TripSuite is the most comprehensive software for travel agencies. From CRM to commission tracking and accounting, the company provides a modern solution for travel agencies.
Sector: Technology
Why SaaS Vendors Must Embrace Zero-Copy Data Sharing to Stay Competitive
Enterprises demand better integration from SaaS vendors to support unified data repository initiatives
Enterprises are making significant investments to build robust data foundations to get ready to power their AI initiatives. Modern cloud-based data platforms like Snowflake, Google BigQuery, and Microsoft Fabric have provided the technical means to consolidate datasets scattered across various platforms into unified repositories — often known as Lakehouses or Data Warehouses.
At the same time, these enterprises are also the largest buyers of SaaS solutions. SaaS platforms power critical enterprise functions like CRM, HR, finance, and marketing. However, the data created or consumed by SaaS solutions often exists in silos, creating a conflict with this architecture and governance objective.
Each SaaS deployment is an island of data, with critical enterprise data trapped inside the product. This data is difficult to discover, challenging to govern, and, most importantly, difficult to extract and merge with other datasets of an enterprise for powering analytics and AI.
SaaS vendors have been slow to provide mechanisms to extract data easily and move it to analytics data stores. They have provided APIs and flat file interfaces, but these are inadequate and inefficient to meet the needs of enterprise initiatives to build a true enterprise-wide data platform capable of driving analytics and AI.
Often the SaaS vendor requires significant amounts of sensitive data from clients to provide a specific service. For example, many CDP SaaS vendors require customer 360 profiles to be transferred out to their databases. Transferring millions of records of sensitive customer data is a deal breaker for most enterprises.
Over the last few years, enterprises are getting more aggressive and demanding that their SaaS vendors provide features that would allow the easy transfer of data back to them. Incumbent vendors are facing increasing threats of being replaced in favor of alternatives who enable mechanisms for seamless data sharing. New RFPs are increasingly making data sharing a critical feature to win the business.
What is Zero-Copy Data Sharing, and Why Is It Important?
Zero-copy data sharing is a mechanism for sharing data between two databases without physically moving or making a copy of the data. This eliminates the error-prone and costly steps of building a pipeline to move data from the source to the target. In many cases, this pipeline is currently as arcane as downloading the data from the source, moving it via secure FTP to the consumer’s environment and loading the data into the target database.
Here are the key distinguising features of a zero-copy data architecture:
No physical data movement: Data remains in its original location, eliminating the need for a separate physical copy.
Elimination of ETL processes: Consumers access data directly as tables, columns, and relationships, rather than handling CSV files.
Zero latency: New data is instantly visible to consumers as soon as it becomes available at the source.
Enhanced data quality: The elimination of process steps and code to extract, format, and transfer data improves quality.
Cost efficiency: Reduces expenses related to storage, coding, and data pipeline operations.
Control over sensitive data: Allows SaaS software to access sensitive data without it leaving the client’s control.
Snowflake pioneered this architecture, using it to power their data marketplace and data cleanrooms. Other cloud databases have followed and built their own capabilities in this space. Many SaaS companies like Salesforce, Simon Data, and (recently) ServiceNow have zero-copy data sharing partnerships with Snowflake. But data sharing across data cloud vendors is still a challenge. And for a SaaS company, it’s expensive to publish data products to support all major cloud data platforms’ proprietary formats.
But in the past year, most cloud database vendors have announced support for the open-source Apache Iceberg table format. By providing a common table format, Iceberg enables seamless data sharing between different cloud platforms and services. This ensures that data can be easily integrated and accessed across various environments and provides an opportunity for SaaS vendors to publish standard schemas in a database vendor-agnostic format that can be shared with the client.
What Does All This Mean for a SaaS Platform Vendor?
In the zero-copy architecture, the data from the SaaS product would appear in the enterprise warehouse, structured as a canonical schema, with complete metadata. In other words, the SaaS vendor is providing their clients with a data product, ready for consumption with no extra investment in coding and infrastructure from the client’s technology teams.
Here are some imperatives for SaaS companies:
Zero-copy data sharing is a must-have: Enterprises are now actively asking SaaS vendors to integrate seamlessly with their analytics platform. Zero-copy data sharing is becoming a critical feature in RFPs.
Revisit your product roadmap: Smart SaaS companies have already adopted this paradigm — or are actively working on it. To defend your market share or to win new customers, put this on your roadmap as a priority.
