On building fintechs in 2020 - Andreessen Horowitz

From Andreessen Horowitz’s blog posts. Links provided at the end.


… new entrants using this software infrastructure to get started faster and more cheaply, incumbents are beginning to augment, or even replace, some of their legacy systems.

- The state of IT in traditional banking (or why they keep hiring software developers with vague job descriptions?):

At some of the larger banks, 75 percent of the IT budget goes toward maintenance. Beyond software, there’s a large manual labor force. Ten to 15 percent of the workforce at larger banks is devoted solely to compliance. Citigroup alone had 30,000 of its 204,000 employees working in compliance last year…

… Anyone still coding in Pascal? You’re in

- B2B fintechs for fintechs:

But the next bank does not have to start out as a bank. I believe the next era of financial services will come from seemingly unexpected places. Just as Amazon Web Services dramatically lowered the cost and complexity of launching a software business, unleashing thousands of new companies, the “AWS for fintech” stage has arrived in banking. Before AWS, it could cost $150,000 a month for a business to run compute and storage; it now costs roughly $1,500 a month. In much the same way, we are nearing the point at which any company can start or enable financial services. Consumer apps across multiple categories—home-screen fixtures highly valued by users—are becoming banks. It’s not as crazy as it might sound: Many drivers already consider Lyft and Uber their de facto bank. These ridesharing companies didn’t even exist a decade ago.

- On the API economy:

Today, technology allows innovative new companies to be created and enables existing banks to better serve the needs of customers. Specifically, that’s happening through (1) new financial-services infrastructure companies providing APIs (application programming interfaces); (2) new distribution channels that enable better, differentiated products to spread more easily and at lower customer acquisition cost; and (3) better data that allows companies to assess and assign risk more precisely.

First, the infrastructure: We are at the beginning of a growing ecosystem of banking infrastructure companies—an “API economy”—that both startups and incumbents can draw on. These Lego-like companies specialize in building and providing specific building blocks for banking (for instance, KYC/AML compliance). By providing APIs to their services, the companies democratize their expertise. This means that any one company doesn’t have to know every single thing there is to know about complex regulations; another company that specializes in that area has created an API for others to use. It also means that it’s easier to create new financial services companies of all sizes and of all kinds. Rather than having to build or maintain regulatory systems themselves, they can just “plug in” to that expertise.

Not only are new entrants using this software infrastructure to get started faster and more cheaply, incumbents are beginning to augment, or even replace, some of their legacy systems. Instead of going the way of other brick-and-mortar retailers—many of which either went out of business or became glorified showrooms for ecommerce—the beauty of the API economy for banking is that it lets everyone participate, play to their strengths, and concentrate on their core offering. The demand for better and more inclusive financial services is big enough that there’s room for many players in the market to succeed as large, stand-alone companies. All of this results in better products at less cost, serving a wider range of consumers.


Another great discussion. Plaid and RH mentioned.

Software has been pushing margins across many industries.

Those that haven’t been affected as much, according to Andreessen Horowitz, are education, healthcare, and construction.

This means that financial services are feeling the pain. From the old guard, my money (not literally) is on JPMorgan Chase, Morgan Stanley, and Goldman Sachs. They know the money is in consumer banking and have been acquiring, building, and hiring.


Consumer finance = number of people doing consumer finance X data points.

$INTU is available on Freetrade.

TurboTax maker Inuit Inc. is close to an agreement to buy personal-finance technology portal Credit Karma Inc. for roughly $7 billion, the Wall Street Journal reported, citing anonymous sources.

The deal, which will be in cash and stock, would push Intuit further into the growing online consumer finance sector. The company is expected to announce the agreement on Monday, people familiar with the matter told the newspaper.

The acquisition would be Intuit’s largest in its 37-year history. Intuit shares have risen nearly 14% since the beginning of the year, and the company is expected to report second-quarter earnings on Monday.


You seen Griffin? It’s a banking as a platform fintech. They plan on providing the backend for businesses to build and launch financial products.

A B2B fintech for fintechs.

Galileo provides APIs that allow fintech companies like Monzo and Chime to easily create bank accounts and issue physical and virtual credit cards, among myriad other services. While simple in theory, banking regulations and financial rules place a huge regulatory burden on fintech companies, burdens that Galileo takes on as part of its platform.

The company has found particular success in the United Kingdom, where all five of the country’s largest fintechs are customers. Globally, it processed an annualized $45 billion in transaction volume last month, up from $26 billion in October 2019 — nearly doubling in just six months.

From a strategic perspective, SoFi’s objective is that Galileo will help power its expanding suite of finance products and offer it another revenue source outside of consumer services. While SoFi was founded a decade ago to offer ways to secure better financial terms for student loans, it now offers a bevy of consumer financial options, including loan, investment and insurance products as well as cash and wealth management tools. With Galileo, it now has a clear B2B revenue component as well.

Railsbank, the open banking and compliance platform, has picked up further investment, following the company’s $10 million Series A in September 2019.

This time backing comes from Visa — a strategic investment, if you will — along with Global Brain, a venture capital firm based in Tokyo, Japan. The exact amount isn’t being disclosed, though sources peg it as “several million” U.S. dollars.

In addition to investment, Railsbank is announcing that it has signed a 5 year partnership with Visa to deliver Banking as a Service (BaaS) innovation in Southeast Asia, and recently became a Visa “principal issuing” member.

“Being a principal Visa member and by joining Visa’s Fintech Fast Track Programme, Railsbank can now access Visa’s growing partner network, technologies and experts, enabling Railsbank’s customers to rapidly and effectively launch Visa based products throughout Asia and beyond,” explains the company.

Railsbank co-founder and CEO Nigel Verdon, who previously founded Currencycloud, says the partnership with Visa signals the fintech’s intent to be “the most innovative banking platform business” in Asia-Pacific. “Our API focused platform is the simplest way for any business or brands to quickly conceptualise, build and launch digital finance products that easily incorporate Visa’s product suite and capabilities,” he adds.

To that end, Railsbank positions itself as a “utility” on which other companies — spanning fintech upstarts, challenger brands, to incumbent banks that want to re-factor their tech — can build and sell various financial services or add fintech features to their products.

Big respect for Nigel Verdon, Currency Cloud was and is the engine that got many of these fintechs going from Transferwise to Mango in France/Luxembourg and many others. I think that many of the engines were way undervalued compared to the “promoters” who were using Currency Cloud and either Contis, Wirecard or the like and raising at silly valuations.
Its good to see that Currency Cloud and Raisbank are getting the funding and valuations that recognise their crucial role in fintech.
Another dela which I think generally went below the radar was PFS late last year https://www.fintechfutures.com/2019/11/pfs-sells-up-to-australias-eml-payments-for-290-million/ which has just got regulator approval . The guys at PFS were at the coalface for years in payments and doing some good stuff. I still don’t really see the value in a lot of promoters like Go Henry and many other of the niche promoters who have all the marketing spend, churn and onboarding cost with several other layers up the chan to pay for processing that leaves them all very slim pickings to fund their marketing. I like the B2B tech providers way more as businesses, but of course they are not as sexy :wink: