What’s Working in AI, Rebuilding Core Banking (March 2025 Fintech Newsletter)

This content first appeared in the March 2025 Fintech newsletter. If you’d like more commentary and analysis from the a16z Fintech team, subscribe here.

Takeaways from a16z’s Connect/Fintech

James da Costa, Angela Strange

Earlier this month, the a16z Fintech team hosted its fourth annual Connect/Fintech event, a three-day retreat convening leading fintech founders, public company CEOs, and investors. The gathering focused on the rapidly evolving intersection of tech and financial services, with discussions spanning what’s working in AI, how to engage effectively with regulatory bodies, hard-earned operational lessons on how to scale faster, and the future of banking charters.

a16z General Partner Alex Rampell opened the event by framing the current moment within the broader arc of the cloud software evolution. In the previous Financial Services-Enabled Cloud Era (~2010-present), markets expanded through embedded payments, lending, and other fintech add-ons. This gave rise to companies such as Toast (software for restaurants) and Mindbody (software for fitness studios), which emerged by appending financial services onto software solutions. Today, thanks to AI, we are witnessing potentially the greatest transmutation in history. Software becomes labor. AI is automating or augmenting the role of labor across industries. This will reshape how companies are built, how value is created, and how financial services play a role in capturing that value. 

Speakers and panelists covered a range of topics. A few standout discussions below.  

Ben Metz on modernizing banking technology

Ben Metz, CTO of Jack Henry, offered a candid look at the underlying issues plaguing legacy core banking systems — and what it will take to modernize them. “It’s mind-boggling how complex these systems are,” he said, describing layers of interdependent processes that ultimately reach the system of record. 

According to Metz, most core banking systems operate like a distributed database, just without any synchronization protocols. “Every bank in the United States stops the world and runs what they call end-of-day or good night processes,” he explained. “That is exactly where all the complexity is for every single product that ever tries to get built.” This lack of real-time state awareness, he noted, leads to additional layers of technical complexity as institutions attempt to work around the limitations. Yet “if you just take it all the way down to the journal level, you can rebuild these systems back up in a much simpler way. My hot take is it’s actually not too hard to rebuild these systems if you just think about them differently.”

Jackie Reses on building trust with regulators

Jackie Reses, CEO and cofounder of Lead Bank, shared strategies for navigating regulatory relationships. Her approach emphasizes transparency and consistent engagement. “We’re really proactive,” she said. “We go to regulators with new products. We make sure they know about new clients.” Reses noted the advantage of working with the FDIC at the local level: Lead’s Kansas City-based regulators know them professionally and around the community. This regular, local connection creates trust.

Lead is also hands-on in educating regulators. Reses described how her team works closely with the FDIC, the Federal Reserve, and members of Congress to distinguish between “good actors and bad actors.” “Because they know us, they trust us and see the quality and consistency of our compliance work,” she said. That visibility has allowed her team to work through complex regulatory issues with credibility. 

Why some fintech companies are choosing not to become a bank

Despite the rise of global neobanks like Revolut ($45B+ market cap) and Nubank ($50B+ market cap), the U.S. has yet to produce a homegrown neobank of a similar scale with its own banking license. But according to Renaud Laplanche, CEO and cofounder of Upgrade, not having a banking license may not be a disadvantage. “I wouldn’t necessarily agree that you get lower cost of funding or better economics or a marketing advantage by saying you’re a bank. Maybe that was the case 10 years ago. I don’t think it is now,” he said.  He drew a distinction between full bank ownership and lighter regulatory frameworks like an ILC or fintech charter. “You lose a lot of your freedom to operate [as a bank],” he explained. “You add friction and capital requirements that you don’t have when you operate as a pure marketplace. I love having the freedom to focus on product innovation, marketing, consumer experience, and capital markets, but really outsource the balance sheet to someone else.”

One of those partners is Cross River Bank, which powers Upgrade’s banking infrastructure. Gilles Gade, CEO and founder of Cross River, described the bank’s role as deeply embedded in its fintech partners’ operations. “[We] insert ourselves in the life cycle of our partners, to the best of our ability, to become the experts in areas where they don’t need to,” he said, referencing common pain points like capital markets and compliance. Gade also noted that acquiring or becoming a bank can invite tight regulatory oversight  or even trigger de novo rules that may restrict growth to 20% annually for up to seven years — an unrealistic restraint for venture-backed fintech companies. From his perspective, it’s more efficient to partner with a bank capable of supporting the fintech company’s ability to scale for the majority of the stack, at a manageable price point, and grow together. 

Recent M&A deals and market intel

Klarna’s IPO filing flipped public on Friday, though it didn’t disclose the number of shares to be offered or the expected price range. A Bloomberg article from earlier this month stated that the company is reportedly seeking to raise at least $1B, with an aim to price the IPO in early April.

Amex acquires Center: Amex announced its acquisition of Center, a travel and expense management company, reportedly for $600M. The business was led by Steve Singh (founder of Concur and executive chairman of Center) and his son, Naveen Singh (Center’s CEO).

Bilt acquires Banyan: Bilt announced its acquisition of Banyan, intended to accelerate Bilt’s expansion into new merchant categories and create a comprehensive neighborhood commerce network. Banyan is an existing vendor to Bilt, powering its FSA/HSA program at Walgreens. Following the acquisition, Banyan will continue to operate independently, maintaining its existing client relationships and services, while collaborating closely with Bilt.

Clearwater Analytics acquires Beacon and Blackstone’s Bistro: Clearwater announced its acquisition of Beacon, a cross-asset class modeling and risk analytics platform, for ~$560M (60% in cash). Beacon had ~$44M ARR at the end of 2024. Clearwater also announced its acquisition of Bistro, Blackstone’s portfolio visualization software built for its Credit and Insurance business, for $125M ($10M paid in cash). This is all in addition to the company’s potential Enfusion acquisition. which is in process.

Morningstar acquires Lumonic and DealX: Morningstar announced the acquisitions of Lumonic, a private credit portfolio monitoring and management platform, and DealX, a provider of U.S. commercial mortgage-backed security (CMBS) and (collateralized loan obligation) CLO data. Lumonic will remain a standalone product, armed with PitchBook’s resources.