F-Prime’s David Jegen joins Judy Shaw of NYSE Floor Talk to discuss the F-Prime Fintech Index and the state of fintech in 2024.
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Behind the Build: Q&A with Meena Mallipeddi, AmplifyMD
Raised in families immersed in the healthcare field, Anand Nathan and Meena Mallipeddi, husband and wife Co-founders of AmplifyMD, are no strangers to the limitations faced by many doctors today. “Coming from families of doctors, we’ve watched frustrations grow when physicians are not able to practice medicine and deliver patient care in the way they had hoped,” said Mallipeddi. She noted one key shortcoming is a lack of timely access to specialist expertise, which prevents patients from obtaining the care they need when they need it.
Access to specialist physicians in the U.S. now largely depends upon a person’s zip code, Mallipeddi pointed out, and this access disparity impacts hospitals, patients, and their communities. As a result, most hospitals in the US experience unnecessary transfers, prolonged hospital stays, excessive utilization of tests and diagnostics, and increased healthcare costs. Outpatient services also struggle with issues like patient leakage, avoidable readmissions, and delays in care, which all exacerbate the clinical and financial burdens on the healthcare system.
Determined to solve the glaring supply and demand gaps they consistently observed, Mallipeddi and Nathan set out to redefine how hospitals, clinics, and patients access specialty care. Mallipeddi explained, “Hospitals and health systems have been trying to solve the specialty shortage issue with telemedicine for years, but they haven’t been successful in their current piecemeal approach. Until recently, virtual care has been a glorified video call. But it must be so much more if we want a seamless experience with broad adoption and impact. The technology must integrate bi-directionally with the EMR (electronic medical record) and the health system’s existing clinical workflows. Just as important, it’s got to be incredibly functional and efficient for a remote provider to see patients across multiple systems without a million different logins and applications for them to wade through. Anand and I knew we had to offer something smoother, better, and faster so medical facilities and providers could use the technology to its full potential.”
And so Mallipeddi and Nathan created AmplifyMD, a next-level virtual care platform that took into account the pain points above and gave hospitals a built-in multi-specialty physician group to simplify access to specialist services. “By developing a network of providers alongside our fully integrated virtual care platform, we can support hospitals, health systems, and clients of all sizes in a way that hasn’t been done before.”
What motivated you to start AmplifyMD?
My husband, Anand, and I have backgrounds in healthcare and technology, and were constantly exposed to the firsthand frustrations of our family members who are medical professionals.
The recurring narrative we encountered was the limitations caused by their lack of access to specialists. This often led to unnecessary patient transfers, excessive testing, and, at times, suboptimal care, all because a clinician lacked a piece of critical information or a consultation from a specialist. Recognizing that knowledge in medicine is highly shareable with the right technological infrastructure led us to the founding of AmplifyMD.
What have you learned along the way from “peers” in the field, and how is AmplifyMD different?
Most of our learnings were around the need to develop a comprehensive solution versus a narrow focus on only the clinical or technological aspects of virtual care. Hospitals are seeking a holistic solution, and the fact that we offer 15 different specialties through one platform, across any device, use case, or clinical care setting is so key to them. Our approach also minimizes their need for the myriad point solutions they struggle to manage today, helping our clients achieve operational efficiencies they otherwise would never have managed. It’s one training, one integration, and you’re done. That has been huge for us.
What makes you most hopeful about AmplifyMD’s future?
It’s hearing the impact we are making on patients, providers, and hospitals each day. I was just visiting one of our clients the other week, and the CEO was raving about our doctors and how much she loves having them on staff. And it wasn’t only because of the impact they were making directly on patients by seeing, treating, and discharging them efficiently. It was also because they’d simultaneously lowered the burden on her in-house hospitalist team. Her staff is keeping and treating more complex patients on-site with more confidence, and we’re helping the hospital as a whole run at a higher level of performance.
That’s just one story, and it might seem minor compared to the more dramatic tales of life-saving consults we do every day, but it’s precisely these everyday successes that illustrate the profound effect we’re having on healthcare in America. Our ability to efficiently address common health issues, which traditionally might have led to prolonged hospital stays and escalating costs, showcases the potential of AmplifyMD and “virtual care done right” to streamline and improve patient care and healthcare outcomes.
F-Prime has played a pivotal role in our journey, particularly through the support of Carl, who has been instrumental in expanding our network and enhancing our credibility. Carl’s willingness to share his extensive contacts has opened doors for us, connecting us with key figures in the healthcare industry, fellow founders, and potential investors. These introductions have been invaluable in fostering relationships and building a solid foundation for future collaborations.
What’s been the most rewarding part of your tenure with AmplifyMD to date?
Witnessing our remarkable growth and the impactful milestones we’ve achieved. Our team has more than tripled in size over the past year, which just blows my mind.
Equally exciting is our leap in patient care, from serving 10,000 to over 50,000 patients annually. Currently, we collaborate with over 150 clinical sites and offer services in more than 15 specialties, supported by a robust medical group nearing 300 doctors. And we recently launched tele-stroke in our suite of specialties, with 100 activations in a mere two weeks, which marks another significant achievement. This exponential increase underscores our expanding capacity to make a real difference in patients’ lives daily.
From the foundational days of brainstorming ideas to reaching these milestones, the journey has been a testament to our collective effort and dedication. Witnessing these achievements unfold has been profoundly rewarding, and our team’s ongoing shared commitment to our mission continues to make AmplifyMD incredibly fulfilling.
How would you describe your leadership style?
Fundamentally, I am driven by results, and hold a firm belief in setting ambitious targets. The essence of my leadership involves not just setting ambitious goals, however, but also ensuring that the team believes in their ability to meet them. I see a crucial part of my role as inspiring and instilling confidence in my team, convincing them of what we can achieve together. Otherwise, I’d never have gone into the start-up world!
I’m also always very direct and transparent, a firm believer in giving credit where credit is due, but also in calling out areas for improvement as soon as they become apparent. Celebrating a job well done is just as critical to our team’s continued success and morale as making sure everyone knows we are all being held to the same high standards. We’re all in this together, everyone is giving it their all, and I think the more our employees see this in action, the tighter it makes us as a team.
Who is the one person who’s had the most professional impact on your career, and why?
That one’s easy: my co-founder and husband, Anand. As a husband-and-wife team, our dynamic is unique. Anand not only conceived the initial idea and vision for our company, but he also brings a level of empathy to our partnership that complements my more results-driven approach.
His extensive experience as a people leader has been instrumental in shaping our company’s internal culture. Anand excels in managing our team, effectively communicating our vision, and fostering a collaborative environment. His ability to provide unwavering direction and product guidance for the company and our platform has kept us at the forefront of the industry and helped us build a clear defensive moat around our offering. The balance between our skill sets allows him to focus on the internal operations of our company while I take on the external challenges.
