In this post I continue the fintech market map deep dive video series. In part 4, I explore another infrastructure segment - lending & issuing infrastructure. I try to highlight some of the nuances and exciting trends in this space. Click on the video for the full take and check out the highlights below.
What is it?
Companies in this category provide the tools to enable companies to offer lending and card products to their customers.
A hot take
A lot of companies in this category today are launching a broad product from zero. I worry that these companies will struggle to underwrite effectively, have large losses, and therefore be unable to build a sustainable business. A company that offers financing for any supplier of any type of goods seems to be starting too broad to me. How do you learn from pattern matching in that case, and what makes you better suited to do that than other folks?
Prediction for the winner in the space
Platforms that launch a lending product want to be able to offer it to as many of their customers as they can with minimal losses or defaults. Companies that help their partners effectively do that will win. In order to do this well, I believe that lending infrastructure companies have to start really narrow with as uniform a customer to underwrite as possible to build up a better dataset and understanding of the customer base and then grow thoughtfully from there.
Companies on the rise
I think there are a lot of really interesting companies in this category. Parafin, Lithic, Kanmon and Stripe are just some of them.
What am I most excited about?
The embedded fintech movement. It’s going to continue to revolutionize industries that have been underserved by technology. I'm excited for companies to offer software workflows for their specific industries like construction or industrials, and add financial services products like lending to better serve their customer needs over time.
I’m particularly excited about companies in this category that are leveraging the data from their customers to better underwrite and therefore offer better products to their end user, or maybe even ones that weren't previously available to the user. Perhaps there's a platform that's now going to be able to offer a large credit line or a small loan to a very small business that previously didn't have access to a loan from a bank because the bank didn't have the revenue history and other information that a workflow platform has about that customer.
What do you want to see?
I think vertical SaaS is a really interesting category. If companies can own the workflow for this very specific segment of customer that we've talked about, they can then naturally add on lending and payments and other financial services categories on top of it to not only make more money, but also more importantly, improve the value proposition for their users.
Check out part 1 on Consumer Trading & Wealth Planning, part 2 on Identity, Fraud and Risk Infrastructure, and part 3 on B2B payments if you haven’t yet.
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