2023 conference puts spotlight on fintech market consolidation, KYB/KYC, fraud, security, payments, BaaS & financial inclusion
By: Andrea You, Cathay Innovation
From financial wellness and inclusion to banking-as-a-service (BaaS), the latest in payments, KYB/KYC, fraud, security and (more) market consolidation — these were some of the topics that were most prevalent at this year’s annual Money20/20 conference in Las Vegas. The mood was lively with robust discussions around these hot topics, but there was an undeniable air of apprehension with most waiting out the potential recessionary environment or looking for some form of positive market signaling to kickstart fundraising and investing again.
However, what was notably NOT A BIG part of the conversation? Gen AI.
Below, we’ll share our top 6 takeaways from the 2023 show where the payments, banking, fintech and financial services community come together to talk all things money.
1. 2023 fintech market characterized by more consolidation vs. new venture deals
Over the last year,, the biggest fintech deal news may have been the lack thereof with the sector experiencing a significant slowdown. Today, the fintech venture market remains muted as companies either (1) raised outsized rounds at outsized valuations in 2020-2021 and have yet to grow into these valuations and still have runway to avoid raising in the current environment, or (2) a growing number of fintech subsectors are reaching maturity/concentration, e.g. financial data APIs, and deal activity has been characterized by strategics or incumbent financial institutions leveraging their hefty balance sheets to acquire new tech to level-up legacy tech stacks.
2. Financial Services sector remains AI-cautious vs. other industries — but promising early applications target lower-risk, lower-hanging fruit
While we’re seeing “AI eat the world” in most other industries, the highly-regulated financial services industry is taking a more cautious approach. This shouldn’t be a surprise given the sector’s inherent low risk tolerance and high demand for accuracy, as even the smallest errors can have significant downstream effects and erode trust — the cornerstone of successful end customer – financial solution provider relationships. This being said, we’re seeing large, well-capitalized incumbents building in-house to avoid data security and privacy issues, and smaller players and fintechs looking to leverage AI to tackle “lower risk” tasks– largely in applications that 10x human productivity while maintaining a human in the loop for quality assurance. It is still early days, but we’re seeing robust growth in co-pilot tools and back-office automation solutions, such as:
- Financial modeling and analysis AI co-pilot, automated accounting and reconciliations
- AI chatbots for banks and credit unions
- AI-driven tax code screening and compliance automation
3. KYB/KYC, fraud, and security remain top-of-mind amid ever-changing regulatory landscape
While broader AI x fintech conversations have yet to materialize, one area that received a lot of attention was the application of AI to drive more proactive fraud and security protocols across the sector. The boom in generative AI and subsequent synthetic identity fraud is only making fraud detection and risk management trickier, but there is opportunity to leverage the same tech to detect anomalies and remain on top of new compliance requirements with AI.
4. (Faster) payments — real-time, cross-border & big banks
Real-time payments and cross-border payments were hot topics, riding the tailwinds of FedNow and the subsequent proliferation of real-time account-to-account payments, and changing consumer behavior with today’s digital-native generation. While big banks are signing up to receive payments, it seems few are opting to send them, so it may be some time until we see the benefits of such network effects come to fruition. Lastly, pay-by-bank is having a moment, especially with JP Morgan’s latest announcement about its partnership with Mastercard to enable pay-by-bank solutions for recurring payments.
5. BaaS is having a moment of reckoning
Recent turbulence in the banking space was top of mind, with several BaaS players under investigation and regulatory action being taken against them (e.g., Solid, Synapse) as regulatory scrutiny of fintech-banking relationships continues to intensify. Meanwhile, fintechs that are being offboarded by struggling bank partners are having a hard time finding replacement banks with heightened regulatory scrutiny — this is slated to have significant downstream effects on the industry as the BaaS middleware model is being intensely scrutinized for its inability to deliver sufficient third-party risk management.
6. Renewed focus on financial wellness and inclusion
Given that Millennials and Gen Z have astronomically more debt compared to their predecessors, we’re seeing renewed focus on consumer wealth management and wealth-building tools that aim to make financial planning more simple and approachable for the next generation. For instance, earned wage access is becoming increasingly mainstream while there’s been a proliferation of credit-builder cards and financial solutions purpose-built for specific populations (immigrants, the Latinx community, etc.).
Parting Thoughts
At Cathay Innovation, we’ve been investing in innovative fintech companies across the globe since 2015, like Chime in the US, FinAccel in Indonesia, Alma in France, and Kueski in Mexico. While each financial services market is extremely nuanced, we’ve seen major trends (e.g., neobanking, BNPL, credit underwriting and analytics, SMB lending, and more) traverse continents and materialize in different ways and through the ups and downs of various economic cycles.
While Post Malone wasn’t running Circles around the conference this year, jokes aside, we remain incredibly excited about the space. Fintech is a challenging sector to build in given its regulatory requirements and nuances that vary by geography and end-user, but these are the very reasons why we love it and are eager to double down. It’s not news that the sector is having a reckoning with sky-high valuations starting to come back down to earth and a renewed focus on fundamentals, but we believe that this reset enables the companies that have been focused on fundamentals from the very start to shine through in what has been a noisy space these past couple of years. While some may have pulled back from the sector, we remain committed to backing tenacious founders that share our vision– capturing the opportunity at hand and forging ahead to drive financial equity and inclusion forward.