Anand’s impact extends beyond professional guidance. He provides unwavering support during challenging times, and we rely on each other for strength. This mutual support system has been a cornerstone of not just our personal relationship but our professional success as well. Moreover, his ability to offer candid feedback whenever necessary has been invaluable in maintaining our focus and integrity throughout our journey.
‘By developing a network of providers alongside our fully integrated virtual care platform, we can support hospitals, health systems, and clients of all sizes in a way that hasn’t been done before.”
— Meena Mallipeddi, Co-founder & CEO of AmplifyMD
How Fintech Is Disrupting Traditional Banks in 2024
In sectors like mobile banking and commission-free trading, fintech companies have had a profound on financial incumbents. In other areas, the future of banking and fintech is still being developed.
Fintech is growing up.
Over the last few decades, a generation of startups have surfed a wave of new technology spanning digital payments, roboadvisors, blockchain, and more, staking out a share in new and existing financial markets. Meanwhile, many incumbent financial service providers have sunk or swum based on their ability to anticipate, react to, or adopt new technology.
For the last three years, we at F-Prime Capital have produced our annual State of Fintech report to track the sector’s road into adolescence. 2024 marks a decade since fintech started to attract meaningful venture investment (that is, more than $10B annually), so in this year’s report we looked back on fintech’s impact on the broader finance industry.
Where did startups truly innovate and disrupt incumbents? Which sectors owe their technological innovation to startups and incumbents alike? Where did incumbents prove difficult to disrupt, or simply outmaneuvered the disruptors? And are there any sectors where these questions have yet to be decided?
True Startup Disruption
In the race against incumbents, startups have had the most disruptive impact in two sectors: embedded payments and commission-free trading models.
Software-based payments startups have been enormously successful. Riding on the creation of the PayFac model in the 1990s and the API-ification of payments in the 2010s, payments have been increasingly embedded into software vendors and are often the first of many adjacent fintech products offered.
In 2017, software-based payment companies Toast, Flywire, and the still-private Stripe processed just shy of $60 billion in payments, but by 2022 their total payment volume jumped to $927 billion — rising from 3 to 42% of incumbent FIS’s volume.
In the wealth management world, Robinhood won a generation of new and active investors with a mobile, gamified mobile experience and, most importantly, a commission-free trading model.
Though not the first company to rely on payment for order flow (PFOF) as a major revenue source, Robinhood’s dramatic rise in 2019 spurred incumbents including Interactive Brokers, Charles Schwab, TD Ameritrade, and E-Trade to forgo commissions. Schwab and Ameritrade (which later merged) estimated that nixing trading fees eliminated $1.4 billion in annual revenue, although much of that was ultimately recovered through PFOF.
Startups and Incumbents Both Disrupted
Broadly speaking, incumbent banks have adapted well to the past decade’s wave of fintech innovation, while startups have also managed to carve out meaningful market share.
Both were able to drive and adapt to changing technology in the consumer banking space. Neobanks like Chime, SoFi and Varo found success providing “new front doors” for consumers — between them, the three companies’ apps were downloaded over 8 million times in 2023 alone. Meanwhile, incumbents were able to quickly adopt neobanks’ more attractive features like zero overdraft fees and continue to see substantial user base growth. Mobile app download data suggests incumbents and disruptors are both winning the race to be consumers’ primary financial relationship.
On the business banking side, startup neobanks like Mercury and Brex benefited from early 2023 bank instability — receiving an estimated 29% of Silicon Valley Bank (SVB) deposit outflows. However, most companies were drawn to the security of J.P. Morgan, an incumbent that has recently acquired innovative fundraising and cap table businesses to bolster its startup product offering. In the wake of the SVB collapse, it secured an estimated 50% of the stricken bank’s deposit outflows.
Where Incumbents Remain Entrenched
By facilitating “hands-off” investment and trading, the rise of roboadvisors opened the door to millions of consumers who were otherwise unreachable to wealth and asset management companies. Early innovators like Betterment and Wealthfront created and owned a $200 million assets under management market in 2012, but weren’t able to secure distribution before incumbents innovated. Within a few years of launch, Vanguard and Charles Schwab developed and launched competitive products that swiftly gobbled up a growing market: by 2021, total roboadvised assets under management had reached $415 billion — and more than 85% owned by incumbents.
Peer-to-peer (P2P) lenders emerged in the 2000s with the ambition to disrupt traditional banking by eliminating the middleman, offering borrowers lower interest rates and retail lenders an attractive return on their investment.
This worked until it did not: in 2014, more than 84% of P2P lender LendingClub’s originations were funded by retail investors, but by 2020 retail sources of funding dried up to only 20%. Both LendingClub and Funding Circle have sunsetted their P2P lending products and instead grew to rely on institutional sources of capital — the very model which they had set out to disrupt. LendingClub went full circle and acquired a bank (Radius Bank) to secure a stable source of bank deposits.
Where Disruptors’ Impact Remains to be Seen
We identify three areas where the dynamic of startup disruption and incumbent innovation remains to be seen: crypto, real-time payments in the US, and generative AI.
Crypto has had a volatile history and its use cases are still dominated by investment and speculative trading. However, stablecoins show promise in both their ability to act as a store of value (in markets where the local currency is volatile or inflation is rampant) and as a new transaction method. In 2022, stablecoin transaction volume reached $6.9 trillion, surpassing that of PayPal at $1.4 trillion — suggesting crypto’s real value may lie in payments, after all.
Last year’s launch of FedNow, the U.S.’s late-arriving real-time payments system, generated a lot of speculation about whether real-time payments (RTP) could rival other payment methods in this country. For now, the effect of RTP in the U.S. remains to be seen. While RTP’s volume share of non-paper-based transactions dominates in India and Brazil (83% and 49%, respectively), the figure is just 1.8% in the United States.
Similarly, we are still in the very early days of a generative AI-driven innovation wave and its lasting effects in financial services. For now, fintech disruptors and incumbents are mentioning AI in company earnings calls at a similar rate, suggesting equal levels of focus on the technology across the industry.
The last decade of financial innovation brought remarkable change to the ways consumers earn, save, borrow, build wealth, and move money — and we look forward to seeing how our list of genuine fintech disruption changes over the next decade.
Originally published in The Financial Brand.
In Fintech, 2023 Was the Year of “Regulation On, Risk Off”
Throughout its history, finance follows a predictable pattern. Waves of excessive risk-taking are followed by the three common corrections: a flight to safety, regulatory scrutiny, and jail time for the worst offenders. The junk bond market imploded along those three familiar lines in the late 1980s. Ditto for the 2008 financial crisis.
