Rex Salisbury, partner on the Fintech team at VC firm Andreessen Horowitz (A16Z) and founder of Cambrian, a community at the “white-hot center” of Fintech, says that in the next 15 years, Fintechs could potentially capture more than 50% of financial services revenue.
According to Rex, that would also mean this is “the best time ever to invest in fintech.” He added that in the last 15 years, fintechs have reportedly “captured only ~2% of revenue in financial services.” However, progress often “isn’t linear, it’s exponential.”
He explains that this could be possible due to the following:
- (1) existing fintechs scale. A lot of fintechs in the public markets are still growing north of 20% a year. 1.2^15 => 15x growth over 15 years. that alone could be responsible for 30% of revenue capture. I wrote yesterday about wealthfront. Subscale they were very not threatening (bad gross margins, very unprofitable…now that has changed). 20% growth would make them bigger than Schwab (last year they grew 140%). Of course Wealthfront’s growth might stall (it will certainly slow), but there are a lot of public / quasi-public fintechs. I promise you at least 5 of the ~100 fintech unicorns will at least 15x over next 15 years. 1 will 100x.
- (2) new fintechs reach scale faster. we have better founders, deeper talent pools and better infrastructure. why shouldn’t these firms be even more successful than the first cohort? The market is still as big as ever, the people and tools just got better.
- (3) AI. this is a big one. AI increases how quickly firms can build and grow. Coase taught us a firm is an entity whose internal transaction costs are less than their external transaction costs.
According to Rex, the bear case on AI for fintech market capture “is AI tech will be easier than other types of tech for large firms like banks to integrate.”
He thinks that is true. It will be easier “for banks to leverage AI than it was to move to the cloud…the cloud migration is still is not complete! But they will still be too slow.”
So to put it simply, massive multi-product fintech companies “with AI at their core (instead of massive teams of spreadsheet moneys in compliance, ops & frontline sales) more likely now than ever.”
“I love this job b/c it affords me a front row seat to watch how this massive change will play out in real time, it’s gonna be fascinating to watch. If you’re a founder thinking about whether to start something, know that now is a better time than ever before.”