This post first appeared in the a16z fintech newsletter. To receive this monthly update from the fintech team, sign up here.
As the year comes to a close, the a16z fintech team weighs in on the big ideas they hope fintech will address in the coming year, from abating the housing crisis to automating the CFO suite.
There’s an old joke where two pigs are in a barn and one says to the other: “This place is great! Everything is free, the food is great, and it’s so comfortable!” The caption: “If you’re not the customer, you’re the product being sold.”
Traditionally, B2C companies either make money selling products to customers or selling advertising—essentially, selling customers to advertisers. B2B companies generally sell products to customers. Already, a number of B2B companies are monetizing via payment processing. In 2020, we expect to see even more B2B and B2C companies in which the primary business model will be white-labeling financial services, providing them to customers for free, and taking a spread on the backend economics. Companies like Lyft and Amazon are likely to join neobanks in offering debit cards and checking accounts. (Uber already has.) And companies that monetize primarily through payments—such as Toast, Eventbrite, and Mindbody—will get into lending and a host of other financial services. “What’s your business model? Fintech.”
More and more companies will begin exploring the fintech business model. But this requires complex infrastructure that includes licenses, regulatory compliance, and much more—infrastructure that’s typically too costly and time consuming to develop in-house. So in much the same way companies outsource their compute and storage to Amazon Web Services, now companies will seek out specialized services to support fintech infrastructure.
Some of the most exciting investment opportunities in this space are the infrastructure companies that are powering the addition of financial services for both consumer and B2B products. For consumer companies, the rise of “infrastructure as a service” already enables card issuing, regulatory compliance, money movement, servicing, collections, and more. Many B2B companies already accept payments (with the help of third-party providers), but capture a very small percentage of that transaction revenue.
The opportunity exists to capture even more of that revenue by bringing some of those payments capabilities in-house. How? Emergent infrastructure companies are providing the ability for software companies to become payment facilitators, expediting what was formerly a cumbersome, expensive process.
Historically, B2B marketplaces have struggled to gain traction. The business model is inherently price-sensitive, making adoption tricky: If you’re a company dealing with a supplier, why pay a markup to the middle man?
In 2020, thanks to advances in fintech, B2B marketplaces are having a second wave. Instead of simply connecting buyers and sellers, the new B2B marketplace will be more like a vertical operating system, granting full visibility over supply and demand. And rather than the usual take-rate—a monthly SaaS fee or percentage of sales—new B2B marketplaces are monetizing through factoring or facilitating payments. Being able to monetize in this way creates additional margins in really tight businesses. For customers, this represents a marked improvement over the old system. These platforms provide unique value to businesses by solving cash flow issues, automating workflow, and boosting efficiency with free software.
Faire, for example, is an online marketplace that connects makers and vendors to offline boutiques. The platform onboards retailers, handles payments and logistics, and manages subscriptions for makers. Another startup, Silo, deploys software to streamline the supply chain between farmers and produce distributors, making it more cost-effective less wasteful. Companies like Restaurant Cheetah and Fresh Nation act as tech-enabled brokers between farmers and restaurants. And Amazon’s B2B play, Amazon Business, is expected to reach $52 billion in sales in 2023. As more companies find ways to offer unique value to buyers and sellers alike, the B2B marketplace segment is poised to grow in the year ahead.
There is a 7.2 million unit deficit of affordable housing in the US. In recent years, Americans (and Californians, in particular) have realized the effect of severely restricting housing production. In October, Minneapolis became the first city in America to eliminate single family zoning. Oregon and California followed suit, allowing for triplexes and quadplexes statewide.
In 2020, there is an opportunity for companies to ride the zeitgeist and explore tech-enabled ways to deliver units at scale. Some companies are already developing new means of production. Mighty Building and Icon are 3D printing homes—instead of a construction worker manually framing a building, software instructs a printer head mounted on a movable gantry to extrude a specially formulated concrete. FactoryOS creates modularized apartment complexes that can be assembled in as little as 10 days. United Dwelling retrofits homes to add accessory dwelling units (ADUs). Due to a novel risk-sharing arrangement—United Dwelling splits the rent of the new unit—the ADU requires zero upfront cost for the homeowner. Based on data that shows that traditional zoning requirements around parking minimums can dramatically elevate costs, limit density, and restrict a neighborhood’s walkability, Cul De Sac announced a 1,000-unit car-free rental community in Tempe, AZ. And when the Terner Center for Housing Innovation launched its Housing Lab in September, the nation’s first innovation lab exclusively focused on lowering the cost of housing, it received more than 150 applications.
In recent years, companies have explored a variety of ways to get from zero to one. 2019 may have been a turning point in that experimentation phase. In 2020, we will start to see which emerging building and financing models may be capable of getting us from zero to 7.2 million.
Far too many finance tasks are performed manually, from reconciling accounts to initiating payments to building forecasts. Even in companies where workflow software exists, the process is often fragmented: data may be siloed, backward-looking, or lacking context; systems don’t sync. This perpetual state of clunkiness isn’t simply frustrating, it’s a pervasive problem that directly impacts business decisions. Limited tools affect a CFO’s ability to benchmark across companies or industries and to put internal metrics into broader context.
The solution: automation. In this case, technology will enable CFOs and their teams to shift from completing repetitive tasks to proactively interpreting their companies’ financial data in real time and identifying opportunities. These automated tools will not only streamline your workflow, but also assist in making decisions and predicting risks. In 2020, we hope fintech will allow workers to spend less time doing manual busywork and more time interpreting real-time data, using those insights to drive new business.
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