🧠 Fintech is 3% done

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Hey Fintech Nerds 👋

Fintech is 3% done.

Fintech's current revenues of $320 billion represent just 3% of financial services, and they're predicted to balloon to $1.5 trillion by 2030. (📣)

You can see it in the results.

Revolut's pre-tax profit was $545m. (👀)

You can see it in the product velocity.

Monzo's new fraud stopping features are incredible. (👀)

And Generative AI will add $170bn in new profit to the financial services sector by 2028. (📣)

Why? How? That's this week's Fintech Brainfood 👇

PS. This week saw the launch of Tokenized, a new podcast with Visa and Digital Asset, about how institutions are coming to DeFi. I'm delighted they asked me to be on hosting duty. You'll find it now on Apple Podcasts and Spotify.

Here's this week's Brainfood in summary

📣 Rant: Fintech is 3% done

💸 4 Fintech Companies:

1. Worth AI - The AI credit score for businesses

2. Driven - BNPL for parking fines

3. Marley - BNPL for weddings

4. Chift - One API for all your APIs (EU)

👀 Things to Know:

1. Monzo's new features for fraud are amazing

2. Revolut hits "$545 million profit," and CEO "confident of bank license."

📚 Good Read: How Generative AI will change accounting

Weekly Rant 📣

Fintech is 3% done.

Fintech isn't over.

97% of the opportunity is in front of us.

With an annual global profit pool of $3.2 trillion on a base of $14 trillion of total revenue, Fintech's existing $320bn in revenues represents just 3% total market share.

BCG and QED say this will be $1.5trn by 2030.

(And all of this assumes a zero-sum market, where Fintech companies only take markets instead of making them. But how many BNPL users previously used a credit card for that transaction?)

There's a narrative/opportunity mismatch.

The sheer negativity stemming from the Evolve hack, consent orders, and, frankly, the horrific situation some consumers find themselves in has led people to discount the whole space as "not safe."

In reality, it is delivering profitable growth and huge consumer benefits.

Whether that's investors, incumbents, or the media.

Right now, the way to make Fintech relevant is to find ways to attach it to things the market wants to buy. Things like AI.

This is why Klarna always leads with AI in its pre-IPO tour press releases and why every product used in Fintech suddenly has a ton of new AI features. Marketers are selling what the market (business readers) wants to buy. This is clickworthy.

It's also happening in Crypto with some of the biggest seed rounds coming from (potentially spurious) AI x Crypto projects. Some investors need to justify any set of deals to their LPs to raise the next fund or deploy. Some LPs are looking for that AI story and win. So those VCs sell what their market (LP) wants to buy.

Meanwhile, the mainstream Fintech narrative is about Evolve. The mainstream business press talks of "Fintech's false promise of safety." As Ron points out, firstly, Fintech promises speed, convenience, and inclusion. It has succeeded in that objective. Where it failed was in disclosures, safety, and soundness.

This story is generating clicks, so everyone is spinning up an article on it. It is a horrific situation—complex, gnarly, and astonishing.

But let's not lose context here.

Banks that are FDIC insured have suffered bank runs, and they promise safety and soundness.

Banks didn't die in the banking crisis.

Fintech won't die in the BaaS crisis.

Neobanks are here to stay.

And AI won't save us or kill us.

Most narratives are either over-bought or over-sold.

Here are my macro takes on the Fintech market halfway through 2024.

1. Fintech is discounted as a theme

2. Embedded finance is the largest revenue opportunity in all of financial services

3. Consumer Neobanks are the fastest growing segment in all of Fintech

4. Fintech x AI is the biggest near-term AI revenue opportunity of any vertical

1. Fintech is discounted.

Fintech valuations plummeted, but revenue growth has remained solid at 14% CAGR and 21% if you exclude China and Crypto.

