April Fintech Newsletter: Financial Services x Gen AI, a real estate industry shake up, and more

Gauging Generative AI x Financial Services

(Adapted from a16z General Partner Angela Strange’s March 21 tweetstorm)

Financial services is a heavily regulated industry, so you might think that it would be slow to adopt generative AI, right? Wrong.

A year ago, our use cases for the intersection between generative AI and financial services were early and theoretical. Now, initial implementations abound and we have a clearer picture of AI’s potential.

While many applications may be vertical specific, it can be more interesting to think of Gen AI in the short to medium term. Here are a few use cases that have emerged and the businesses that are already offering solutions.

Automating repetitive tasks (i.e., many humans doing the same thing!)

Contrary to the popular narrative, Gen AI can help with regulation. A high percentage of financial services employees work in compliance, leading to expensive human errors. Gen AI could potentially take on basic tasks with minimal inaccuracies.

New solutions like Greenlite can be (or augment) your entry-level compliance analyst.

Streamlining complex workflows

Why does it cost $10,000 to originate a mortgage? Why does it sometimes take weeks to go through the know your business (KYB) process or to get an SBA loan? The delay is often due to the long times associated with collecting documents, communicating with third-parties, and extracting and keying data into systems.

Vesta for mortgage and Casca for SBA lending rethink age-old processes entirely.

Writing long documents

Across all areas of financial services, employees spend hours collecting data to write documents like suspicious activity reports and model validation reports — which can be more than 100 pages long!

Sardine can write SARs for you, saving you valuable time.

Interpreting long documents

What if thousands of pages of regulation could be effortlessly synthesized, or turned into code?

Now there’s Vesta for mortgages and Norm AI for Chief Compliance Officers, investment advisers, and more.

Removing customer friction

Consumers should do many things — move money from an account earning 0% to one with a higher yield, refinance a loan, etc. — but inertia and friction are powerful forces.

Infrastructure companies already exist to help customers switch bank accounts, refinance credit card debt, and more. Soon, AI agents will be available and able to use these tools and just switch everyone’s bank accounts for them.

Entrepreneurs building Gen AI companies are challenging some of my long-held assumptions, such as: There’s no way XYZ system will ever be replaced.

My new hypothesis: the replacements that came before weren’t 10x better. But their Gen AI counterparts just might be. Every incumbent is vulnerable.

The potential ROI with Gen AI is high: What additional customers could I now serve if an AI agent could spend 2 hours explaining product options and onboarding at a $0 cost? Applications would abound in areas like sales, customer success, and customer service.

We are still in the very early innings here, and these themes apply to industries outside financial services as well.

What am I missing? I would love to talk if you’re building here (or in something I missed)!

Angela Strange is a general partner at Andreessen Horowitz, where she focuses on financial services, insurance, and B2B software (with AI).

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Reuters’ AI War Chest

Thomson Reuters CEO Steve Hasker told the Financial Times last month that the conglomerate has amassed an enormous $8 billion war chest to spend on artificial intelligence investments and acquisitions. This report follows news from last November that Reuters, who owns a suite of tax and accounting software, plans to spend $100 million developing its own in-house generative AI efforts, including product development, acquisitions, and partnerships.

Reuters’ hefty spend is another chance to surface one of our favorite questions: what will come first, the incumbent getting innovation or the startup getting distribution?

As a big incumbent for AI tax startups and others, Reuters — in deciding to make this investment — is a great example of an established player with a major distribution advantage also realizing they are vulnerable in this platform shift to AI. Github, Microsoft, and Intuit are other examples of companies that have been in this position.

Not that Reuters is new to evolving with the times. Though it began as a media company in the early 20th century, it has since expanded into aviation, natural resources, publishing, and legal services, to name a few.

We’ll be watching how Reuters spends this $8 billion war chest, and we’ll also keep a close eye on startups who seek to collaborate or compete in this quickly evolving space.

Joe Schmidt is a partner at Andreessen Horowitz, where he focuses on software, fintech, and insurtech investments.

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National Association of Realtors Nixes Sales Commission

The real estate market received a shock last month when the National Association of Realtors agreed to partly settle a series of lawsuits by eliminating its longstanding rules on commissions, including its standard 6% sales commision.

Check out how some our team has thought about the state of the real estate market over the years:

• When Software Eats the Real (Estate) World
• The Housing Market is Killing the American Dream
• Real Estate in a Pandemic: Homeowners and Buyers
• Data: Asset Relativity (and the Case of Bay Area Housing)

This Month in Fintech News

Mastercard, Visa, and the nation’s largest credit-card issuing banks have agreed to a settlement with merchants to lower the fees merchants pay to accept credit cards. The resulting agreement, which is the product of longstanding litigation, would also allow small businesses to collectively bargain for rates, in a similar way to what larger merchants do now.

The asset-backed loan market is booming and set to grow past $1 trillion, Bruce Richards, CEO and chairman of Marathon Asset Management told Bloomberg Intelligence’s Credit Edge podcast. Richards said opportunities for asset-based lending are going to expand, as banks pull back.

Change Healthcare, operator of the largest medical claims clearinghouse in the U.S., experienced a cyberattack late last month, forcing the company to disconnect over 100 systems and leaving it unable to process claims through its primary platforms.

Last month, Quickbooks developer Intuit absorbed San Francisco-based Proper Finance to join its Fintech and Small Business & Self Employed Group Money teams. In a release, Intuit highlighted how QuickBooks helps the small business economy, “with $560 billion in total money moved on its platform in FY23.”

More From Our Fintech Team

• a16z General Partner David Haber appeared on the Founder’s FAQ podcast last month. There, he discussed the importance of building a competitive advantage in the early days of a business, how to develop pattern recognition in markets, and the role of the board of directors.
• David also appeared on an episode of the Fintech xChange podcast, where he discussed the challenges of scaling, whether one is a small business or a global bank.
• a16z General Partner Alex Rampell, in a new tweetstorm, cautions that before you launch a new product, one of the most counterintuitively important things to do is to plan for how to *kill* or *exit* the product. FAST. And it’s not as simple as it sounds…
• a16z Fintech Partner Seema Amble recorded an episode with the The SMB Tech Innovators Podcast, for a conversation about how embedded fintech is transforming the landscape of SaaS platforms, and how to match products with customer needs.
• a16z General Partner Angela Strange was featured in a Bloomberg article about the intersection between banks and financial services adopting generative AI.
• Three financial service giants cornered the market on data at the dawn of the digital age. A16z Fintech Partner Joe Schmidt has a new blog post about what founders can learn from them in our new LLM-powered era.