September 22, 2017

I spent four days last week at the Finovate conference in New York, which is one of the largest fintech conferences in the country. With over 70 companies presenting in seven minute segments, Finovate provides a great look into the pulse of fintech. As I reviewed the changes over the last few years, some trends emerge that echo how the industry has shifted.

The largest and most noticeable shift was how many companies were selling services to banks. I separated the presenting companies from the last three years out among three business models: B2C, B2B, or B2Bank. The segmentation was done based on their core business (i.e., a company with a general CRM system would still be a B2B business even though they were trying to sell it to banks at this conference).

The proportion of companies stayed relatively steady among the segments from 2015 to 2016. However, B2Bank companies grew as a portion of the presenting companies from around 45% to 58% from 2016 to 2017. The biggest decrease came from B2C companies, which shrunk from 20% to 12%, while B2B companies filled the rest of the gap. The shift is not a surprise – incumbents need help adopting new technology while startups have solutions and need paying customers to scale.

Notably, this year featured no direct to consumer or small business lenders. Direct lending startups have often had strong representation at Finovate (including LendingClub, Prosper, OnDeck, and Kabbage), but given the turmoil over the last 18 months, many startup lenders have shifted to providing services to banks. Consistent with the shift to more B2Bank business models, there were a handful of companies who provided services to help banks lend more efficiently, like Experian presenting technology that facilitated point of sale, SMS-based loan applications.

While personal and small business loan focus was muted, residential mortgages were a larger theme. Last year there was one mortgage marketplace, but this year featured three companies selling technology to help make mortgage lenders more efficient and digital.

Predictive analytics was also in the spotlight this year, with companies like Optimove connecting customer predictive data with targeted marketing campaigns and optimizations, and Endor automating predictive analytics by applying Social Physics to raw data to answer any predictive data questions.

Now, what does this tell us? These shifts may not necessarily be a good thing or a bad thing – it may just be the way the industry moves as it matures. However, I believe there is one disappointing takeaway, and that is the general slower pace of innovation in fintech. As startups shift more to supporting banks and other incumbents, they will necessarily build less disruptive technology. Rather than bypassing incumbents and providing new value to customers, they will help incumbents become more efficient and add incremental value to the banks which may leave less value created for the customer.

Of course, there are pockets of more radical innovation in fintech, and those types of companies may just not want to participate in conferences, preferring to focus on building something new.

For example, one fintech segment that was noticeably missing was crypto/digital currencies and other ideas exploring the edges of financial technology. AlphaPoint did pitch a distributed ledger platform for tracking of digital assets, but that was about the extent of anything related to digital assets and currencies.

One potential reason for the lack of more groundbreaking technology was that the conference has shifted to include more incumbents demoing incremental technology, and fewer startups building new things. The last two years have featured 90%+ startups, but this year that number was below 80%. Again, incumbents are less likely to introduce truly revolutionary ideas.

In the end, it was another great conference and wonderful opportunity to reconnect with friends and make new connections in the industry. The themes I noticed have helped validate the general pulse of the industry, and while I’m still looking for companies breaking new ground, it is encouraging to see that incumbents (who currently have most of the customers) have nearly unlimited opportunities to try something new and provide a better service for their customers. The onus is now on the incumbents to take advantage of the window they have before getting left behind over the next three years.