https://adamnash.blog/2020/11/16/fintech-2025-the-next-wave/
When I first joined Greylock at the end of 2011, Fintech wasn’t even a word that was commonly used in the venture capital community. Less than a decade later, however, Fintech has become almost ubiquitous. The category has not only proven that it can generate real revenues and scale, but also that it can create a large number of multi-billion dollar companies.
Unfortunately, when you are looking at seed stage opportunities, you have to think clearly about markets where there is the potential to build new multi-billion dollar product & companies.
When the bubble burst in 2000-2, there was a lot of thought put into what had worked and what hadn’t worked with Web 1.0, and those insights formed the basis of the next wave of software companies (Web 2.0 / Social). Some of those same issues have plagued Fintech 1.0, and may instruct how to think about Fintech 2.0.
As 2019 drew to a close, I took the opportunity to spend some time thinking about exciting new opportunities in consumer fintech. These continue to be areas that I’m investing against both as an angel and as a founder.
For the last decade, a vast majority of consumer fintech startups have focused on millennial customers. This really isn’t surprising because the traditional financial services industry is so heavily invested in their older customers. By the numbers, households tend to build income and assets as they age, and the incumbents have spent decades servicing this customer base.
Young people, on the other hand, were the perfect market for new, unproven products and services. Young people are less tied to existing brands and services, more likely to be technophilic, and have simpler financial needs.
As we enter the next decade, however, consumer acceptance of new financial products & services will continue to grow, leaving new demographics open to new products & services. This would have been true regardless, but it seems clear that the COVID-19 pandemic has accelerated this opportunity.
These customer segments will be more competitive, but also potentially more valuable, as they collectively are much larger than the millennial market.
Traditional financial products & services are single player, which makes sense since people tend to expect a high degree of privacy around their finances, and products built for individuals are much simpler to design, market, and activate.
However, many new fintech services are built around a subscription-model, where three numbers tend to dominate: acquisition costs, average revenue per user, and churn rate. The last, of course, is a heavy determinate of lifetime value.
Multiplayer products & services have a number of advantages. Multiplayer products are inherently viral, pulling more people into the system and lowering average acquisition costs. More importantly, multiplayer products are fundamentally stickier, leading to lower churn rates and higher lifetime values.
One of the big shifts from Web 1.0 to Web 2.0 was designing products & services to be intrinsically multiplayer. This was one of the fundamental differences between the design of LinkedIn (Web 2.0) and Monster.com (Web 1.0).
When web development began in earnest in the 1990s, most initial product concepts were just moving existing products & services online. Mail order catalogs already existed, but we put them online. Yellow pages already existed, but we put them online. There were a few novel products (eBay), but for the most part, we collectively just moved a lot of products into the cloud, with all the advantages that global reach & distribution brought.
Fintech 1.0 has also mostly replicated existing products, put them on modern technology platforms, and made them broadly available to customers (like young adults) who have been mostly underserved.