A lot of fintechs “have to fix their business models,” say VCs who invest in fintech • TechCrunch

Working at a traditional financial institution or doing banking has clearly not been cool in recent years. Far cooler was working or banking for one of the many fintech startups that seemed to snort at the stocky banking brand.

Then the Federal Reserve hiked interest rates, stocks crashed, and many fintech companies that seemed to be doing well began to look much more robust and sluggish. The question is whether fintech as a theme has lost its mojo.

According to VCs Mercedes Bent of Lightspeed Venture Partners, Victoria Treyger of Felicis and Jillian Williams of Cowboy Ventures, the answer is a resounding “no.” But investors didn’t sugarcoat things at this editor-hosted panel his discussion in San Francisco last week. Led by moderator Reed Albergotti (his editor of technology at news platform Semafor), his trio outlined the opportunities while also acknowledging the various challenges of the current industry.

In terms of challenges, startups and their backers were clearly ahead during the pandemic, Albergotti suggested, adding that “everyone was working from home” and “using lending and payment apps.” Observed that fintech was ‘greatly successful’ when the time was right, but those times got ‘tougher’ as Covid faded into the background.

“SoFi is down,” he said. “PayPal is down.” He raised Frank, a college financial aid platform that was acquired by JP Morgan in the fall of 2021, by blatantly lying to the financial services giant about its user base. “We don’t actually have 4 million customers,” Albergotti said.

Williams agreed, but said there are pros and cons to fintech right now. On the positive side, she said it’s “still very early days from a consumer perspective” for fintech startups. She said, based on the data she saw, “demand and desire from consumers” still exist for new and better alternatives to traditional financial institutions.

What’s even more problematic is that “many of these companies will need to modify their business models, and many of the publicly traded companies probably shouldn’t. Many uses still remain, but the basic Some of the pieces will have to change.” (For example, many organizations are spending a lot of money on marketing or currently have relatively lenient underwriting standards compared to some of their legacy counterparts.) use and are facing rising late costs.)

Additionally, Williams added: I think they are waking up and keep waking up to what they can do better. “

Trager also expressed concern. “This is going to be a tough year for certain sectors of financial services,” she said. You can see that very large losses occur in lending. . . Unfortunately, it’s like a triple whammy: Consumers lose their jobs and lose interest rates. [rise] And the cost of capital will be higher. “

This is a challenge for many players, including large organizations, said Treyger, who said, “Even the big banks have announced they will double their loan loss reserves.” Still, she said the outcome could be even worse for young fintechs, many of whom “failed to weather the recession and started lending in the last six years or so” and “would suffer the most comes out,” she predicts.

Meanwhile, Bent, who leads many of Lightspeed’s Latin American investments and is also on the board of two Mexico-based fintech firms, said U.S. fintech firms could face serious headwinds. On the other hand, it seems to suggest that fintech companies outside the US are still doing well. Because there weren’t many options to begin with.

It “depends on which country you are in,” Bent said, noting that the U.S. “has one of the highest rates of adoption of fintech and wealth management services, whereas Asia actually Tech services are much more expensive.”

They are not all pessimists, said the three. Treyger, for example, talks about when he was part of the founding team at Kabbage, an SMB lender after an acquisition, before becoming a VC. There, “once a month she met with the new innovation department just formed by bank XYZ,” she said with a laugh. “And they want to learn how to get ideas and drive innovation.”

“What happens in a recession is CEOs and CFOs cutting back on areas that don’t matter,” continued Treyger.

If they come to fruition, she said, there will be a “significant opportunity for fintechs that are building products that basically add to their bottom line.” At the end of the day, the CFO said, “Profitability is everything. ”

If you’re a fintech founder, investor, or regulator, we encourage you to catch the full conversation below, which also touches on regulation, industry talent, and crypto.

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