Strategic decisions are necessary: You have decisions to make. Do you adopt Iceberg and stay data cloud vendor-agnostic, or do you directly support sharing mechanisms provided by a specific data cloud vendor? If one or two data cloud platforms have dominant market share in your industry, then the latter might be a better place to start.
Complexity is inevitable: It is going to be messy as this is all still very new. The control plane to manage data sharing, especially across multiple CSPs and data cloud vendors is still not mature. But this is the future of data integration.
Much like APIs became table stakes for operational system integrations, zero-copy data sharing will soon define successful integration with enterprise data.
Zero-copy data sharing is no longer a nice-to-have — it is an essential feature for SaaS vendors looking to retain existing customers and win new ones.
SaaS vendors must act decisively, investing in data sharing capabilities that align with the needs of their customers. By adopting cutting edge technologies like Iceberg or partnering with leading data cloud platforms, venors can position themselves as critical enablers of enterprise-wide data strategies in the AI era.
Mihir is a venture partner with F-Prime Capital and Eight Roads Ventures, and an Advisor-in-Residence at Ernest & Young. He recently retired from Fidelity Investments where he was the CIO responsible for “All Things Data” for the firm. He is currently advising VCs, startups, and large corporations on their data and analytics strategy.
1Money
1Money is a stablecoin and an associated blockchain-based payment network. 1Money is building a regulated global transaction layer and yield-generating stablecoin for businesses that is efficient, cheap, and composable.
From Surge to Sobriety: The State of Robotics Investment in 2024
Updating our annual report
Over the last several years, the investment environment has been tough for robotics startups. Capital deployment has fallen and companies have closed as the general downturn in tech investment that started in 2022 hit the resource-intensive robotics particularly hard. We have tracked that decline — and identified green shoots of recovery — in our annual State of Robotics reports.
This year, however, the picture has changed drastically. Betsy and I were asked to speak about this changing environment at the RoboBusiness conference earlier this month, and as we near the year’s end we thought it would be worth sharing our findings with the wider community.
One of the key drivers of growth in the robotics sector has been the falling costs and higher performance of the technology’s building blocks — things like computing power, sensors, motors, and batteries. At the same time, accelerating advances in AI have been a tailwind for the industry.
These trends are showing in the investment data. After a sharp pullback in 2022 and 2023, the first eight months alone of 2024 have seen an increase in investment over all of last year, and we expect the full year investment activity to approach the all-time highs seen in 2021. At the same time, companies at different stages and across different industries are seeing sharply different investment dynamics play out.
Where Is the Money Going?
We typically break robotics into three core segments; this year, however, given the increased industry interest and investment in humanoids, we have broken them out into a fourth category of their own. There was already close to $1B of investment in that category through August 2024, with companies like 1X, Apptronik, and Figure commanding huge funding rounds for general-purpose humanoid form factors. Investors include traditional VCs, corporate players, and AI darlings. Meanwhile, some big corporations (like Tesla and Boston Dynamics) are opting to build their own humanoids in-house, investing huge sums that may even dwarf the venture rounds that typically make headlines.
Meanwhile, after falling off considerably in 2022, autonomous vehicle investment once again accounts for the majority of robotics investment, driven by corporate mega rounds and coinciding with a number of legislative and business milestones. For example, Waymo reached 100,000 rides per week while companies like Aurora have been able to expand their operations to new states this year.
We’ve also seen a lot of interest in the software layer this year — particularly foundational models. Companies have attempted to build software for robotics for some time now, but often run into interoperability, scalability, and reliability challenges. Advances in AI are helping companies get closer than ever to overcoming those obstacles, but there are still challenges. Such models need to be inherently multimodal, understand relationships between physical objects and reason/react when the real world presents unexpected challenges. With improvements in multimodal large language models, everyone — startups, corporates, academics — is chasing the one foundational model to rule them all, though data scarcity and other constraints mean we are far from a “ChatGPT moment” for robotics.
After briefly taking over from AVs as the main destination for robotics investment in 2022 and 2023, Vertical Robotics continues to grow steadily. Over the last year, in particular, we’ve seen big interest in applications for the defense and agriculture industries — see Anduril ($1.5B) and Saronic ($175M) for the former, and Monarch ($133M) and Carbon ($56M) for the latter.