The sector is also confusing, with a wide disparity between winners and losers. Challenger banks, LATAM, and Cross-border companies are growing, but they're driven by the big winners in their category. The best example of this is lending, which overall is down, but where the winners are growing revenue massively.

2. Neobanks aren't dead; they're just warming up.

In 2022, the fashion was to write off consumer Neobanks as unprofitable and high-risk. Monzo took a downturn, the IPO market closed, and late-stage funding dried up. If these companies couldn't hit profit, their future looked uncertain.

This is against the backdrop of public markets punishing stocks like Robinhood, Dave, and MoneyLion, which saw valuations drop up to 90%.

Then Nubank kept crushing earnings. Monzo hit profit, Wise kept hitting home runs with earnings beats, and Chime's narrative has turned from "they just do debit cards" to "Oh, they're launching more products and turned profitable in Q1 2024."

There are a handful of things driving this

1. A focus on product expansion: Nubank and Revolut offer eSIMs, stock trading, and Crypto. Monzo has gone deeper into SMBs and finally got into lending. Chime's lending products are starting to add revenue, too.

2. Discipline on unit economics: Being digital-only meant these organizations always had low costs to acquire and serve, but there's much more focus now for some that are pre-IPO.

3. Rising interest rates lift all deposit takers and lenders: This benefits banks like Varo, Monzo, and Nubank the most, as they can take deposits and lend. But even Wise, Revolut, and Chime are seeing much more benefit from the income they receive from having originated deposits or lending.

As rates have risen, revenue in the Fintech sector has risen, but won't last forever.

Take Revolut, for example. They nearly doubled revenues to $2.2bn, added 12 million customers, and delivered a $545 m profit. Most of that is driven by interest income (lending and deposits in a higher rate environment), up from $105m to $637m.

That's still $463m net new revenue that didn't come from rates. However, rates did likely tip them into profitability, which is great timing for an IPO-next-year story.

To become the top 5 banks or Neobank in their markets, Revolut and their peers will need the cost discipline and expansion to continue.

Neobanks and digital banks are just warming up.

3. Embedded finance is the biggest revenue growth opportunity in financial services.

We're just at the beginning of BNPL, vertical SMB payments, lending, and B2B platforms embedding finance. These products are all hitting a maturity curve and continuing their growth rates.

While everyone is distracted by the Banking-as-a-Service drama and the "Fintech is bad" mood music, embedded finance is becoming a default for many more industries and sectors.

It's a waiting game. The big players are still cautiously on the sidelines, waiting for the regulatory headwinds to pass. There are hundreds of billions of revenue up for grabs, hundreds. Who's going to grab it?

4. Fintech x AI is the biggest AI revenue opportunity.

The same people who find it fashionable to hate on Neobanks for consumer harm often hate on the AI press release bloat, and I have sympathy for that. As Sam captured wonderfully in this meme.

But there's something truly massive here.

The assumption was finance was the least exciting AI opportunity.

The opposite is true.

The top 5 most impacted sectors by AI according to Citi are

1. Banking

2. Insurance

3. Software and platforms

4. Capital markets (AKA banking)

5. Energy

Citi says AI could add $170bn to the overall banking profit pool, which would hit $2trn by 2028.

This is why Klarna mentions its AI in every press release. According to them, it does the equivalent work of 700 humans, speaks 23 languages, and is available 24/7.

That's why you see AI clooged into every press release.

But if you want to see where AI goes look at Ramp. As Packy McCormick details, they have already done a massive amount with AI.

You could write a case study for each word between the commas in that quote.

It's the anecdotes that always get me, though. Take tour guide, an AI capability that allows you to ask questions like "change my cards branding to say Simon's shop," and the website will show you the clicks you have to make to do that. It just. Shows you.

It's a personal customer support agent, but instead of standing over your shoulder helping you, it's just AI in there, being magic.

To paraphrase PackyM, "Finance is the nervous system of the company, finance data is extremely valuable for AI, every company has to manage its finances, and finances is where all buying, commerce, and payments happen."

