

The Evolution and Embedding of Rewards

Customer incentives aren’t new.  Since the early days of commerce, entrepreneurs and business owners have introduced creative structures to entice users to engage with a brand or to buy a new product.  

We’ve seen wave after wave of gamification strategies to hook users  - in financial services, a 5% increase in customer retention correlates with a 25% increase in profit.  Loyalty programs aren’t small either.  In the US alone these types of programs are anticipated to increase from over $31 billion in 2021 to reach over $56 billion by 2026 at a CAGR of 12%.

While rewards aren’t new, the landscape is rapidly shifting.  The next wave can be largely divided into two categories; rewards and incentives.  

Rewards are celebratory milestones throughout a customer journey that mark an objective that’s been reached.  

Incentives, while similar, are smaller benefits that push users in a particular direction or behavior.

While both strategies are meant to promote engagement, fintechs use each of these techniques to nudge users forward and to engage with certain products and brands.

Traditionally companies create incentives through badges or in app tokens.  Moving forward, more and more fintechs are making it easier to provide real world financial benefits to users for certain behaviors.

For example, Bilt created a product that allows you to turn rent payments into tangible rewards through their card products, such as travel points or exclusive restaurant experiences.  While there are several rent focused rewards programs in the market, people love Bilt because rewards are next to none.  The company was recently valued at $3.1 billion with a $200 million investment from General Catalyst.  

Acre is an emerging fintech using a similar strategy to provide rewards and benefits to homeowners who pay their mortgages on time.  This helps lenders have more certainty on payments and homeowners to better connect with local businesses focused on attracting homeowners with their own goods and services.

Others, like KashKick, provide a rewards platform to help underserved and financially conscious consumers earn or save money by presenting them with various products and services that can address their needs.

Prizeout is a B2B focused company that allows businesses to provide their customers with a variety of ways to withdraw their money to their favorite brands.  This is an example of one way that fintechs can provide their customers access to in-app rewards in a real world environment. 45% of survey respondents said digital prepaid cards were their preferred way to receive rewards.

Not every organization has the resources to build out their own internal loyalty programs, so there is a wave of emerging fintechs who are building embedded solutions that others can use.  This helps companies at any size or industry provide competing rewards programs to some of the larger providers.

For example, Wildfire provides a white-label rewards and cashback solution helping drive loyalty and revenue for companies of all sizes including Visa, RBC, Acorns, Citi and Microsoft.  This offering can help these incumbents compete with even the most nimble rewards platforms.

Another example is Lolli who provides cashback via a mobile extension with as much as 30% cashback and bitcoin rewards.  In addition to their consumer focused application they’ve also created a white-label rewards platform that other brands can utilize.

In the UK and Australia, Ascenda Loyalty partners with banks, cards and digital payments companies to offer rewards similar to credit card programs.  This helps regional providers compete with global card rewards programs like Amex, Mastercard and Visa.

What’s Next for Fintech+?

These are just a few examples of what we see as major intersection points for financial services and recently digitized verticals.  You can say and see the same for companies being built in space like the future of work, Web 3.0, tax, compliance, wellness, and so many other emerging verticals.

We don’t see “fintech” as a specific vertical but rather one that’s horizontal across every major industry.  Companies in any industry rely on financial transactions to drive revenue, and to create sustainable business models.  Fintech solutions help those founders better understand consumer habits, build deeper relationships and drive revenue to their bottom lines.

The next wave of financial innovation will be embedded and distributed across every business unit of every industry.

Payments will become more seamless and our interactions with financial services will become more regular outside of just banks and fintechs.  The next generation's relationship with money will be more intentional, while aging populations will be more tech savvy and equipped for retirement and late stage care.  

At Fiat Ventures (our VC), Fiat Growth (our consultancy) and Fiat Advisors (our advisor marketplace) we’re fortunate to work alongside some of the brightest founders and operators across fintech and see these trends come to life.

Hundreds of additional entrepreneurs work tirelessly to continue creating efficiencies to many outdated systems, business models, and services. Over time, those improvements will open up new opportunities for both startup teams and investors, while providing all types of consumers better access to financial services. 

At the end of the day, it’s end consumers who benefit and matter most.  Better distribution of financial services allow for more competitive product offerings, and welcome more global consumers into the broader financial system.  It’s possible to reach a larger audience while also driving meaningful revenue and upside to the firms who know how to utilize these strategies.

Like what you’re reading, then we’d love to keep in touch! You can keep track of the latest at Fiat Ventures, in our monthly newsletter by subscribing using this link, or by following us on our social channels.