By Stage
Though funding in the robotics sector has surged, the vast majority of capital has gone to large, mostly late-stage funding rounds. Earlier rounds are actually down year-on-year and back to 2020 levels. Those rounds are also a very small portion of the broader venture ecosystem. In robotics, earlier rounds account for 15 to 20 percent of total capital, while that figure is 20 to 30 percent for the broader venture ecosystem. The majority of the late-stage mega-round funding typically flows to AVs, defense and (this year at least) humanoids, the majority of early stage deals are focused on vertical robotics.
Exit Outlook
A dearth of successful robotics exits has created a lot of uncertainty around potential returns in the category, and those companies that exited via SPAC or IPO prior to the slump have performed poorly in the public markets. Much of the robotics industry’s value remains locked up in private unicorns, and a lack of M&A or public offerings continue to be an industry headwind. And amid all the mega-rounds, we have also seen many well-funded robotics companies shut down or undergo restructuring over the last 18 months. High profile shutdowns include Zume ($446M raised), PrecisionHawk ($139M), Phantom Auto ($95M), and Ready Robotics ($44M).
Advice to Founders
The long term tailwinds behind robotics are unmistakable. At the same time, attracting early-stage investor dollars to build a robotics business is getting increasingly challenging. Crossing the gauntlet of delivering high ROI, customer traction, and technical defensibility can be challenging in the early days of any venture-backed business, though it is particularly challenging in robotics where capital needs are higher and product iteration cycles are longer. Founders must be laser focused on hitting commercial and technical milestones at every step of the journey, while being realistic about the funding environment. Fortunately, for those who manage to cross the gauntlet, there are significant investor dollars looking for opportunities to help build generational businesses in robotics.
Check out the full State of Robotics report here.
“One of the key drivers of growth in the robotics sector has been the falling costs and higher performance of the technology’s building blocks — things like computing power, sensors, motors, and batteries. At the same time, accelerating advances in AI have been a tailwind for the industry.”
— Sanjay Aggarwal
The Effects of RIA Stack Fragmentation
Sneak Preview: A Wealth Tech Deep Dive.
The last decade of wealthtech investment has been marked by the success of high-profile names like Robinhood and Coinbase (two companies we track in the F-Prime Fintech Index), but despite the success of many direct-to-consumer businesses, there are equally exciting opportunities emerging in the world of traditional advisor technology. Several market shifts — an expected $84T wealth transfer, the rise of alternative assets, breakaway RIAs, and advances in AI — all represent an opportunity to rebuild the industry’s technology infrastructure.
Startups are already wise to this opportunity. Witness below the jump in market penetration for estate planning software — from four percent to 39 percent between 2021 and 2024. High-profile funding rounds from players like Vanilla and Wealth.com this year also help demonstrate how hot this sector is as of late.
In the above chart — which comes from our upcoming State of Wealth deep dive, due out next month — you can also see the growing sprawl of the advisor’s tech stack. RIAs must now contend with a wide array of tools with little-to-no integration across platforms, and startups have emerged to create tighter integrations.
There are three main approaches to this problem:
- Some players are creating pre-integrated tech stacks via acquisition. For example, Orion Advisor Solutions started life as a portfolio management tool that acquired financial advisor CRM Redtail and investment and trading platform TownSquare Capital in 2022. The goal here is to acquire different pieces of the RIA tech stack from top-to-bottom and the challenge, of course, is to integrate those pieces.
- Others are opting to create new age all-in-one platforms from the ground up. In effect, the end-to-end platforms built by companies like Advyzon and Advisor360 end up looking similar to the pre-integrated tech stacks discussed above, but instead of building via acquisition they are founded with the intention to become an all-encompassing platform.
- The third solution is tech stack synchronization. Under this paradigm, advisors are free to use their favorite point solutions for each level of the RIA tech stack, and use an orchestration platform to ensure that data is flowing seamlessly between them. Companies like Dispatch enable advisors to collect, structure, and sync client data across various advisor platforms, ensuring that any data changes made in the CRM are reflected in financial planning and portfolio management tools, and vice versa.
As David wrote when announcing our investment in Dispatch earlier this year, “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.”
Originally published on Fintech Prime Time.
Charting the Rise of Stablecoins
The original vision for crypto was ambitious: lower fees, faster transactions, inflation protection, and other features were supposed to create the ultimate low-cost payment network. Thanks to the inherent volatility of the currencies that emerged, cryptocurrencies struggled for many years to gain traction beyond their status as an alternative asset class.