• Financial services is already a $3.2trn profit pool

• AI will add $170bn of profit to that

• The outsized winners will be those who own the workflow and data

• Winning means having the feature velocity in AI to capture the opportunity

That's why you see so much AI hype. It is literally a race to market share.

It will reshape every single workflow in financial services.

5. Let's keep perspective.

It's time for a new chapter of Fintech.

• Neo and digital banks: Double down on growth and unit economic discipline. The market share is there for the taking.

• Embedded finance players: Become world-class at compliance without losing feature velocity. Safety and innovation must go hand in hand.

• Incumbents: Learn and adapt. JP Morgan's success under Jamie Dimon shows the power of taking fintech competition seriously.

• AI in Fintech: It is not about hype; it's about building great products that differentiate in underwriting, cost, or solving real customer jobs to be done.

Fintech is 3% finished. It promised better experience and inclusion and largely delivered.

The next 97%? That's where it gets interesting.

We need an industry that innovates responsibly.

The fintech revolution isn't about building unicorns or beating the banks.

It's about reshaping finance to work better for everyone.

That's the real opportunity in front of us. Let's not waste it.

ST.

4 Fintech Companies 💸

1. Worth AI - The AI credit score for businesses

Worth helps businesses automate onboarding and underwriting with "global credit intelligence." It backs this up with a case management desk that summarizes any gaps for underwriters, a portfolio analyzer, and continuous underwriting. Worth then wraps this into a single, easy to view score

🧠 The marketing says AI a lot, but I don't see the AI. It looks like they pulled in many data sources and built a solid underwriting dashboard with automation. That's not a bad thing. It's very useful, its just not doing some of the more gnarly types of things like managing customer communications (or if it is, it's not obvious in their marketing). This is the kind of website that makes people dubious about the real benefits of AI.

2. Driven - BNPL for parking fines

Users can apply to Driven by connecting their bank account to pay traffic or parking fees in four equal installments. They then enter their ticket number. The payments occur bi-weekly and are available in New York, Baltimore, and Philadelphia.

🧠 Niche BNPL is an interesting idea. There are merchants that the major BNPL providers would ignore, like municipal parking authorities, because they're harder to acquire. That distribution is an interesting wedge and a solid business. I wonder if long-term companies like this end up as acquisition targets for someone bigger like Affirm or Klarna, though.

3. Marley - BNPL for weddings

Marley works with wedding venues to help them offer BNPL to couples. The pitch resembles most BNPL, wins more bookings, gets larger deals, and gets paid faster.  

🧠 A scaled niche? There are 2.3m weddings annually in the US, for an industry worth about $70bn annually. On very crude napkin math, that's an average of $30k per wedding (which roughly matches some of the data). The trick for this (like Driven) is to ask if they can drive distribution into the bigger merchants in this space. Otherwise, going small venue by venue could take a while.

4. Chift - One API for all your APIs (EU)

Chift provides a single API and platform to aggregate accounting, e-commerce, invoicing, and point-of-sale software. The company already counts Defacto, Mollie, Qonto and Pleo as customers.

🧠 Accounting in Europe is fragmented, so there wasn't a solid solution for companies operating across the continent. Chift is all of the integrations in a single interface. For example, an expense management Fintech (like Qonto or Pleo) will just work with whatever your team already has for accounting or e-commerce.

Things to know 👀

1. Monzo's new features for fraud are amazing

Monzo posted three upcoming fraud prevention features on its community pages that I adore.

📍 Known locations or "leave your money at home". Places you're comfortable moving large amounts of money but fraudsters are unlikely to access

🤝 Trusted contacts. If a large transfer is requested your trusted friend must approve. Hugely helpful if your phone is stolen or for vulnerable populations.

🤫 Secret QR codes. Print out a QR code and keep it in a safe place to scan when needed.

If these aren't available, the fallback is a step up KYC.