In 2021, a 10-year wave of fintech innovation and disruption culminated in a $1.3T market cap for public companies listed in the F-Prime Fintech Index. Then, in 2022, the market fell back to Earth and the usual corrective results followed in 2023. In their flight to safety, investors abruptly demanded capital efficient growth and cut fintech valuation multiples. By now we could fill a school bus with the fintech executives who are either under indictment, awaiting charges, or already in jail, including leaders at FTX, Bitwise, Frank, Wirecard, Terraform, and Binance. And in the last 12 months, regulators have finally started to throw their weight around the fintech sector. In our most recent State of Fintech report, my partners and I refer to 2023 as the year of “reg on, risk off.”
For now, we wanted to take a look at the more enduring element of any corrective cycle: regulatory action. The fintech industry experienced a meaningful shift in regulator scrutiny, rule-making, and enforcement in 2023, which will have a lasting impact on the sector.
Banking
The Office of the Comptroller of the Currency (OCC) has is scrutinizing the relationships between fintech startups, banking-as-a-service providers (BaaS), and chartered banks. This triad has been incredible valuable to the fintech ecosystem, but banks like Blue Ridge Bank, Cross River Bank, and First Fed Bank have recently found themselves in the regulatory crosshairs. Many banks are responding by suspending fintech startup programs, re-asserting stricter compliance controls, or exiting the space altogether. It’s clear to us that regulators would prefer chartered banks bypass BaaS providers and manage fintech programs directly. We think BaaS and embedded banking is here to stay, but it will become more expensive and everyone is moving more slowly until the regulatory guardrails solidify.
The Consumer Financial Protection Bureau (CFPB) has been busy making headlines with proposals to cap overdraft and not-sufficient-funds fees. While in aggregate these will not make a big impact on the banking industry, we think it’s a fascinating culmination of neobank disruption which taught consumers (and apparently regulators) that banking could function without the fees.
In the realm of open finance, the CFPB proposed Section 1033 of the Dodd-Frank Act enshrining consumer access to their financial data with banks (though notably not yet with brokerages). Thanks to aggregators like Plaid, Quovo, and Yodlee, the US has had de facto open access for years, but it is good to see it protected, though we’re watching for unintended consequences if new limits are placed on secondary use of the data.
Payments
FedNow, and the renewed push for real-time payments (RTP) in the US, is a big story, though the lack of deadlines or forced bank support ensures we will see much slower adoption in the US than in countries like Brazil and India. Of course, there are many other reasons the US would have adopted more slowly, like credit card rewards and already high-performing alternative payments rails.
We are focused on how risk and fraud will be addressed with RTP, and see increased scrutiny of other digital wallet transactions as a preview. Fed Reg E does not require banks to reimburse consumers who mistakenly send funds through error or fraud, yet the CFPB is understandably looking at the $1 trillion of digital wallet transactions and asking if they should. Bowing to pressure, last year Zelle voluntarily began reimbursing some affected consumers, and we believe we will eventually get to a greater harmonization of consumer protections regardless of the payment rails.
Finally, it wouldn’t be a year without someone complaining about interchange, though last year the Federal Reserve actually proposed a debit card interchange fee reduction that would be the first since 2011. As before, fintech companies could side-step the lower fees by working with exempt banks under the Durbin Amendment to the Dodd-Frank Act (banks with less than $10B in assets.)
Lending
Seems like everyone is asking how to regulate By Now Pay Later (BNPL). In the OCC’s December bulletin, the regulator issued new requirements for banks that support BNPL transactions around risk management, disclosure guidelines, and borrower safeguards. The CFPB issued its own report focused on similar issues. And following Callifornia’s lead that formally incorporated BNPL under state lending laws in 2020, many states are addressing BNPL this year. We expect BNPL to gradually align with other consumer lending regulations, but this will not materially slow its rapid growth.
Across the country, states are passing or considering legislation dealing with early wage access (EWA), where hourly workers can smooth out pay cycles by accessing their wages without waiting for weekly or monthly pay cycles. Nevada and Missouri adopted laws that protect users from large fees when using EWA, while a law in Connecticut (and another pending approval in California) would designate EWA as a “loan.”
Wealth and Asset Management
In March, the Department of Labor urged retirement fund providers to “exercise extreme care” when considering an investment in cryptocurrency, opting for statements over regulation for now.
More regulation is coming for the private funds industry (aka Alternatives) with a notable step in that direction in 2023. At $16T in assets and an expanding base of retail investors, the Securities and Exchange Commission (SEC) began requiring registered advisors to make quarterly disclosures about their fees, as well as performance and potential conflicts of interest.
Proptech
While more litigation than regulation, in October, a federal jury found that the National Association of Realtors had colluded with some of the largest real estate brokers in the US to inflate commissions. The ruling had immediate implications for property tech companies like Redfin, Zillow, and Opendoor, which all saw their stock price sink in the aftermath. It is remarkable that US consumers continue to pay such high commissions for selling a home, but it remains to be seen whether this ruling can do what Redfin and a decade of digitization has not.
Crypto
Several jurisdictions, including the European Union, released detailed crypto regulatory frameworks seeking to prevent fraud, money laundering, and other forms of illegal financing via cryptocurrency. Here in the US, the SEC is continuing its policy of “regulation via litigation,” filing roughly 55 enforcement lawsuits during Chairman Gensler’s term at the agency’s helm. And in a huge milestone for the crypto sector, the SEC also approved the listing of 11 bitcoin ETFs.
Conclusion
Heightened regulation follows waves of innovation and increased risk-taking, and that’s generally a good thing. The lag permitted a decade of new startups to innovate, expand consumer options, and further digitize the financial industry. 2023 marked the beginning of the “reg on, risk off” era, and while regulation may go too far as well, we think the increased regulatory scrutiny will prove beneficial. We must all work with regulators to develop regulation that protects consumers while permitting innovation, gives businesses clear rules to comply with, and if not too much to ask, harmonizes disparate regulatory frameworks across analogous products (e.g., payment rails) and across federal and state regimes.
The Four Ds of Digital Health
In the dynamic landscape of healthcare’s digital transformation, where data access, timeliness, and quality are paramount, a fresh framework emerges: the Four Ds of Digital Health
Unlike conventional stakeholder-centric models, the Four Ds zero in on the essential functions individuals seek from healthcare: accessing the right mix of professionals, medications, and tests. However, a glaring obstacle obstructs progress: the sorry state of healthcare data
A student of mine in my side hustle as an adjunct lecturer once created “Four Gs” related to her academic project; humorously, she called it “a business school approach to remembering things.” In that spirit, I’ve been thinking about how best to encapsulate and frame the role of data access, timeliness, and quality as we collectively reshape healthcare as a digital-first industry.
Hence, I’d like to propose the Four Ds of Digital Health.