In the last decade, however, we have seen stablecoins emerge, and recent developments suggest they may be the application that fulfills crypto’s original promise of a cheap, efficient, permanently accessible global payment network. Over the last six years, we’ve seen them rise to rival other payment networks.
A stablecoin is a cryptocurrency pegged to the value of a more stable fiat currency—the US dollar is the most obvious and common choice—to facilitate payments that would be expensive and time-consuming by other methods. Fiat-backed stablecoin payment volume reportedly reached $4T in 2023, with some estimates running as high as $9.9T—enough to rival payment volume on traditional players like PayPal ($1.5T), Mastercard ($9T) and Visa ($12.3T). This shows that stablecoins are enabling transactions that would otherwise be slow and expensive, perhaps unlocking a killer use case for crypto.
The broader financial ecosystem is catching on to the value proposition of stablecoins, too. PayPal launched their own stablecoin, called PYUSD last year, and Stripe recently announced it would once again let customers accept crypto payments,namely via USDC stablecoins.
The cross-border use case
Most international B2B payments are facilitated by the SWIFT (Society for Worldwide Interbank Financial Telecommunication) network, a messaging system that sends fund delivery instructions between two banks, which then moves funds using Nostro and Vostro accounts. These payments can be incredibly slow—sometimes taking up to five days—and expensive, as incoming and outgoing transfer fees, FX fees, and tracing fees add up, not to mention the added expenses when intermediary banks are involved. SWIFT payments are also opaque, as senders and receivers lack real-time visibility into the status of a payment.
The current state of play has all the hallmarks of an industry ready for disruption. And in situations where one or more of the parties to an international transaction is working in a volatile currency, stablecoins have further advantages. High inflation rates, local currency volatility and lower access to financial services are driving high adoption of stablecoins in emerging markets, where stablecoins can provide a “stable” store of value. For example, most of Tether’s user base is located in emerging markets. Users in Brazil, Argentina, Turkey and Vietnam are adopting USDT as a “digital dollar,” rather than for trading purposes.
One way we might measure the relative efficiency of different cross-border payment methods is to track the cost of sending a $200 remittance. According to the World Bank, the average cost of sending $200 hovers around 12% or $24. For a similar transaction conducted via stablecoin, the cost varies depending on off-ramp fees, exchange fees and network transaction fees. According to Uniswap, the cost of that same $200 transfer ranges between $9.10 at the high end, and as little as $0.37 on the low end.
The future
While stablecoins have shown promise as a payment method, success depends on the willingness of consumers and businesses to transact in a relatively new and unknown type of currency. To facilitate user adoption, the existing complexity of the crypto ecosystem might need to be abstracted away from users. Meanwhile, as stablecoins function as the “translation” mechanism between foreign currencies, the underlying stablecoin swaps—say, between USDC and the Mexican peso—require sufficient liquidity.
Aside from adoption hurdles, companies building in this space will still need to navigate and mitigate a broad array of regulatory, foreign exchange and concentration risks, both from partner banks and stablecoins themselves. Those that can overcome these challenges will be well-placed to transform how international payments take place, with massive implications for the rest of the world.
Originally published on The Financial Revolutionist.
F-Prime’s Summer Internship and Fellowship Program: Meet Our 2024 Interns and Fellows
A big thank you to our interns and fellows for their valuable contributions this summer!
This summer, F-Prime was excited to welcome a talented group of interns and fellows to our Cambridge office. They played key roles in competitive landscape analysis, sourcing, founder calls, and more. Read on to discover what it’s like to be part of our internship and fellowship programs.
“I loved the constant drive F-Prime had for solving healthcare’s toughest problems. I also appreciated the mission-driven aspect of the investment process, focusing on clinical outcomes as well as the ROI a company could provide. As someone who has now worked on the VC and hospital side of the table, I am excited to see VC firms like F-Prime pushing the innovation envelope in healthcare and working with hospitals, government, payors, and others to make the healthcare system better for everyone.”
“This internship solidified my aspiration to work within venture capital, because of the dynamic nature of the industry, the intellectual challenge of assessing companies and management teams and the innovative approaches founders are taking to solve complex challenges. I’m looking forward to applying my Masters education to invest in and support entrepreneurs in the tech sector.”
