Request for Fintech Startups - Summer 2022

Some ideas I'm thinking about now: vertical ERP's, next-gen open banking, closed loop payment systems, financial services for HNWI's, and unbundling Turbotax

I love investing because of the constant exposure to new markets, products, and business models. However, particular areas have captured my interest because of previous experience or specific insights. That doesn't mean I have the perfect blueprint for a company in that area, but I have confidence that a venture-scale business can be built there. This is a list of those areas.

Note that I also invest in fintech companies beyond this list— these are just ideas I can’t get out of my head. If you’re an entrepreneur, it’s never too early to talk to me. So if you’re working on something interesting between concept and Series A, whether or not it’s on this list, I’d love to hear from you.

Vertical ERP (VERP): Vertical SaaS + embedded fintech

Vertical ERP will be one of the largest and most exciting software + fintech categories of the next decade.

In my series on VERPs, I defined them as “purpose-built applications that centralize and automate core processes for a particular type of business, consolidating the everyday workflows that would otherwise require a patchwork of tools.” Companies like Toast, Mindbody, and Bonsai have seen early successes here. However, they’ve barely scratched the surface of the opportunity.

The explosion of embedded fintech options, the post-COVID digitization of SMBs, and the commoditization of pure SaaS are all combining into a perfect opportunity for VERPs. However, it’s so early that the playbook for effectively combining software and multiple fintech products is still being written. Entrepreneurs with deep knowledge of a vertical and the ability to quickly learn this playbook will build valuable companies.

Next-gen open banking: reading and writing

I’m fascinated by the opportunities opened by technology that gives you the power to go from just reading a system to reading and writing to it.

For example, payroll API vendors like Pinwheel are interesting when they make it easy to access payroll data, but are significantly more interesting when they let you reroute and split payroll payments.

Open banking is no exception to this. Most innovation here has focused on reading transactions and balances. I’m interested in what product opportunities become available when it’s possible to write in the funds flow as well.

What happens when you can give merchants granular access to your funds? For example, only allowing withdrawals of certain amounts or at certain times or on certain schedules. Companies like Privacy.com have pioneered a version of this with virtual cards that have merchant restrictions and other limits. However, this is a hacky feature for power users rather than an elegant solution for the mass market. There are also powerful applications of this on the B2B side as well, particularly in AR/AP and other places where workflow and cashflow intersect.

Closed loop payment systems

As it becomes easier to integrate with open loop payment systems, smart entrepreneurs will realize the power of closed loop systems.

In a closed loop system, payees can only make purchases at specific merchants that support that payment method. Gift cards are a common example: you can only use your Starbucks gift card at Starbucks, your Amazon gift card at Amazon, etc.

Closed loop systems are narrow by design. This means they have fewer intermediaries, lower fraud, and lower processing costs. This contrasts with open loop systems like Visa or Mastercard, which have much broader acceptance by design, but many more intermediaries, more room for fraud, and higher fees. There are early examples of new closed loop systems at scale, such as Square’s Cash Pay, but this is just a tying together of 2 existing payment systems (Square Cash and Seller).

There’s a huge opportunity for new closed loop payment systems. As in vertical SaaS and financial services, I’m interested in companies applying closed loop systems to specific end markets, as well as those providing the infrastructure for it.

Financial services for HNWIs

Wealth management today is where banking and brokers were in the pre-Chime and Robinhood days. Current offerings are not only antiquated, but also are next to useless for people with assets that traditional wealth managers consider “exotic”: ISOs, RSUs, NFTs, crypto, etc.

It’s critical to find the right wedge, both in the initial product and target persona. Many who have tried this end up becoming a service-heavy business with a veneer of technology. You probably don’t want to eliminate the human in the loop, but you need to reduce the human touch without a corresponding decrease in the real or perceived quality and value of service.

Once you nail that product wedge, this is an incredibly sticky and lucrative offering with plenty of equally lucrative areas to expand into.

Unbundling QuickBooks and TurboTax

Their ethically dubious lobbying aside, Intuit’s TurboTax and QuickBooks are built for a world that no longer exists. This is true for both consumers and businesses.

Consumers are building careers in ways that strain or completely fall outside of the antiquated and complex tax code. They earn money from multiple income streams, with multiple taxable statuses, and from multiple jurisdictions. Businesses want full-stack products tailored to their business, not a constellation of fragmented software products (as discussed with VERPs).

The one thing nearly all consumers and businesses have in common is that they must manage their finances and do their taxes. QuickBooks and TurboTax are rapidly becoming one-size-fits-none offerings to huge swaths of the market that’s obligated to solve this problem.

So, there’s a big opportunity to build pure play, vertically oriented, accounting and tax products for specific consumer and business verticals. Additionally, there’s a big opportunity to build embeddable accounting and tax products for other platforms, especially VERPs, to layer onto their offerings.