Before diving in, it is worth reflecting on the services we all enjoy daily that are only possible with accurate, up-to-date data. Like many frequent travelers, I often use the Uber, Starbucks, Orbitz, and HotelTonight apps. None of these services could function without accurate information about the “state” of location (Uber), inventory (Starbucks*), pricing (Orbitz) or quality (Hotel Tonight). Most of these apps and many others we use in our daily lives need real-time, accurate data about all of those elements. Some, such as Starbucks, are closed systems that will not let you know that another coffee shop is closer to you, while others are more like the more open marketplaces (e.g. Amazon) we have come to love: but at least they all are predicted on accurate, realtime data.
In healthcare by contrast, there is not reliable, up-to-date information about basic things like the address of a medical group, the status of a hospital or its on-staff doctors with respect to a provider network, the medical history of a patient, or the status of a health plan deductible. This is even true in closed systems like Epic where some health systems can’t seem to get out of their own way. Simply put, we cannot build services that improve the quality and cost of healthcare — thereby expanding access — without solving the sorry state of healthcare data.
Getting to the 4 Ds, I was tempted by other alliterative quartets. Often used is the four Ps of healthcare: patient, provider, plan, and pharma. That works, but it speaks more to the stakeholders than to the “jobs to be done”. I flirted with four As: access, automation, artificial intelligence, and accountability, but it felt too abstract.
Hence, I offer 4 Ds that are mutually exclusive and collectively exhaustive, while also upgrading DATA to the central role it deserves:
– Doctors (by which I include all care providers overseen by doctors, with everyone “at the top of their license” or the hospitals in which doctors do procedures)
– Drugs (including both the benefit from PBMs and the delivery from pharmacies)
– Diagnostics (labs, imaging, etc.)
– Data (which you could argue is orthogonal to the others, but as mentioned above needs to be treated as a key pillar, so I’m bending the framework accordingly)
By the way, you may say these also are not “jobs to be done”. That is true, but they are closer to that framing because what people really want to “get done” in healthcare is to stay well and address problems; this means they need the right mix of doctors, drugs, and diagnostics. What stands in their way are the myriad process breakdowns we all have come to accept driven by health plan bureaucracy, provider ineptitude, and related technology breakdowns; as well as the (criminal) conspiracy that is our incumbent PBM model. If you are sick, if you are managing a chronic condition, or if you merely seek to access preventative care, you are in the market for a doctor, a drug, or a diagnostic.
What makes all of this so frustrating is that our data model (our 4th D) is broken. Our data is siloed and often inaccurate; and few of the participants in the industry are interested in changing that. Remember when the Cures act opened up health data access and Epic took out a full page ad to explain to Congress why this would undermine quality? Ever notice how payers and providers treat “price” like a national security secret? Some have openly speculated that payers want provider data to be opaque, so that they can field “ghost networks” that meet network adequacy requirements in a phony fashion (I don’t share this view, but I empathize with those who wonder how we can easily access the hours of the deli down the street on our phones and yet major payers seem unable to provide accurate street addresses of the providers in their networks).
Innovation comes from clinicians, technologists, and business people working together to improve the processes by which people access the 4 Ds. With the advent of AI, it is now every more clear that the promise of value based care models, patient-centric care management platforms, and improvements to administrative cost all hinge on data quality improving dramatically. And, fittingly, the data we need improved relates directly to the other three Ds and deserves a full seat at the table.
– Doctors: We have “hacks” to access doctor’s (or some of doctor’s) schedules from early innovators like ZocDoc, but few solutions actually expose the inventory of provider time to the world for use and scrutiny, and the availability of “cash pricing” is scarce. New companies offering provider data APIs hold promise, but solutions also need to be adopted within the enterprise to ensure that provider data is accessible, actionable, and accurate. We need more than just online booking; we also need to know details about provider services and quality. Even more importantly, we need to know the PRICE of services, so patients (or doctors who navigate their care) can see what things actually cost. In short, we need a HotelTonight for medical care. We need doctors to simply explain what they need to be paid per hour (or, if you want to be fancy, per RVU). We should just cut to the chase: 15 minutes with an internist should cost about $100; a specialist should cost about twice that; NPs should be at least 25% less. If we just cut through the morass of “visit leveling” and modifiers, we can acknowledge that what we have is a broken marketplace for provider time. We should be able to expose the schedules and the prices, a la HotelTonight. Providers take home about half of the top-line today due to administrative bloat; with innovation those costs can come down, potentially reduction actual costs.
– Drugs: Anyone who has stood in front of the CVS counter with a doctor on one phone line and the PBM on the other knows how maddening it is to sync up the various parties who control the distribution of drugs. Again, there are “hacks” such as drug discount cards and related services like GoodRx, but what we need is a fundamental redesign. PBMs who talk about “average wholesale price” are disingenuous at best. Platforms like CapitalRx represent infrastructure to change the game and link prices to proper reference data. Some disrupters also are promoting the potential of biosimilars, which also would reduce cost if they didn’t eat into the profits of the PBM rebate game. PBMs also make a killing on generics where market forces should permit patients to pay the real costs of those medications. In short, by exposing data about what these medications really cost, we can begin to present tradeoffs to providers and patients who increasingly need to focus on budgets for care.
– Diagnostics: In some areas, we have achieved scaled low-cost tests, as with bloodwork at the national chains. In other ways, the data monopolies of health systems inhibit a real market from developing for services like imaging. Most people know of times when the big health system implies or states outright that they can’t look at images created outside their four walls. Similarly, patients often need to resort to “sneaker net” to carry images on CDs or as films. This is nuts and it’s wrong that health systems we are supposed to trust will not enable use of imaging that would cost dramatically less if done in a place that doesn’t have primates in the basement. What is missing here is a data network that can disentangle the imaging from the radiology reads. It is illegal to require patients to use only your own services and with data liberation we should be able to put an end to such misuses of market power. With a surge in new diagnostic possibilities, from genetic tests to cancer biomarkers, diagnostics also will need to yield to the power of platforms and markets to reveal price and other tradeoffs so the health fiduciaries out there can make better decisions in the interest of patients.
Which brings us back to data. If our health data was plentiful and portable, we could simplify the way we pay providers, rationalize the drug payment model, and open-up a marketplace of diagnostic solutions that would cost much less than what we pay to oligopoly health systems. Yes, data runs orthogonally to the other three Ds, but by giving it its own space as another “D” we can begin to rationalize and push the other three Ds to move forward. Providers, payers, pharma and diagnosticians would love to sit on the data and mete it out if and when it suits their interests; but we all would benefit dramatically more if data were open so the innovators can do their thing.
So, how will we get there? A hopeful data roadmap would include regulation to require data sharing with patients and providers (and crack down on market power abuses), development of data utilities and related APIs, and enterprise solutions to bring payers, providers, and pharmacies kicking and screaming into a modern data model. We also need marketplaces that make the cost and quality of doctors, drugs, and diagnostics crystal clear to those who control health budgets and to patients who increasingly have their own funds to allocate. As with the innovation we have seen in other areas of our lives, if we can focus on and fix the last D, data, we can unlock a new era of enhanced services at lower costs across the other three Ds.
