As the fintech industry continues to evolve with companies like Stripe, Credit Karma (now part of Intuit), and Robinhood changing how consumers and businesses conduct financial transactions online, the opportunities for new entrants to unlock potential seems endless. But with such a broad landscape spanning both the consumer and B2B fintech realms, where are the greatest opportunities for companies to focus?
Recently, partner Jesse Wedler joined host Greg Palmer on the Finovate podcast to talk about how CapitalG approaches its investments in fintech, the trend of larger companies bringing financial services in-house, and the options that lie ahead for both B2B and consumer tech. Here are a few key takeaways from their conversation. (Full episode below.)
Greg: What is CapitalG’s investment strategy when it comes to fintech?
As an investor I’m focused primarily on B2B, but overall fintech has been an area of focus for CapitalG since the beginning. Our first-ever fintech investment was in Lending Club in 2013 when the firm was first getting started, and from there, we invested in Credit Karma in 2014, and then co-led Stripe’s Series D in 2016. Since then we’ve invested in MANTL, MX, Robinhood, Albert, Next insurance, Applied Systems and others. Financial services have such a need for better technology, both in terms of inclusion and access, but also in terms of transforming the legacy financial institutions. We look for growth-stage companies that can transform the industries they’re operating in so we can leverage resources available to us across Google and Alphabet to help them scale faster.
Greg: Are there any pieces that you and your team are especially interested in at the moment?
There’s a lot of venture investment going into fintech — around $40 billion annually. But there’s a huge amount that’s spent on just supporting the world’s financial infrastructure. Something like $500 billion is spent on IT every year for Fortune 500s across the globe. There’s this huge opportunity for greater penetration of technology into that broader financial services ecosystem. And we’re seeing this across every sub-vertical like mortgages, insurance and brokerages. But there’s still a really low digital penetration — sub 10% in a lot of these areas. I think there’s a 10 to 20 year trend here of better technology penetrating these verticals. And that’s what excites me about B2B fintech, and where I spend my time focusing.
Greg: What are your thoughts on larger companies bringing fintech services in-house?
The top four banks are going to try to do everything themselves, and the super regionals are going to do a mix of buying and building. But community banks and credit unions don’t have the capabilities to build the infrastructure and products they need themselves. This is a natural segment to focus on right now and is why I was so excited to invest in MANTL.
There’s other layers to it, though. Where there’s common infrastructure, no company, regardless of size, really wants to build it themselves. An example would be a company like Notarize that we invested in earlier this year. No company should go build digital notarization technology into their infrastructure when a company like Notarize already builds it and offers it to everyone. I think there’s a market for everyone. You just have to be really focused on the specific market you’re serving so that you don’t get too caught up in trying to sell the customers that might not be likely adopters.
Listen to the full podcast to hear Jesse’s thoughts on the biggest opportunities for new fintech startups, the industry’s future, and his advice for anyone in the process of building a fintech company.