“I primarily worked on a landscaping project where I compiled bispecific assets in development for inflammation and immunology, and identified several promising lead assets for potential investment opportunities. Additionally, I contributed to the scientific due diligence of ongoing deals, led several interviews with key opinion leaders (KOL), and participated in introductory calls with prospective biotech companies. I truly enjoyed the process of identifying the “gold” among the vast assets in development through scientific due diligence and KOL interviews. It was incredibly rewarding to see how my efforts in scientific due diligence contributed to an investment decision.”
“I wanted to explore a career option in the biotech industry for after I finish my PhD. I did a landscaping of Th2 immunity in the central nervous system, attended many intro calls, helped diligence companies of interest, and presented to the team on certain companies or spaces of interest.”
“I learned about F-Prime summer fellowship opportunities through LinkedIn and joined F-Prime as a summer fellow due to my interest in exploring alternative career paths after graduation, as well as my enthusiasm for gene editing and drug delivery. F-Prime has a remarkable portfolio of companies focused on addressing clinical unmet needs with these technologies. I also joined to gain insight into VC’s perspective on the future of next-generation therapies.”
“I mainly worked on the commercial assessment for a new portfolio company. As part of this, I built an epidemiology model of the disease area, assessed potential market dynamics and exit opportunities, and created a revenue forecast. I most enjoyed working with the new portfolio company team – each person had unique expertise that they were happy to share, and I learned so much from them throughout the course of the project.”
“I learned about F-Prime through a family friend. I decided to join as an intern because F-Prime gets to work with amazing biotech startups and help them grow as a business. Additionally, the culture at F-Prime is extremely friendly and everyone at the firm wants to help you be the best version of yourself.”
Applications for our 2025 program are not open yet, but if you are interested in learning more, please send an email to careers@fprimecapital.com.
Travel Tech’s Startup Moment, Pt. 1: Modernizing the Hotel Stack
For a long time, early stage investors were wary of travel technology. Why?
Because it’s an industry dominated by deep-pocketed Goliaths firmly entrenched within an intricate web of multi-decade commercial relationships. Companies like Sabre, Amadeus, and Opera/Oracle have comprised the industry’s vital infrastructure since the 1970s and 80s, while the likes of Expedia and Booking.comhave dominated the B2C space since the early 2000s — despite not having raised venture capital themselves. That was because the travel industry was slow to adopt new technology, and there were few examples of startups that reached a level of scale and success that would excite investors.
However, the success of VC-fueled companies like Airbnb and Hopper have recently awakened early stage investors to the scale and opportunity in B2C travel tech. Though annual investments in the space have fallen from their 2022 peak, the overall trend is up. And with the emergence of successful growth stage companies like Navan, Mews, and Lighthouse, we believe it’s time to shine a light on the enormous opportunity that currently exists in B2B travel tech.
A perfect storm of market challenges is forcing the industry to rethink its relationship with technology. First, online travel agencies (OTAs) increasingly dominate customer mindshare and diminish suppliers’ margins. Gaping holes have emerged in technology infrastructure and the scalability of existing systems, and are notoriously impacting customer experience. And finally, operational costs have exploded for service delivery, where employee turnover has risen dramatically and highlighted the low desirability of jobs in the industry. As a result, industry players have evolved from a “throwing bodies at the problem” mindset to searching for scalable technology-driven solutions.
For the first time, travel and hospitality providers are adopting new software tools at a rapid pace. According to Hotel Tech Report’s annual survey of hoteliers, 81 percent believe technology will be more important for the success of a hotel business in the next five years. Technology budgets in hospitality have been steadily rising to 4.2 percent of revenue in 2024, with 37 percent allocated to new implementations and R&D. Meanwhile, 78 percent of airline CIOscited an increase in technology investment this year. Over the next several weeks, I’d like to outline three key areas where B2B startups are transforming travel right now, starting with the new operational and commercial tech stack that startups are building for hotels.
Hotels Are Rapidly Adopting Technology Right Now
For hotels, the pandemic exposed many commercial and operational challenges that had been percolating below the surface for some time. Lagging technology left hotels unable to deliver the digital-first experience guests needed, and awoke the industry to its woeful state of software adoption. Consumers were digital-first, but hotels continued to throw people at their problems. Many travelers were (and often still are) shocked at lengthy check-in lines and frustratingly analog guest experiences that other industries had digitized long ago, from tipping to contactless check-in. In an industry with more than 70 percent employee turnover, delivering a great guest experience became a costly challenge for hoteliers. Meanwhile, hotels have been losing their most profitable, direct customer channels as they have been squeezed by OTAs.