And what does this have to do with digital health? Everything. We already have the ability to care for people across state lines via telemedicine, route patients to lower cost care settings, and leverage AI to find insights and solutions at a dramatically lower cost, IF the regulators permit it and the data is at hand. Innovators and their investors are ready to go and already are making a dent in these problems. And/but, if those sources of creative destruction had better data that was more fluid, more accurate, and more actionable, the innovation and improvement in our health system would be dramatic and profound.
So, let’s embrace technology and clean-up our data act.
Our health depends on it.
Open Banking Walked so Open Finance Could Run
Financial APIs are driving an overdue wave of innovation.
Over the last few years, open finance has become one of those vaguely defined fintech buzzwords. But with increasing regulatory movement in the US and nearly 70 million consumer accounts now interacting with financial APIs, it has become more relevant than ever.
Open finance has its roots in open banking, which refers to the use of application programming interfaces (APIs) to build applications fueled with consumer banking data. While largely invisible to consumers, open banking innovation has powered the novel ways that consumers now borrow, build wealth, and move money. The shift towards open banking has long been underway in the US and has paved the way for new open finance applications to flourish.
We define open finance similarly to open banking, but more broadly: the use of APIs to build applications that supplement consumer banking data with other information, defining users’ financial lives across their profiles of wealth, debt, insurance, sources of income, and more. The reason that open banking regulation is so exciting is that it’s the first step towards a world of open finance, where consumers can more fairly access financial products designed for their unique needs.
A Brief History of Open Finance
One might trace the origins of open banking in the US back to 1997, when Microsoft, Intuit, and CheckFree formed a combined open API standard known as the Open Financial Exchange (OFX). But open banking really started to catch on post-Great Financial Crisis when the US government enacted Dodd-Frank and created the Consumer Financial Protection Bureau (CFPB).
Now, after more than a decade, Section 1033 of Dodd-Frank — referring to consumers’ right to access their own financial data — has taken the main stage. In October 2023, the CFPB proposed the Personal Financial Data Rights rule. If it’s finalized in the fall of 2024 as anticipated, the rule would implement Section 1033 and codify open banking in the US.
The Rise of Financial APIs
A key driver in the adoption of open finance is the proliferation of financial APIs, and their superiority over earlier screen scraping technology. Drawbacks to screen scraping include connectivity issues any time a website experiences an update or outage, and heightened risk for financial institutions who are unaware who is scraping their consumer data and for what purpose. Instead, APIs dictate how systems can securely and efficiently exchange discrete data elements — and are the key enabling technology for open finance.
The adoption of APIs in financial services has accelerated over the last few years, as institutions have come to realize the heightened security, efficiency, and customer experience associated with them. At the same time, recent CFPB proposals are continuing to shepherd financial institutions toward a world of open APIs, enabling consumers to easily port financial data between providers. The Financial Data Exchange (FDX) emerged as an industry group whose open API standard incumbents and fintechs alike have rallied around. It is estimated that the FDX API now touches 65 million consumer accounts, up from 2 million just four years ago.
The Evolution of Bank Cooperation
The 2000s and 2010s saw a substantial debate over the right to access consumer financial data. At the time, data holders (namely banks and other incumbent institutions) cited IT costs imposed by data aggregators scraping their websites, while data users (like fintech applications) asserted that they were merely accessing consumer-permissioned personal data to better serve the end user.
Case in point: For several days in 2015, J.P. Morgan and Wells Fargo restricted customers of Mint (a then-popular, now-sunsetted account aggregator) from accessing their bank account information. Banks pointed to technical concerns such as data security and server capacity, though competitive threats loomed too. Even when institutions didn’t fully restrict access, they had other tactics at the ready: strict security standards, time-of-day restrictions, increasingly granular user permissioning, and costs for access.
Flash forward to today: Incumbents have come around to the promise of open finance as the technical advantages of APIs — and their customer experience improvements — have become more apparent. Disruptors and incumbents are increasingly collaborating here, too: members of the industry group FDX include a healthy mix of incumbents (like Bank of America and Wells Fargo) and disruptors (like Plaid and MX).
API technology, regulatory encouragement, and shifting consumer preferences are all fuelling a wave of new open finance startups. So what would it look like if the promise of open finance were fully realized?
Open Finance in Action
Many users already feel the benefits of linking their bank accounts with popular financial applications like Venmo, Coinbase, and Robinhood via Plaid. However, at F-Prime we imagine that same level of data access expanding to other areas of a user’s financial life.
A large population of consumers still don’t have fair access to credit. Lenders can use payroll API solutions like Argyle to verify sources of income or solutions like Trigo to validate a customer’s ability to pay rent on time. Financial institutions can use Method to aggregate a consumer’s outstanding liabilities and reveal where they can refinance at a lower price, or employers can use it to offer debt repayment benefits to their employees. In the insurance space, Canopy Connect can help agents surface existing insurance policies and help potential customers dig for more competitive options.
This wave of consumer financial data aggregators will leave institutions and fintechs looking for an “aggregator of aggregators” solution, either routing between providers to maximize uptime or to paint a more accurate financial picture of the consumers they serve. Meld is one example. Others, like Prism and Pave, take consumer data via these APIs and produce financial insights in pursuit of a more modern and comprehensive credit score.
Looking Ahead
It will be a while before that vision becomes reality — 1033 is still directional sentiment, not regulatory action just yet. The proposed rule also only covers a subset of consumer financial accounts: deposit accounts, credit cards, and digital wallets. It says nothing about payroll data, for example. Meanwhile, the thousands of regional banks, credit unions, and other smaller financial institutions that make up the United States’ uniquely fragmented banking landscape will struggle to keep up with the required technological standards.
That said, in the long term we can see the growing array of consumer financial data APIs coming together to a holistic, real-time, and accurate financial identity for every consumer. Easy access to financial services and more tailored financial products will result. We are excited to see the institutional response to the new regulations and technology currently impacting the market — but we are much more excited about the effect that open finance will have on the end user experience for millions of Americans.
Originally published on Fintech Prime Time.
The 2024 State of Fintech Report
Assessing the industry’s rebound
For the fintech industry, it has been a wild couple of years. 2021 was a year of record-breaking valuations, revenue multiples, and VC funding. We then experienced an over-correction in 2022, with massive drops in valuations and multiples, and investors differentiating truly disruptive fintechs from those that merely provided a slightly better version of an existing financial service.
Access the full 2024 State of Fintech report here.
The F-Prime Fintech Index reflected this rise and fall. In 2021, we measured public fintech companies’ market cap at $1.3T. By the time it found its floor the following year, the industry was worth $389B.
