The Fintech Newsletter

May Fintech Newsletter: New a16z Fintech Podcast, Q&A With Rocket Companies’ Varun Krishna, and More

Posted May 16, 2024

This content first appeared in the May 2024 Fintech newsletter. If you’d like more commentary and analysis about news and trends from the a16z Fintech team, you can subscribe here.

Introducing In the Vault

For too long, technology and finance existed in parallel universes. Financial institutions believed they had to develop solutions entirely in-house, while startups struggled to navigate these complex organizations. But that culture is changing, and at a16z Fintech, we’re accelerating that shift.

As former founders and senior executives at incumbents ourselves, we’ve seen both sides. Financial institutions are becoming more open to adopting third-party technology, and a new generation of founders is focused on solving workflow challenges with software + AI rather than competing head on.

a16z has deep relationships with the CEOs and exec teams at the world’s most formative financial institutions. That’s why we’re bringing some of our exclusive conversations to you in a new podcast series: In the Vault on a16z Live.

We celebrated the launch of this new series with 3 episodes, and you can follow “In the Vault” on our podcast feed so you don’t miss any future releases.

In the first episode, a16z General Partner David Haber talks with Marty Chavez, vice chairman and partner at Sixth Street Partners, about the foundational role he’s had in merging technology and finance throughout his career, and the magical promises and regulatory pitfalls of AI.

In the second episode, David talks with Marco Argenti, the chief information officer at Goldman Sachs, about automating financial workflows, turning developers into clients, and how AI is a major inflection point in the history of technology.

In our final launch episode, a16z General Partner Angela Strange talks with Jeff Sloan, former CEO of Global Payments, about how he was early to spot significant industry trends, how to make bets that move an organization, and the sea change that AI represents for the financial services industry.

Listen now

Dispatches From a16z's Connect/Fintech

In March, we hosted our third-annual Connect/Fintech event, a three-day retreat that brought together a group of the country’s leading fintech founders and executives. Among other conversations, this year’s event featured:
  • a16z General Partner Alex Rampell sitting down with Varun Krishna, Chief Executive Officer of Rocket Companies and Chief Executive Officer of Rocket Mortgage (an excerpt of their conversation is directly below).
  • a16z Partner Alex Immerman chatting with Immad Akhund, co-founder and CEO of Mercury, and René Lacerte, founder and CEO of BILL, about selling into small businesses, the importance of keeping culture a vital part of a company, and the wide-ranging implications generative AI will have across fintech.

3 Questions With… Varun Krishna

It didn’t take much to convince Varun Krishna, the Chief Executive Officer of Rocket Companies and Chief Executive Officer of Rocket Mortgage, to join the retail mortgage giant last year. The role provided the Intuit veteran with an opportunity to test out transformative new fintech strategies, think through regulatory and cultural challenges, and guide a large company through the most ground-breaking of new platform shifts: generative AI.

a16z General Partner Alex Rampell, who joined Rocket’s Board of Directors as an independent director earlier this year, recently spoke to Krishna at a16z’s Connect/Fintech event about how he’s approaching his newest role, how Rocket thinks about the intersection of AI and fintech, and the future of real estate.

Here’s an edited excerpt from their conversation.

Alex Rampell: In startup land, we often talk about the concept of 0-to-1 and building a product from scratch. Rocket is a multi-billion dollar company, which is probably more akin to 1-to-a-billion, or 1-to-infinity. Given the size of the company, how do you start thinking about growth, especially in light of the revolutionary change being brought on by generative AI?

Varun Krishna: The starting point for me was really founded in learning from companies that understand 0-to-1 and 1-to-100. These are two different things, and they require two different types of teams and people. In the 0-to-1 world, you need more entrepreneurial types who have seen failure, have endurance, and understand product-market fit. In the 1-to-100 or 1-to-a-million world, you’re looking for people who understand growth, have a leadership mindset, and understand analytics. Using product as an example, because that’s in my DNA, your 0-to-1 product manager is obsessed with customer experimentation so they can figure out product-market fit, whereas your 1-to-100 product manager knows how to write query language and is looking at analytics every day.

In the AI world, that’s exacerbated, because you have to understand a different level of technology, a different scale, a different pace. There’s a big, big learning curve. So, you have to figure out how to inject your company with talent that can infect the rest of the populace — you have to figure out how to drive transformation in a bigger way.