In response, hotels have been on a software buying spree to modernize systems. We see three priority areas of investment:
Property Management Systems: The vast majority of hotels run on aging property management systems (PMS), built decades ago by vendors such as Opera (Oracle) and Agilysys. The mission critical nature of a PMS has led these often on-premise solutions to become the proverbial “server in the back of a closet” no one wants to touch. While the PMS has generally proven far stickier than many ambitious entrepreneurs imagined, we are now seeing more hotels hitting the “reset” button and adopting one of the numerous modern, cloud-based options. Frontrunners include Mews, Stayntouch, and Cloudbedswhich, when implemented successfully, facilitate delightful experiences for hoteliers and their guests, and help hotels take a large step forward into a future-proofed, digital-first technology choice.
Guest Experience: Many hotels are hesitant for a wholesale replacement of their PMS, but need a modern platform from which to deliver digital-first guest experiences. Companies like Canary Technologies and Duve are creating a new technology layer serving as the digital interface with guests for interactions such as contactless check-in, digital tipping, messaging and more, without replacing existing infrastructure or increasing headcount. This new category additionally serves as an important jump-off platform for AI in hospitality and is often cited as a top priority new investment area for hotels.
Commercial Operations: Hotels have long had a lopsided bond with OTAs, who increasingly own the customer relationship and drive profitability away from the hotels. This has sharpened hotels’ lenses on commercial operations and ensuring distribution, pricing and profitability are best optimized. With stronger data-science tooling available, startups are bringing high quality data, business intelligence, and recommendations to hotels to help them run their business better. These include full end-to-end commercial platforms (Lighthouse), modern revenue management solutions (Duetto), powerful distribution tools (Siteminder) and far-reaching customer acquisition networks (Sojern).
Up Next: A New Layer for Content Distribution
The State of Banking Report
Over the last few years, we have tracked the public fintech markets’ post-pandemic peak, trough, and recovery, as well as deeper dives on the payments and wealth management sectors.
Today we are excited to release a new report on the State of Banking, available for download below and via the F-Prime Fintech Index. All roads eventually lead to a bank — a bank account, a loan, a payment — and no discussion of fintech is complete without a look at this sector.
For much of the recent fintech disruption, we talked about the unbundling of traditional bank services and the threats to their core revenue streams. Ten years in, incumbent banks haven’t gone anywhere — yet there are scaled players in nearly every banking product line. We have seen the rise of embedded banking, neobanks, open banking, and major shifts in share from bank credit to private credit.
As the chart below shows, the valuation multiples of disruptors have aligned more closely to incumbent banks since the correction, but underlying performance depends a lot on where you sit. The approximately 3,000 banks in the US with less than $500M in deposits are actually shrinking, squeezed by the megabanks at the high end and the neobanks on the low end. More on that below.
So what is driving these shifts in the banking landscape? We’re focused on eight key themes that are impacting banks and their customers right now, each posing varying levels of threat and opportunity for incumbent players.
In this article, we will highlight three of those trends: banking-as-a-service (BaaS), private credit, and stablecoins. To read about neobanks, real-time payments, open banking, non-banks, and AI in banking, check out the full report here.
1. Despite Regulatory Scrutiny, BaaS Is a Source of Growth for Smaller Banks
Banking-as-a-Service is as much a product of necessity as innovation. For hundreds of fintech startups and software companies, BaaS innovation has been critical to lowering the friction and cost of offering financial services to their customers. On balance, we think this has provided immense benefits to consumers and small businesses.
However, as noted above, nearly 3,000 US banks — the majority of banks — are losing deposits. Megabanks like J.P. Morgan, Wells Fargo, Bank of America, and Citibank have grown deposits nearly 10 percent annually, while neobanks like Chime and SoFi have each rapidly scaled to more than $10B in deposits each in under 10 years. BaaS has been a rare source of growth and operating efficiency for some smaller banks.
Smaller banks that have turned to BaaS models have typically restored growth, improved operating performance, and built product differentiation. Banks with less than $10B in assets that provide BaaS services outperform their non-BaaS peers on key metrics. For example, in 2023, BaaS-providing banks grew deposits 18 percent year-on-year (vs. zero percent for non-BaaS peers) and achieved a 1.5 percent return on assets (vs. one percent for peers).