Now, heading into 2024, we see the fintech market in the midst of a rebound, with public valuations and multiples improving as investors prioritize profitable, sustainable growth. By the end of December, the F-Prime Fintech Index’s market cap stood at $573B. Overall, the Index rebounded 114 percent in 2023, and continues to outperform the S&P 500 by 540 percentage points. Revenue multiples have also made a modest recovery, though public investors are rewarding capital efficient growth and structurally attractive gross margins over revenue growth.
Correction Still Rippling Through Private Markets
While the public markets are in recovery mode, the over-correction of 2022 is still affecting private markets. We saw investment volume drop by around 50 percent last year to 1,639. However, it’s worth noting that more private investments were closed in 2023 than every year in history before 2019. Fintech has become one of the largest sectors in venture capital, and that is not changing.
Post-Series B valuations took the biggest hit in 2022 and while they climbed slightly in 2023, it is misleading because only the strongest companies raised in 2023. Those that could wait, did, and tried to grow into prior round valuations. 30-40 percent discounts in secondary trading are a leading indicator of 2024 valuations for some late-stage private companies.
2024 will be a tale of two cities, with high-performing companies continuing to raise without difficulty, while others struggle. Of the 819 companies that raised a Series A round in 2021, 43 percent — more than 350 — have not yet announced a Series B, acquisition, bridge round, or shutdown. Bridge rounds can only extend so far and most will need to raise or find a suitable landing in 2024.
M&A Activity Did Not Bounce Back
2023’s $98B in fintech M&A pales in comparison to 2021’s $349B. While we expected heightened activity from private equity and strategic buyers in 2023, the first half of 2023 was extremely quiet. High interest rates hampered PE borrowing patterns, scaled fintech companies lost their high multiple acquisition currency, and strategic acquirers were focused on reducing their operational expenses. The collapse of Silicon Valley Bank helped no one. However, the second half of 2023 M&A was brisk and portends a more vibrant 2024.
Reg On, Risk Off
Throughout the history of finance, waves of excessive risk-taking tend to usher in an era of regulatory scrutiny — think of the 1980s junk bond market and the 2008 financial crisis, for example. Having reached the “excessive risk” period in 2021, fintech has now entered a period of regulation.
Relationships between BaaS providers and charter banks are under scrutiny, as are private fund managers and retirement products that include cryptocurrency. Financial service providers are being urged to adopt risk management practices around its buy now, pay later products, and there is downward pressure on debit interchange fees. These are just some of the regulatory actions that impacted fintech this year — check out the report for a full list of the most important pieces of regulation we’re watching heading into 2024.
Reflecting on a Decade in Fintech Innovation
A decade into the fintech era, it is becoming clear where startups have disrupted existing financial services and where they were outmaneuvered or outlasted by incumbents.
Startup-led innovations like software-based payments (Stripe, Toast, Flywire), BNPL (Affirm, Klarna), and commission-free trading (Robinhood) genuinely disrupted incumbents and meaningfully shifted business models, revenue streams, and customer expectations. Elsewhere, incumbents embraced the very innovations startups introduced, leading to broad industry adoption more than disruption. For example, mobile banking and consumer-permissioned API access to financial data are now the norm.
In some sectors, incumbents “found innovation before startups found distribution.” For example, Betterment and Wealthfront pioneered robo-advisors, yet incumbents now control 80 percent of the market.
We should verbalize what you’re reading between the lines here: fintech startups have changed the industry in countless ways, but financial services incumbents are doing just fine. The top five banks have added $580B in market cap since 2003, and the top brokerages added $5.8T in client assets in the last five years.
Finally, the book is still being written for crypto, real-time payments, and GenAI.
Reasons for Continued Excitement
The industry is now operating at scale, with more than half of the 49 companies in the F-Prime Fintech Index posting over $1B in revenue in 2023. Yet these companies still only scratch the surface on their potential, capturing less than 10 percent of total US financial services revenue. There is still so much room to grow.
Even scaled fintechs — that billion dollar revenue club — are just getting started and growing an average of 45 percent annually, more than three times the rate of public incumbents. We expect the IPO window to open in 2024 for scaled fintech companies like Stripe, Klarna, Circle… and hopefully many more. We will add them to the F-Prime Fintech Index when they meet our published criteria.
Go deeper: Access the full report via the F-Prime Fintech Index here.
Behind the Breakthrough: Q&A with Peptone, Kamil Tamiola
Kamil Tamiola’s approach to better understand disease-causing proteins reflects his passion to study protein disorders.
Intrinsically disordered proteins (dubbed IDPs) and intrinsically disordered regions (IDRs) occur in one-third of the human proteome. Disordered proteins are shape-shifting and lack a consistent 3D structure. As a result, IDPs cannot be visualized using existing experimental methods, such as microscopy and mass spectrometry, or by predictive modeling approaches. Determined to “see” the invisible in the disordered proteome, Tamiola and his team have used interdisciplinary collaboration to address this longstanding challenge.
Tamiola had an opportunity early in his career to collaborate with researchers studying proteins implicated in progressive neurodegenerative disorders, like human alpha-synuclein and tau.
He explained, “It became evident that my expertise alone could only make a limited impact, and the true excitement lay in bringing together multiple disciplines.” The interdisciplinary collaboration was a significant shift for Tamiola, transitioning from solo physicist to cross-functional collaborator working closely with biologists and protein engineers. It was through this blending of different scientific disciplines that Peptone was born.
Peptone’s approach combines experimental and computational methods to study IDP molecular motions and their implications in biology. In a competitive landscape where some companies are using traditional approaches to tackle these challenging targets, Tamiola believes “Peptone’s technology can redefine what is considered “undruggable” into potential therapeutic opportunities.”
By leveraging proprietary tools to study protein shape and behavior before pursuing binding studies, Peptone can build more reliable models for drug discovery. This parallels the shift that X-ray crystallography brought to folded proteins, where understanding structure led to computer-aided molecule design.
What motivated you to start Peptone?
The idea stemmed from realizing the underexplored potential of IDPs while collaborating in academia. Historically, drug discovery against disordered proteins involved screening, identifying binding molecules and then refining them through tools like NMR spectroscopy. With a bit of luck, we recognized how little effort had been devoted to this incredibly important class of proteins and set out to develop drug candidates that would bind to these proteins and exert a biological effect.
We began with some thrilling results that came out of proof-of-concept studies with pharmaceutical partners. We demonstrated the transformative power of using computers to alter the properties of disordered proteins and yield empirical results, all achieved without the existence of our own laboratory at the time.
These successful early endeavors motivated us to establish a dedicated laboratory, where we now engage in truly original research, and that was the moment that marked the inception of Peptone.
“It became evident that my expertise alone could only make a limited impact, and the true excitement lay in bringing together multiple disciplines.”
Dr. Kamil Tamiola, Founder & CEO, Peptone
Why is understanding the structure of intrinsically disordered proteins so important for advancing human health?
