Where FinTech Goes Next

"What will the next breakout fintech company be?"

That was a central topic of discussion and debate among the panelists I served with at last month's Money20/20 conference in Las Vegas, Nevada where thousands of participants convened to exchange views and gain insights into the future of financial services innovation. As Citi's Global Head of Venture Investing & Strategic Growth Initiatives, I shared my view that the next big fintech company will likely engage many consumers but may never be recognized as a household name, because it will operate largely behind the scenes, creating seamless, reliable experiences for customers.

B2C innovations like "one-touch" buy buttons are abundant in today's fintech landscape. Consumer-friendly offerings like marketplace lending, consumer financing and roboadvisors that make financial advice accessible and affordable continue to evolve and have already delivered significant value to the marketplace. Many early fintech startups were launched by entrepreneurs to address pain points that they personally experienced as consumers. As these services have grown, they've helped propel an expansion of the offerings of traditional financial services firms as well as emerging startups.

Looking ahead, we expect the B2C market to continue to flourish, yet fintech will also grow in new directions. We're about to see a new wave of B2B startups and an expansion of B2B offerings that address the more complex aspects of financial services and require a deep knowledge of core banking systems to launch and scale.

An expansion into "back-end" technology is already evident, with an influx of new entrants in regulation (regtech), security and authentication, insurance (insurtech), and even in the underlying technology that drives the financial services ecosystem. There are two important drivers of this new trend.

First, new opportunities have arisen to apply tech creatively in financial centers like New York and London. Over the past five years, entrepreneurial ecosystem growth has accelerated outside of Silicon Valley in cities with large financial sectors, including London, New York and Boston, fueled by significant increases in venture investment. These growing hubs have married the fresh, innovative mindsets of entrepreneurs with the capital and expertise of established financial services players, including a deep expertise in regulation, compliance and back-end processes. This confluence of factors has enabled the application of next-generation technologies in entirely new ways.

For example, Feedzai, a Citi Ventures portfolio company with roots in financial services, uses machine learning to identify and prevent fraudulent transactions before they are completed. Other B2B startups are bringing intelligent technology to market to support anti-money laundering efforts and know-your-customer programs. We are also starting to see the development of pragmatic tech-driven solutions to satisfy regulatory requirements, which could help reduce the high costs banks incur to manage compliance. These solutions wouldn't be possible without a fundamental understanding of existing processes and regulations that might be enhanced by emerging technologies designed to make the global financial system safer and more secure.

Second, we're seeing a move from disruption to partnerships between rising fintech players and banking incumbents. The number of startups seeking to collaborate with established banks and financial institutions has increased significantly in the past five years. Startups are also entering into long-term vendor relationships with institutional customers and scaling solutions across those enterprises.

Increasingly, new startups are developing B2B offerings while existing startups are developing new solutions for institutions. For example, Betterment, another Citi Ventures portfolio company, recently launched Betterment For Business, a product designed for small businesses. Using their automated investing platform, Betterment has brought low cost 401(k) plans to employees of organizations lacking the scale or resources to set them up. Similarly, companies that started out by offering B2C robo-advisory services are now partnering with banks and other financial institutions to provide their technology on a white-label basis.

Much of the discussion at Money20/20 reflected the growing excitement around new types of B2B offerings aimed at uncovering new efficiencies, ensuring compliance, and unlocking the potential of next-generation technologies in surprising ways. We've seen a great deal of ingenuity driving the successful merger of consumer fintech offerings with our core banking systems – and as the entrepreneurial ecosystem continues to evolve, we expect to see more important new players emerge as earlier entrants mature.