🧠 These features are possible with smart devices and user behavior tech, but I love how Monzo packaged these as features. It's one thing to have these types of signals on the mobile device; it's another to package them well.

🧠 I give it a year before most other big banks have copied and pasted these features (get in touch if you want help to deliver; this is relatively simple to execute).

🧠 I love how these are announced to the community. Can you show me another large bank that does that well?

🧠 You never see the big banks innovating on these types of features, even though they talk a lot about "trust" being their most valuable asset. Kudos to Monzo for taking the lead and to everyone in Fintech for sending this around to other Neobanks to try and ship this ASAP. That's why I love you guys.

2. Revolut hits "$545 million profit" and CEO "confident of bank license."

Revolut's 2023 accounts released on Tuesday show pre-tax profits rose to $545m due to strong user growth and revenue diversification. Group revenues rose by 95% to £1.8 billion ($2.2 billion), up from £920 million ($1.1 billion) in 2022. Revolut added 12 million customers in 2023.

The company first applied for its UK banking license in 2021 but has yet to progress. This means it cannot offer UK credit cards or lending products.

🧠 The results benefitted from a rise in rates. At a time when headcount increased 49% net interest income drove the vast majority of revenue growth. They need to be able to lend much more to keep crushing profits, and the UK remains their largest market.

🧠 Revolut is the boy who cried wolf on its banking license. Read every bit of press from the CEO over the past 5 years, and it's always "soon." I'm not surprised journalists keep asking, but it's also a pattern of answers without results.

🧠 And it has a weird history with accounts and audits. Revolut famously delayed its 2022 accounts significantly over disagreements with its auditor who could not verify 75 of its revenues (although this was later resolved). Revolut also faced an exodus of compliance staff. All of this smells like something went very wrong and is being quietly fixed on a path to a license and IPO.

🧠 This overshadows a company that is absolutely crushing. Outside of Nubank, Revolut is arguably the largest Fintech wallet / Neobank in the world by customers. Their feature and market expansion have been astonishing.

🧠 If they can apply that product execution to everything they do, they'll create a high watermark for the industry. Imagine if this famously KPI-driven business put the same focus it had on expansion into having the lowest possible fraud or AML risk.

Audited results speak for themselves. Revolut is crushing. It's jam-packed with talented people and the question is when it gets a license not if.

🧠 The big unlock for them will be getting the same level of focus on risk as they have on product.

Good Reads 📚

1. How Generative AI will change accounting

Accounting is a dying profession, and the "big 4" firms must transform to become much more efficient. The days of armies of young analysts with spreadsheets are limited. Gen AI (LLMs) are bad at quantitative analysis but good at managing complex workflows. The bulk of the work happens in collecting data, researching rules, generating reports, and managing clients.

🧠 Accountech is the new Fintech? If Fintech automates the calculator, Gen AI and Accountech will automate the data that goes in and the reports that come out of the calculator.

🧠 The billable hours model is dead. Mckinsey, Wipro, Accenture, PwC, et al. are more threatened by GenAI than they will benefit from it. In the short term, they're winning as every Fortune 5000 company launches a project to use GenAI. In the long term, if the handle turning, summarization, data collection, and report generation are done by AI, the consultant logo is just there to take the blame if things go wrong (which they often do a bad job of).

That's all, folks. 👋

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(1) All content and views expressed here are the authors' personal opinions and do not reflect the views of any of their employers or employees.

(2) All companies or assets mentioned by the author in which the author has a personal and/or financial interest are denoted with a *. None of the above constitutes investment advice, and you should seek independent advice before making any investment decisions.

(3) Any companies mentioned are top of mind and used for illustrative purposes only.

(4) A team of researchers has not rigorously fact-checked this. Please don't take it as gospel—strong opinions weakly held

(5) Citations may be missing, and I've done my best to cite, but I will always aim to update and correct the live version where possible. If I cited you and got the referencing wrong, please reach out