Intrinsically disordered proteins are widespread in the human proteome and across all life forms. They serve the purpose of enabling proteins to exhibit diverse, dynamic, and plastic structures to fulfill complex cellular functions. Unlike proteins with a singular function, these proteins collaborate with partners and can assume various structures. Considering the role of IDPs in numerous biological functions, both inside and outside the cell, there is a vast array of potential therapeutic targets.
IDPs are a large and diverse group and early research focused on neurodegeneration. This interest arose from the observation that bizarre, yet structured fibers found in human brains caused Alzheimer’s. Notably, the molecules forming these fibers lacked any inherent structure themselves.
Today, we recognize that in oncology, cardiology, autoimmune diseases, and even weight loss, disordered peptides play a crucial role – highlighting the broad relevance of disordered proteins across various therapeutic categories.
What makes you most hopeful about Peptone’s future?
We are seeing incredibly exciting data coming out of our programs and it is abundantly clear to us that this technology that we first developed for biologics research can also be successfully applied to small molecule drug discovery for intracellular targets.
As you read this, we are generating a wealth of data on challenging disordered targets showing great promise with clear therapeutic hypotheses. Our innovative insights position us to create best-in-class or first-in-class solutions. This is incredibly exciting as it allows us to revisit areas where people acknowledged the importance of a target but lacked a starting point. With Peptone’s unique approach and supporting data, we can now confidently guide progress.
How do think about the impact your early research can have on humankind overall?
I’m a humanist, and I believe in the value of humankind. And I still believe even with AI advances there will be a space and place and purpose for us in this world. Most importantly, I hope that companies like us, irrespective of how prolific we’ll be, will move the needle towards a better understanding of all these debilitating diseases and to giving people a better life.
What’s one lesson you’ve learned so far as CEO and founder?
Drug discovery is incredibly difficult with so many things that can go wrong. As much as we wish that we could reduce it to engineering and technological problems, I just don’t believe in that. What is incredibly humbling is the tremendous amount of artistry, devotion, and drive that individuals in the company must have, especially when there’s a challenge.
It is important to have a team that is motivated, almost obsessed with details, and in the face of setbacks, can find the inspiration to repeat experiments, look once again over data, and push in advance. So as CEO, my biggest responsibility is to communicate the progress of ups and downs transparently and concisely so we can make sensible decisions.
Who is someone who’s had the most professional impact on your career, and why?
I have two mentors. One is Dr. George Golumbeski and the other is Dr. Andrew Allen, both members of Peptone’s board of directors. Golumbeski is known in the drug discovery field as one of the most prolific deal makers who was key in the acquisition of Celgene by BMS. Andrew Allen is a professional chairman of our company but also an entrepreneur and clinician himself. They are both incredible people and play a vital role in shaping how I run the company and how I think about drug discovery. I call them my sounding board when it comes to decision-making, but also strategic thinking. Sometimes it is not even by giving me direct feedback, but by sending an article or a podcast saying, “Listen to this, look like these guys did it, what is there for us?” So, providing a learning experience in a variety of ways and I’m very, very grateful for that.
What’s one regular habit of yours that’s integral to your professional happiness and success?
Daily grand piano practice and reflection are very very useful. They really help me to calm down and focus and allow me to put myself in a sort of sensory deprivation mode to counteract all the stimuli I am exposed to daily. I’m also very committed to getting seven to eight hours of sleep every night and that is one thing I would recommend to anybody.
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Fintech in Q4: The Return of BNPL and (Maybe) Crypto
Unpacking Fintech’s Q4 Rise
Fintech as a whole rose in Q4. Before we jump into the numbers, it’s worth highlighting a few notable stories hidden within them:
The Return of Buy Now, Pay Later: In the 11 months ending December 6, consumers spent $64.9B via BNPL platforms — a 15 percent jump from a year earlier. The markets reflect that rise, with BNPL provider Affirm’s revenue multiples tripling since Q4 2022. The company now trades at 11.2x. We have not seen that level of persistence for a publicly listed digital lender before — after all, Affirm has moved beyond B2C point-of-sale lending. On that note, in November the company announced that its partnership with Amazon had expanded to cover payments on its B2B store. Meanwhile, a surge in BNPL usage over Black Friday and Cyber Monday (up 20 percent on Black Friday and 42 percent on Cyber Monday) also lifted the company’s earnings.
Fellow BNPL provider Klarna is one of the top candidates to go public in 2024. But keep an eye on regulators, as the OCC recently issued a bulletin to help banks manage the risks associated with BNPL. For a deeper analysis on the vertical from an unapologetic BNPL evangelist, we enjoyed Simon Taylor’s “rant” earlier this month.
Crypto Spring?: Coinbase is currently trading at 15.1x, up from 1.3x in the depths of the crypto winter. That’s a stronger bounce than we’ve seen in cryptocurrency prices — Bitcoin has rebounded from $16,529 in December 2022 to $42,800 this month and Ethereum is now worth $2,562, up from $993 in July 2022. $4.6 billion changed hands on the new bitcoin ETF’s first day of trading — though the price has corrected post-launch and Vanguard did not join the likes of BlackRock, Grayscale, and Fidelity in launching a spot bitcoin ETF.
Shopify’s on a Roll: The e-commerce platform’s multiples have increased again QoQ and now trades at double its Q4 2022 multiple at 14.5x. What’s driving this growth?
- After pulling the plug on its logistics side quest in May, the company has re-focused on its main game: building e-commerce stores for brands, adding enterprise clients, facilitating better omnichannel and mobile commerce experiences, and building its wholesale offerings.
- That wholesale business is gaining traction, with B2B GMV up 61 percent in the first half of 2023. New customers include Kraft Heinz, Brooklinen, and Momofuko.
- Shopify has been well-placed to harness the tailwinds propelling vertical SaaS. Across the fintech category, investors consistently reward vertical SaaS companies over other fintechs for their recurring revenue, high gross margins, and economies of scale.
And now, for those of you who love diving into the details on public stocks, we have:
The Q4 Numbers
LTM revenue multiples rose across the board in the last quarter of 2023, from 4.0x in Q3 to 4.8x in Q4. Multiples rose for all growth rates and verticals within the sector.
By Growth Rate:
Source: F-Prime Fintech Index
Companies that grew less than 20 percent (typically the larger companies in the Index) saw the biggest jump in Q4, almost doubling from 1.8x to 3.4x thanks to a broad recovery in market capitalization and enterprise value. The other two growth segments saw modest gains — find an interactive version of the chart above under “Historical Metrics” on the F-Prime Fintech Index.
By Vertical:
Source: F-Prime Fintech Index
Wealth and asset management saw the largest jump, with average multiples rising from 3.4x to 7.3x. Coinbase and (to a lesser extent) Robinhood drove the rise — see below.
Proptech companies collectively traded above 1x for the first time since Q2 2022, rising from 0.9x to 1.5x. Digital mortgage platform Blend drove the rise for the second quarter in a row.