As all readers know, despite the benefits of BaaS, regulators are very concerned about the risks and understandably so. Abstracting KYC, onboarding, and other compliance tasks away from banks via BaaS middlemen was already drawing regulatory scrutiny before the messy collapse of Synapse in the spring. It is clear regulators would prefer banks work directly with startups, not through BaaS intermediaries, and no matter what they must retain ultimate accountability. Going forward, banks with well-developed BaaS programs will have to navigate an increasingly risk-averse regulatory environment.
2. The Rise of Private Credit
The market for non-bank sources of capital has been rising, driven by decades-long market shifts, including bank consolidation (and the corresponding decline in the number of banks) and post-2008 regulation requiring banks to increase reserves and reduce balance sheet risk. Private credit players have stepped in to fill the void, becoming an increasingly important source of capital for consumers and small and medium-sized companies. However, they need purpose-built tools to digitize, automate, and scale their underwriting and portfolio monitoring — creating an opportunity for startups to build new software infrastructure to support the asset class. Rising players include include deal syndication and funds flow platforms like PactFi, diligence and deal closing platforms like Finley, and underwriting, portfolio monitoring and compliance platforms like HighFi and Cascade.
3. Stablecoins — Finally, A Killer App for Crypto?
Under its original vision, crypto would provide the ultimate low-cost payment network. However, thanks to the inherent volatility of Bitcoin and other cryptocurrencies, they struggled for many years to gain traction beyond their status as an alternative asset class.
The promise of stablecoins — cryptocurrencies fixed to the value of a more stable fiat currency — is that they can deliver on crypto’s original promise of a cheap, efficient, permanently accessible global payment network. And over the last six years, we’ve seen them rise to rival other payment networks like Mastercard and VISA. Notably, many of these stablecoin transactions are technical settlement transactions vs “real-money” transactions like e-commerce and cross-border trade, but the direction of travel is clear and the volumes are impressive.
Large banks are also launching their own stablecoins — J.P. Morgan was the first to launch a bank-backed cryptocurrency in 2019, and says it now handles $1B in daily transactions. Use cases include payments between clients in wholesale payments businesses, and treasury and liquidity management. Meanwhile, PayPal launched its own dollar-pegged stablecoin last year, providing a potential payment option for e-commerce and point-of-sale transactions, as well as peer-to-peer cross-border payments facilitated by Xoom.
It remains to be seen whether we will have a world of a few dominant, liquid fiat-backed stablecoins or numerous company-backed stablecoins but either way, the world of commerce could look very different in 10 years. We’re excited to see the infrastructure built to enable it.
Originally published on Fintech Prime Time. Download the full State of Banking report here.
Steve Johnson
Steve Johnson is a Venture Partner with F-Prime based in Cambridge. He specializes in technology start-ups, investing, mentoring, and managing ambitious technology companies. Steve is committed to purpose-driven organizations, prioritizing customers, disruptive technologies, and impactful contributions to industries and markets. Steve’s background includes leading strategy, M&A, B2B and B2C2B, enterprise software organizations, scaling hyper-growth enterprise companies globally, helping raise over $2B in funding, and participating in the creation of billions in market value for these companies.
Previously, Steve served as the President and COO at Berkshire Grey (BG) the leader in AI and robotics for the supply chain industry. He helped launch the commercial business for them, growing from a couple of customers to tens of customers around the world during his 4.2 year tenure. While there, BG raised a series B, went public in 2021 and was acquired by SoftBank in July 2023 and is now a wholly owned subsidiary of SoftBank. Before Berkshire Grey Steve was the Chief Commercial Officer of Intelex, a global enterprise software company. Intelex was acquired for $570M in June 2019 by Industrial Scientific.
Prior to joining Intelex, Steve served as President and COO for Vidyard, and CRO for Hootsuite, an enterprise software company now used by over 80% of the Fortune 100 companies. At Hootsuite he managed the growth of the company from 27 people to over 1,000 people around the world.
Earlier in his career, Steve worked for a number of category creating software companies such as CRM, Relational Database management, Total Interaction Management, and other areas. Steve holds an MBA from Northwestern’s Kellogg Business School with an emphasis in management, marketing, and international business and a B.S. in accounting from Union College.