While it has been a few weeks since we attended FinovateSpring 2024, the themes that emerged from the conference are still ringing in our ears because they are playing out across media headlines every day.
Banking and fintech are synonymous with each other and both are trying to figure out the same issues, whether it’s how generative AI will play a role both internally and externally, the growing importance of catering to Gen Z, or how economic uncertainty is affecting everyone.
The following are just a few observations that came out of panels, company demos, and networking conversations at Finovate in San Francisco in May.
AI is top-of-mind
Almost every panel we attended and most of the demos had AI at the center of the conversation.
While most of the chatter centered on GenAI, panelists were quick to point out other use cases that may be flying under the radar. Banks and fintechs are using various forms of AI internally to assist with simple tasks. Others are using some form of machine learning in anti-fraud efforts and ID verification. Not everything needs to be centered around AI for chatbots.
But a prevailing thought among panelists is that banks must start small, as there are still many unknowns with AI. During a fireside chat about compliance and regulation, they made the point that clearer regulation is the key to banks becoming more active in AI. Once there’s more regulatory clarity, we will see more use cases.
Capturing the attention of Gen Z
With the Gen Z population expected to reach around 85 million by 2025, this has become a critical demographic for both banks and fintechs.
According to one recent EY survey, ninety percent of Gen Z Americans rate authenticity, or being true to oneself, among their highest values. Given that focus, banks and fintechs must ensure their messaging and products are genuine and valuable. To do this, executives must:
- Think about how to engage with Gen Z consumers in a way that builds trust.
- Be culturally sensitive and avoid stereotypes.
- Be cognizant of Gen Z’s “BS” meter.
How banks and fintechs leverage the latest technologies and social media platforms will be crucial in attracting and retaining Gen Z consumers.
A downturn in funding
The industry is aware of how the situation has changed as far as fintech funding.
CNBC recently cited a KPMG report that said global fintech funding peaked in 2021 at $238.9 billion. But by 2022, that figured dropped to $164.1 billion. Funding bottomed out last year at $113.7 billion, a five-year low.
The question on the minds of many Finovate attendees was this: which fintech companies are the best to invest in right now? Companies that specialize in private markets infrastructure, such as wealth technology, employee benefits and elder fraud prevention lead the way. Panelists also pointed to financial tools tailored for small businesses, and companies specializing in AI for internal operations such as accounting.
Banking-as-a-service (BaaS) has fallen out of favor with investors, especially given the ongoing fall out from Synapse’s demise. Investors at the conference also said lending technology is lukewarm given high interest rates. Blockchain is currently out of favor.
Can you scale?
Another noteworthy talking point that came up in conversations during networking breaks was whether smaller fintechs have the capability to scale quickly as they work with even the smallest of financial institutions.
One credit union executive posed this question, and it’s one she regularly poses up in conversations with early seed fintechs. As the credit union grows, can the fintech partner keep pace and grow as well?
One subset of this question is compliance. Banks place a premium on complaint partners as financial institutions are held to the highest standards. The majority of early seed fintechs lack a chief compliance officer, as the founder/CEO often wears many hats at the company.
FinovateFall is quickly approaching in September in New York City. Will we be having the same conversations then as we did in the Spring? We will report back and let you know!