Zooming In on WAM
Driven by rising equity and crypto prices, WAM companies’ assets under management and transaction volume have rebounded. The overall crypto market capitalization is up 62 percent to $1.3T since the beginning of 2023. Since the WAM sector is mainly a tale of two companies, let’s check in on the main players individually:
Net quarterly revenue for Coinbase was down six percent in Q3 to $623M, but still higher than the $576M 12 months earlier. The company is marching towards profitability on a GAAP basis, only losing $2M in Q3 2023.
However, those aforementioned gains in the value of crypto assets and a corresponding rise in trading volume mean that Coinbase’s Q3 numbers were less than impressive in light of trade-based revenues. In the third quarter, Coinbase generated $289M worth of trading revenue (down 21 percent year-on-year), with $275M (95 percent) coming from consumer activity and another $14M (5 percent) from institutional traders. Those figures were $310M and $17M respectively in the second quarter of 2023, and $346M and $20M a year ago. For now, Coinbase’s main growth comes via interest-based income (including interest earned on customer custodial funds and loans), as well as subscriptions and services like its stable coin arrangement with Circle and USDC.
Source: Reuters
Monthly active users over at Robinhood have been declining month over month, but it has compensated somewhat with steady increases in its earnings per client over the last six quarters. Similar to Coinbase, it has also seen its revenue boosted by rising interest rates, with income from interest surpassing transaction-based revenue for the first time in the company’s history.
Source: Reuters
Index Removals: Finally, while M&A activity continues to pick up in both public and private markets, no F-Prime Fintech Index companies were acquired this quarter. However, crypto trading platform Bakkt no longer met our criteria and was removed from the Index.
Written with Zoey Tang.
Dispatch: Building the Data Integration Layer for Wealth Management
Over the last ten years, investing in wealth management has become decidedly more exciting on the back of TikTok “finfluencers” and direct-to-consumer brands like Robinhood, Titan, and Public. An estimated $45B of venture capital flowed into wealth startups over the last decade, with B2C startups receiving 80% of late-stage capital raised. Robinhood almost singlehandedly disrupted $1.4B of retail brokerage commissions when incumbent brokerages matched Robinhood’s free stock trading (see F-Prime’s Wealth and Asset Management sector report for more).
However, gems are often found on the seemingly sleepier sides of markets, and we see some of the most exciting startups solving problems in the traditional world of financial advisors (aka WealthTech). At F-Prime Capital, we have had the opportunity to partner with the founders of exceptional WealthTech companies, including Quovo (acquired by Plaid), Vestwell, FutureAdvisor (acquired by BlackRock), and Canoe Intelligence. We are also thrilled to have just led the Seed round in Dispatch (fka OneAdvisory).
We wanted to share why we feel WealthTech is so interesting right now and why Dispatch has an opportunity to become a core part of the modern wealth management tech stack.
Why financial advisors?
Easy: that’s where the money is. Just over half of retail investable assets are managed by ~300,000 financial advisors. Second, it is an industry that only gets bigger. Advisor-led assets under management (AUM) has grown a steady 8-10% over the last 10 years; up from $17 trillion in 2013 to $34 trillion at the end of 2022.
Why now?
The wealth management industry is experiencing a fundamental need for automation. While investing has become more automated over the last 10 years, most client-facing activities have not. Client onboarding, account opening, investment analysis, and reporting still involve an enormous amount of people and paper. We see four key drivers of automation, each presenting opportunities to rebuild the industry’s technology infrastructure.
Breakaway RIAs: Registered Investment Advisors represent the fastest-growing segment of wealth management. In 2022, nearly 1,300 advisors left traditional wirehouses (e.g., Morgan Stanley, Merrill Lynch, Wells Fargo, UBS) to follow the independent RIA route, taking an estimated $200 billion AUM with them. Alongside the breakaways, private equity is powering M&A across the industry – we estimate there were almost 1,000 RIA acquisitions in 2023. New RIAs want modern tech stacks (they are giving up those huge back-offices) and acquisitive RIAs want one modern tech stack, not one for each acquired firm. These trends require integration, digitization, and automation.
The rise of alternatives: Financial advisors were always a relevant channel for private equity, credit, and real estate funds; however, they are now the star of the show. Private funds need retail investors to continue growing, and financial advisors have embraced the idea of 25-30 percent allocations to private funds, substantially above the current five percent client average. It’s the perfect match, yet the infrastructure is missing. Client onboarding, capital calls, and reporting are all paper-based and advisors pay a high administrative price in exchange for the long-term commitment from their clients. We have written more here and here about the rise of alternative assets and the need for a new tech stack.
Generational wealth transfer: Financial advisors know they are on the verge of a stunning $70 trillion generational wealth transfer over the next 20 years. In anticipation, new wealth management firms like Titan and Facet are targeting those low-balance Millennials. While we expect both old and new firms to win their share, the one thing we know for certain is that Gen Y and Z want digital tools first, humans second. Most traditional wealth management firms will need major upgrades in their digital client onboarding, engagement, and reporting.
Artificial intelligence: We are just beginning to see AI extend into wealth management, but it is exciting to anticipate the impact it will have on client onboarding and servicing, as well as financial planning and advice. The combination of public and private LLMs can radically change the way clients interact with their advisors (and their chatbots). We wrote more about AI in financial advisory here.
Introducing Dispatch
Financial advisors recognize this need for automation, and numerous startups have emerged to address it. The typical financial advisor today uses 10 distinct financial advisory platforms, up from five just two years ago. The tech vendor landscape has truly exploded as well. As Jess Bost has noted, a picture is worth a thousand words:
At this point, the solution has become a part of the problem. There are so many fragmented point solutions and duplicative sources of customer and investment data, that just maintaining data integrity and synchronization has added manual work and risk of errors. Client onboarding into ten separate tech platforms robs advisors of the very productivity they hoped to gain by adding a new tech tool. While an all-in-one tech platform could in theory solve these problems, that is simply not going to happen in an industry with a complex value chain (asset managers, advisors, custodians, servicers, et al.), all-in-one platforms built through M&A, and a highly fragmented advisor base.
The talented co-founders Rob Nance, Madalyn Armijo, and Rafi Lurie started Dispatch to address this fundamental problem of data management. Dispatch automatically (i) ingests client data from tax returns, financial statements, IDs, etc., (ii) enters it into advisor tech platforms, and (iii) perpetually maintains data synchronization across the advisor tech stack. Where a custodian offers API access, Dispatch will also automate account opening.
This is one of those deep infrastructure solutions that solves an enormous pain point, offers an immediate ROI, and can run in the background as the integration layer for customer data. The more integrations they support, the more valuable they become to the industry.
We have never been more excited to be investing in wealth management and feel fortunate to have partnered with Dispatch. The team thinks big, cares deeply, and executes relentlessly. The next few years are going to be great!