Alex Rampell: Gen AI models are known to hallucinate results, which is fine when you’re writing song lyrics, but is disastrous for a regulatory-heavy industry like fintech. You can’t have a Rocket chatbot tell a customer they can get a 1% 30-year mortgage, just because the customer threatened the bot, for example. How do you think about the integration of AI into fintech companies and products?

Varun Krishna: The bar for accuracy in fintech is extremely high, and unlike with open-ended generative AI, in fintech, when users ask a question, they want a specific answer. I think fintech companies must think about how to put guardrails around the prompt or origination thesis, so that users can get a more specific answer. Additionally, as we’re experimenting, we have a higher threshold of accuracy. We also have a high threshold on risk, brand, security, reliability – all those things.

What’s also tricky is figuring out how you experiment at scale. I think the practice of perfecting early adopter programs, where you can work with power users who are more tolerant of things going wrong, is really hard to do in fintech. But it’s incredibly necessary.

Alex Rampell: The National Association of Realtors recently settled a lawsuit that could eliminate the traditional agent’s 5-6% commission and effectively change the way real estate agents are paid. This will obviously have a big impact for Rocket and the real estate industry at large. What’s your take on this change?

Varun Krishna: This is big news. When you look at the mortgage industry as a whole, it’s a massive $1.5 trillion total addressable market with the vast majority of that being purchase transactions. If you take that and say, “Hey, 6% of that is what the realtors command,” that’s a $90 billion market that is on the brink of disruption. So, we’re excited about that, because fundamentally, our thesis is around value creation for the consumer, and this ultimately passes more value to them. Whether you’re the buyer or the seller, you’re either saving more money or you’re making more money, and the commoditization of knowledge plays out. Then, when you add AI on top of it, to provide personalization and simplification, and add transparency to things like fee structures, appraisals, remodeling fees… I could go on and on. It’s going to be a better world for consumers.


More From Our Fintech Team

Managing Your Facility and Tools to Automate the Process

— By David Haber, Melissa Wasser, and JJ Yu

After weeks (or months) of negotiating, you’ve finally closed on your debt facility. What happens now? The final entry in our series on How to Simplify Your Fintech Funding Strategy lays out advice and tools that can help keep you on top of all your contractually required reporting, tracking, and much more.

This Month in Fintech News

Bond Markets have become the new stock markets — due to the growth of electronic trading platforms, algorithms’ advantages in pricing bonds, and proprietary trading firms’ ability to take on bond inventories — so says Bloomberg’s Matt Levine.

Wall Street is weighing how to incorporate AI tools into its analyst work, supplementing positions that have been traditionally time intensive and laborious.

The Consumer Financial Protection Bureau updated how it designates a nonbank for supervision on April 16. It says the new rule will streamline how it examines financial institutions to spot issues before they cause harm or become systemic.

Mastercard launched a new app aimed at helping organizations include its virtual cards in digital wallets. In its announcement, Mastercard highlighted use cases for healthcare, insurance, and corporate travel expenses.

European Union regulators are reportedly prepared to approve Apple’s proposal to open up its tap-to-pay technology in the EU, which would settle an ongoing antitrust investigation.

The Federal Reserve seeks to add about 8,000 financial institutions to FedNow, its instant payments network it launched last July.

Chris Britt, CEO and cofounder of digital-only bank Chimedetailed the company’s past and present to Forbes, from its inception to a potential 2025 IPO.

Recent M&A Deals and Market Intel

Digital promotions and performance marketing solutions company Ibotta priced its IPO on April 17, raising $577 million by offering 6.6 million shares at $88. It traded up 17% on its first day.

Online real estate marketplace leader CoStar announced its acquisition of digital twin platform Matterport on April 22 for around $1.6 billion in cash and stock. CoStar was one of the first adopters of Matterport’s technology.

Digital investment advisor Betterment announced its acquisition of Marcus Invest accounts and assets under management from Goldman Sachs on April 22.

Nigerian digital payments company Flutterwave announced changes to its corporate team on April 23 in preparation for an IPO.

Cross-border payments firm Thunes announced its acquisition of payments platform Tilia on April 23, to accelerate its growth in the U.S. and its presence in the online gaming market.

B2B payments company Paystand announced its acquisition of spend management software provider Teampay on April 25. Paystand says the acquisition expands its network to include more than 1 million businesses.

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