Lessons from a Year of Fintech 

In 2023, the boom-and-bust cycle that affected the broader tech and startup sector was even more acute in fintech. Many companies are facing existential challenges due to threats to their business models, the effects of rising interest rates, and the extreme drops in fintech valuations. Founders are facing tough decisions regarding their path forward, and realizing some of the assumptions and market dynamics that led them to create their businesses have fundamentally changed. 

Through the challenges, the Intuit Ventures team engaged hundreds of startups who are continuing to build and innovate. Our team has learned a lot ‌of lessons from these conversations and wants to share some of our reflections from this year on the state of fintech and where it’s headed.

1. The conditions on the field are rapidly changing. 

The fintech landscape is undergoing structural shifts that will change the opportunity set for startups. The Consumer Financial Protection Bureau’s anticipated open banking rule implementing Section 1033 of the Dodd-Frank Act will give consumers more control over their financial data and allow them to share their data with trusted third parties, increasing choice and interoperability for consumers. Additionally, banks are getting smarter about how they engage with startups, and regulators are mindful of the relationships between banking-as-a-service players and their end users. Finally, instant and drastically cheaper digital payments are becoming a reality, albeit slowly. These shifts will open new opportunities for startups to create innovative solutions that are different from those from the prior decade.

2. Capital-intensive businesses are out of favor, but this creates opportunity. 

When interest rates shot up in 2023, it put pressure on companies in spaces like lending and insurance, and funding for startups in these areas dropped dramatically. However, economic conditions have created more demand for these services from customers who need help navigating the challenging macro environment. Companies in these areas are finding success by experimenting with different business models like subscriptions and creating alternative distribution channels like employee benefits and bank partnerships. Founders have also come to understand that discipline and strong financial controls are critical for lending and insurance. This could set the stage for more responsible and profitable startups to tackle these problems in the near future. In response, Intuit Ventures continues to be interested in investing in these spaces and partnering with our portfolio to help them reach customers in a time of greater need.

3. Fintech will unlock innovation within smaller and traditional industries. 

Despite all the transformation to date, there’s still a massive opportunity for entrepreneurs to help bring modern software and automation to industries that have not yet fully digitized. This is especially true with small businesses, and we are seeing a proliferation of new digital tools to serve the traditional industries that have been left out of prior innovation cycles. We’ve seen experienced founders build software for small trucking companies, laundromats, contractors, gardeners, and more. Because these businesses don’t have large IT budgets, financial services have become a critical lever to help them monetize and build profitable businesses within these industries. The total addressable market (TAM) for startups serving small businesses expands dramatically when you include payment processing, lending, and other products, thus allowing these industries to support venture-scale businesses.

4. The promise of Generative AI has yet to be realized in Financial Services.

It was curious to see the relatively low volume of GenAI chatter at this year’s Money20/20 fintech conference in Las Vegas. AI has immense potential to help consumers and businesses with their finances, but applying AI within financial services will come in phases and is mostly being used within back-office and internal workflows today. For banks and wealth managers, AI is starting to be adopted in areas with fewer regulations and a lower bar for accuracy, such as research and customer service. On the business side, we are seeing companies begin by creating co-pilots within their software to answer ‘how-to’ questions and internal chatbots for knowledge workers. Intuit is moving quickly to embrace these capabilities, and has started by building its own Generative AI-powered financial assistant into its products. Although we are optimistic about the potential of Generative AI within FinTech, it has been clear to us that further advancement is needed before these models can carry out complex financial tasks autonomously. Still, we know that startups will be the ones to push the boundaries in this space. Intuit will continue innovating on behalf of customers and we hope to partner with the startups that are equally on the cutting edge.

Moving forward with optimism and discipline 

As the dust settles in 2023, it’s clear that the fintech sector is still nascent. Despite recent challenges, fintech startups will have an immense impact on people’s lives by democratizing wealth creation, improving efficiency and productivity, and bettering the financial outcomes for individuals and employers. This year of turbulence and declining valuations, although painful, has led to a much stronger focus on creating real value with sustainable and profitable business models. Over the next decade, we’ll continue to see financial technology permeate all software categories and capture a much larger share of revenue within financial services.

Intuit Ventures is here to accelerate the trajectory of the startups and founders who we are lucky enough to partner with and are always looking forward to meeting more companies and co-investors. If you want to get in touch, please drop us a line at Ventures@intuit.com!

Learn more: https://www.intuit.com/ventures/.